Up to a third of sea exports of oil and oil products from Russia after the introduction of a price ceiling by Europe and the United States is carried out at the expense of the shadow fleet – ships of various tonnage, whose ownership is difficult to establish from open sources. Thus, Russia manages to successfully bypass the sanctions, practically without reducing the volume of its supplies abroad compared to pre-sanctions times. Which ships are involved in these transportations and why Russian competitors in the oil market may have problems – in the material of Izvestia.
Go in the dark
The expression “shadow fleet”, or “dark fleet”, first appeared in 2012 after the imposition of US and European sanctions against Iran. Literally over the next few months, reports began to come in of many tankers with transponders turned off, the movement of which was extremely difficult to track. These vessels, as a rule, sailed under flags of convenience (Liberia, Panama, Cyprus, Malta and others), and it turned out to be extremely difficult to establish their owners due to a blurred structure and the use of numerous intermediate firms. Often these tankers were distinguished by a long service life (from 12 years or more). Some of them reached their destinations in ports mainly in South and East Asia, others were unloaded directly at sea.
Later, these vessels were actively used by Venezuela, which was also subject to sanctions. Their number began to grow quite rapidly, as the demand for such services quickly outstripped supply. Part of this fleet was also used in operations not affected by any sanctions.
Photo: TASS/EPA/ETIENNE LAURENT
In the spring of 2022, the United States announced a complete embargo on the purchase of oil from Russia. The EU, in turn, began to partially restrict them. This revolutionized the global oil transportation market. Companies, afraid of falling under secondary sanctions, began to refuse to load oil in Russian ports just out of harm’s way.
At this point, the shadow fleet began to grow dramatically, and in all categories. According to VesselsValue, 2022 set a record for tanker sales to unknown owners. Thus, 18 ships of the Suezmax class (ships up to 150 thousand tons of carrying capacity, which, when fully loaded, can pass the Suez Canal), were purchased against four in 2021. 15 ships of the Aframax class (carrying capacity 80-120 thousand tons, the workhorses of the world tanker fleet) were purchased, almost twice as many as a year earlier. Finally, non-transparent owners purchased 22 VLCC class supertankers (large ships capable of carrying up to 300 thousand tons of oil) against six in 2021. However, it is worth noting that in the past few years, purchases of ships by unknown owners have, in principle, increased year by year, just a jump last year stood out even against such a background.
How many such courts are there? According to the calculations of some expert groups, their number reaches 600 (of all classes), others give a more modest estimate – 300-400 ships. The share in the world tanker fleet, respectively, can range from 6–7 to 10–12%. You need to understand that not all of them carry “sanctions”, but potentially this is a resource that can be used. This is what transport companies are doing that want to capitalize on sanctions pressure.
Russia cannot fully ensure the supply of its oil and oil products at the expense of the official fleet of national companies. For example, Sovcomflot currently has 10 Suezmax class tankers and 32 Aframax class tankers. Together, this gives about 5 million tons (36 million barrels) of lifting capacity. Such volumes are too small to provide all the supplies from the ports of the Baltic and Black Seas, given that Russia exports about 3.2 million barrels of crude oil by sea alone per day. It should not be forgotten that although the corresponding tankers can be used for long voyages over long distances, vessels of the VLCC class and larger are more effective for these purposes.
Therefore, one can hardly doubt that a shadow fleet is used to transport Russian oil. Its dimensions are not fully understood. Let’s say the freight broker Braemar estimated its volume at 100 ships of different classes. Rystad Energy gave an estimate of 103 ships, of which some were purchased this year, while others switched to routes from Russia, leaving Iran and Venezuela, where they traditionally worked in the past. The same Braemar believes that 33 ships changed directions in 2022. Of these, eight transported oil from Russia to India, 14 to China, and two more to both countries. The cost of acquiring such a fleet could be estimated at $2.2 billion, according to Bloomberg.
Photo: RIA Novosti / Vitaly Timkiv
Why are carriers willing to change Iran and Venezuela for Russia? Firstly, Russian oil of the Urals brand is lighter than both Iranian and especially Venezuelan oil (it has a higher API), it is no coincidence that its discount to the high-quality Brent benchmark initially amounted to a few dollars. And secondly, Russian suppliers are ready to offer a more significant discount. Naturally, sailors prefer this option, since the risks are even lower, and the premium is higher.
Thanks to the shadow fleet, Russia successfully continues to sell its oil outside the price ceiling (especially since traders have no other options after the introduction of counter-sanctions by our country, which prohibits the sale of hydrocarbons to those who support the ceiling, at least directly). In recent months, the volume of deliveries has even increased slightly, and in recent days, on the eve of the introduction of March self-limitations, which involve a reduction in production by 500,000 b/d, even more so. This oil has to be sold at lower prices. Urals’ discount to Brent is likely smaller than Argus believes, which assumes that oil from western ports is selling for less than $50 per barrel, but more than East Asian port data suggests. Intermediaries thus manage to literally get rich.
Photo: Izvestia/Alexander Polegenko
However, the growth of the shadow fleet also has unobvious consequences. The main one is that the super-profitable trade in Russian oil is taking transportation capacity from other directions. Moreover, the numbers of ton-kilometers are growing noticeably, because ships carry oil along longer trade routes for longer periods. Finally, firms engaged in such trade may not want to work through official channels with countries imposing sanctions and price ceilings, fearing scrutiny and retaliation from US and EU governments.
The latter, in imposing sanctions, determined that any non-EU vessel trading in Russian oil in violation of the price ceiling would face a ban on activities within the EU for the next 90 days after the violation was registered. It is interesting that an eternal ban for such ships was originally planned, but then the position was revised due to strong pressure from the Greek shipowners, who previously played a key role in organizing the supply of oil and oil products from the Black Sea ports to Europe. The position of the United States also played its role here, fearing that too severe restrictions could harm global maritime trade. Apparently, this will happen anyway. Sanctions, therefore, will become a boomerang hitting those who accepted them – and their “legal” trading partners.
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