Shadow Fleet of Tankers Enables Russia to Maintain Oil Revenue Despite Western Sanctions

The Group of Seven (G7) democracies have aimed to curb Russia's oil export earnings, which fund its war against Ukraine. However, Western governments and sanctions experts reveal that Moscow uses a "shadow fleet" of old tankers with unclear ownership and safety standards to bypass sanctions. This fleet keeps Russian oil revenue flowing despite restrictions.

These tankers are often purchased by opaque entities in countries not enforcing sanctions, such as the United Arab Emirates or the Marshall Islands. They are flagged in places like Gabon or the Cook Islands. Some vessels belong to Russia's Sovcomflot shipping company. Their purpose is to help Russian oil exporters dodge the $60 per barrel price cap set by Ukraine's allies.

Understanding the Shadow Fleet

The shadow fleet comprises over 400 ships, according to S&P Global and the Kyiv School of Economics Institute. These ships transport oil and oil products like diesel and gasoline. Despite their name, these vessels don't hide their visits to Russian oil terminals. Some have direct ties to Russia, while others have unclear ownership and safety practices.

The price cap, effective from December 5, 2022, limits Russia's profits while ensuring global oil supply remains stable. It prevents service providers like insurers from dealing with oil priced above the cap. Most of these companies are based in Western countries, making them subject to sanctions enforcement.

How the Shadow Fleet Operates

The shadow fleet evades the price cap by using new insurers in Russia or other non-Western locations. This tactic has increased the price Russia receives for its oil on global markets. The discount for Russian oil compared to Brent crude has decreased from $35 per barrel to less than $10 per barrel.

Russia's oil income has remained steady and even increased. Export revenues averaged $16.4 billion monthly for the first 11 months of 2024, a 5% rise from the same period in 2023. Evading the cap earned Russia an extra $9.4 billion, funds that can support military production and economic stability.

Environmental Concerns and Safety Risks

The average age of these vessels is around 18 years, making them prone to accidents if not well-maintained. Non-IG insurance may not cover cleanup costs if an oil spill occurs in areas like the Baltic or English Channel. In May 2023, an 18-year-old tanker nearly ran aground in the Danish Straits after losing engine power.

In October, the UK began requesting insurance details from suspected shadow vessels. By December, Denmark, Sweden, Poland, Finland, and Estonia followed suit. Vessels without adequate insurance can be added to sanctions lists. Finnish police seized a tanker suspected of damaging an undersea power cable with its anchor.

Monitoring Efforts and Sanctions Impact

The Joint Expeditionary Force, comprising ten countries including Sweden and Norway, has intensified efforts to track shadow fleet vessels to protect undersea infrastructure. "Specific vessels identified as being part of Russia's shadow fleet have been registered into the system so they can be closely monitored when approaching key areas of interest," stated the UK Ministry of Defence.

The G7 countries and European Union have sanctioned over 100 vessels trading Russian oil against the cap. Transactions involving these ships can lead to issues for customers and traders. Two-thirds of targeted vessels have gone idle, wasting money spent on them—one aim of sanctions is raising costs for banned activities.