LANDRESS (CNN) — Russian oil continues to reach buyers around the world. But even those who spend their days tracking its movements in the oceans have a hard time figuring out who is carrying it.
As Western sanctions against Russia escalate over its aggression in Ukraine, more vessels have joined a fleet of mysterious tankers poised to facilitate Russian oil exports.
Industry estimates the size of that “shadow” fleet at about 600 vessels, or about 10% of the world’s large tankers. And the numbers keep growing.
Who owns and operates many of these ships remains a mystery. As the Russian oil trade became more complicated last year, many Western carriers withdrew their services. As shell companies in Dubai or Hong Kong have been implicated in some cases, new and shadowy players have prevailed. Some bought ships from Europeans, others returned old ships that would otherwise have been scrapped.
“They’ve gone into the shadows,” a senior executive at an oil trading company told CNN, referring to this opaque network.
The clandestine fleet has grown in importance as Moscow seeks to avoid working with Western cargo ships, as customers in China and India replace those in Europe, and Russia is banned from buying refined products such as marine oil and diesel. More vessels to supply more distant buyers and shipowners are willing to face more complexity and legal risk, especially after the G7 countries imposed price caps on Russian oil.
Oil pumping jacks operate in an oil field near the city of Neftekomsk, Russia, on November 19, 2020. Credit: Andrey Rudakov/Bloomberg/Getty Images
The expansion of the shadow fleet highlights the drastic changes the Russian war has had on the global oil market. In an effort to stay in business, the world’s second-largest crude oil exporter is reshaping decades-old trading patterns and splitting the world’s energy system in two.
“There is a fleet that does no business with Russia and a fleet that does business exclusively with Russia,” said Richard Matthews, head of research at international shipbroker EA Gibson. Only a few ships, he added, were “a little bit of both.”
“Grey” and “dark” vessels
As Europe turns away from Russian energy, Asian buyers are closing deals. According to the International Energy Agency, China increased its imports of Russian oil by an average of 1.9 million barrels per day in 2022, up 19% from 2021. India increased its purchases further, with an 800% increase to an average of 900,000 barrels per day.
According to data and analytics firm Kpler, Russian oil exports to China and India hit record highs in January after a European ban on shipping Russian oil by sea took effect. Exports to Turkey, another major customer, also continued at a good pace. (The ban on refined petroleum products did not come into effect until February.)
Ships willing to sail are required to meet these demands. The Russian National Navy does not have enough ships. That’s where the “Shadow Navy” operates.
Matthew Wright, senior cargo analyst at Kpler, categorizes ships carrying Russian crude into two categories: “grey ships” and “dark ships.” Gray vessels were sold after the invasion, mainly by European shipowners to companies in the Middle East and Asia that were previously inactive in the tanker market. Shadow boats, for their part, experienced in campaigns in Iran and Venezuela, have recently switched to transporting Russian crude to avoid Western sanctions.
“There are indications that they are often hiding their activities by turning off their AIS transponder,” Wright said of “shadow” vessels, referring to technology that helps identify and locate vessels.
While the West has banned most Russian oil imports, there is no provision preventing Western ships from supplying buyers such as China and India, or providing services such as insurance as long as the G7’s price limits are respected. Vessels from European shipowners accounted for 36% of Russian crude trade in January, Kpler said.
But the legal and reputational risks involved in breaching maximum prices are enormous. At the same time, Russia is eager to stop working with Western exporters. This has led to the development of a new group whose structure is darker and whose history is more eventful.
Janiv Shah, a consultant at Ristat Energy, says: “We all expected the dark fleet to grow carrying Venezuelan and Iranian oil.
One reason: Sending Russian oil on long trips to China or India is less efficient than sending it to nearby countries like Finland. According to EA Gibson, Russia now needs four times more of its crude oil transportation capacity than it did before the invasion.
As a result, 25 to 35 vessels a month are sold to the shadow fleet, says another senior executive at an oil trading company. Global Witness, a nonprofit organization, estimates that a quarter of tanker sales from the end of February 2022 to January this year involved unknown buyers, more than double the previous year.
Demand will increase in the coming months if China’s economic recovery needs more fuel.
Questions and risks
If much of the world’s fleet is used for Russian crude and oil products, that reduces capacity, raising costs for all oil traders.
“There has been a massive increase in inefficiencies in the operation of the tanker market,” says Kpler’s Wright.
There are also questions about who will ultimately lead the ghost fleet. According to Sergey Vakulenko, a former Russian oil executive and now a non-resident researcher at the Carnegie Endowment for International Peace, some suspect that some of the shell companies that have emerged are linked to the Russian government or certain actors. with political connections.”
Last weekend, the European Union imposed sanctions on Sun Ship Management, a subsidiary of the largest Russian shipping company Sovcomflot. The EU said the Dubai-based company, which was registered more than a decade ago, “operates as one of the main companies in Russian oil tanker management and exploitation” and that “the Russian Federation is your ultimate beneficiary”. Business activities.
And experts say the shadow fleet facilitates Russia’s ability to circumvent sanctions or sell its oil above the maximum price. It also makes it difficult to accurately determine the final selling price of Russian barrels. Experts like Vakulenko have found evidence in customs data that the country’s flagship product, the Urals, is being sold at higher prices in major ports than official prices.
Security is also a concern. The shadow fleet is believed to consist of a large number of vessels more than 15 years old, which Big Oil typically retires due to wear and tear. Now, more and more of these ships are sailing around the world.
“We have these older vessels that may not be maintained as they should be,” says Matthews of EA Gibson. “As this fleet grows the potential for a spill or serious accident is increasing day by day.”
