The sanctions war is entering a new phase. Taking advantage of the advantages of the global economy, Russia, with the help of countries of the global South, is successfully circumventing a significant part of the restrictions imposed by the Western coalition, although it suffers significant financial losses.
However, the transparency of the global market makes it possible to quickly and accurately calculate ways to circumvent sanctions. One example of this was the shadow fleet created by Russia to transport oil.
Its size, operating principles and geography of formal “registration” are quite well known, but finding ways to block its activities is not so easy. Limiting its geography will not be difficult. Today, the list of destinations for “gray” ships includes ports of the Netherlands, Italy, Greece, Bulgaria and even Germany. However, a ban on them entering the territorial waters of Western countries will lead to the transfer of their activities to other jurisdictions and, in the future, to fragmentation of the maritime transport market.
This is how we come to the question that was repeatedly encountered above, what is a “shadow fleet” and why is it “shadow”. And also what danger it carries.
Russia has long studied the experience of its “friends” – outcasts Venezuela and Iran – in the matter of the shadow fleet. It is these oil-producing countries that came up with the very idea of circumventing sanctions both in the financial and trade spheres, including its largest budget-generating segment – oil trade.
So-called “ghost ships” are vessels that disguise their ownership and movements to evade sanctions. Such flotillas allow the trade of Iranian, Venezuelan and Russian oil, participating in complex schemes to conceal oil transport.
The main danger of this shadow fleet is two factors. The first is the age of the ships used in the shadow fleet by such countries, because all inhabitants of the earth know footage of environmental disasters at sea during an oil spill. The vast majority of these are tanker ships that have served their warranty period and are not accepted by the majority of world ports, each with its own “set of customs.” The second is the disabling of navigation equipment by such vessels. It is obvious that a ship sailing in any weather in the ocean, in the seas, and especially in the straits, with the transponder turned off, hides its location for the purpose of “shadow” oil transportation, but at the same time it becomes practically invisible to other ships sailing on adjacent courses, and then there is a collision and then the same man-made accident with a spill of black gold into the sea or the waters of bays and straits, from which primarily the marine fauna and coastal ecology suffer. Sometimes ships don’t just turn off beacons, but use coordinate substitution technology. This is how they hide their location and continue to use insurance from Western companies.
Six tankers were discovered standing off the coast of the Russian Federation at the moment when the transponder showed a different location. One can also note the existence of a third factor, which is rather a consequence, but can still be considered separate - this is the lack of global insurance of this type of vessels, because not a single self-respecting insurance company from Lloyd's, serving intercontinental transportation, to the smallest, insuring coastal coastal The fleet, not only despite the sanctions, will refuse to insure such transport, its cargo, crew and possible risks. The shadow fleet of Russian oil tankers is operating without third party liability coverage from the International Insurers Group (IG), increasing the risks associated with an oil spill. Such threats are posed by the “shadow fleet,” be it Russian, Iranian or Venezuelan.
Of course, the Russian Federation has summarized the experience gained by its “petroleum sisters”, the rogue countries, over decades of imposed sanctions and tried to get away from the mistakes made.
Before the invasion of Ukraine, the Russian merchant fleet consisted of about 1,700 ships with a total deadweight of about 24 million tons, which was approximately 1.1% of the global merchant fleet. 70% of the Russian fleet consisted of tankers and dry cargo ships, since a significant part of Russian external cargo turnover is raw material exports.
In 2022, there was an increased demand worldwide for tankers and bulk carriers of the LR1, MR, Aframax and Suezmax types, which are the most suitable for transporting Russian cargo. Suezmax sales of all ages doubled compared to 2021 (to 103 units), Aframax sales increased by 30% (121 units), and MR sales increased by almost a third (to 350 units). Many transactions involved unknown buyers and investors who wished to remain anonymous and were able to do this due to the fact that the transactions were concluded through little-known brokers who guaranteed this anonymity. The number of transactions for the acquisition of tankers with an unknown final buyer increased for all classes of tankers in 2022 compared to 2021: VLCC - from 2 to 19, Suezmaxes - from 4 to 14, Aframax - from 6 to 10, MR - from 9 to 10 27. The purchase and sale agreements directly state that after the purchase the vessel should not enter ports that are subject to sanctions (their sellers insure themselves by this).
But in reality the opposite happens. Increased demand has led to widespread increases in tanker prices. The 2007-built Aframax Aether was sold for $37 million after the Russian invasion, although a tanker of similar size and age was bought for just $17 million two weeks before 24 February 2022. 10-year-old LR2 price compared to pre-invasion prices has doubled and is now approximately $56 million. The cost of VLCC over the year has increased by two-thirds - to $75 million. It follows that Russia and Russian companies must have spent hundreds of millions or billions of dollars on the creation of the shadow fleet.
Russia currently needs about 240 tankers for current production levels. Just recently, Russia purchased more than 100 oil tankers to create a “shadow fleet” to circumvent possible sanctions. Brokers claim that these are 29 supertankers (VLCCs) capable of transporting more than 2 million barrels of oil. that Russia bought 31 Suezmax tankers (each capable of carrying about 1 million barrels) and 49 Aframax tankers (about 700 thousand barrels). The average service life of purchased tankers is from 12 to 15 years, which is lower than the average service life of all Russian liquid tankers and actually leads to the rejuvenation of the Russian tanker fleet. Thus, if in 2022 the average age of this fleet was 19 years, now it is rapidly rejuvenating. Ships are purchased through brokers for various shipowner companies. The ocean shipping market itself is quite complex for the usual understanding of business; it has its own home ports and offshore zones, its own codes of customs and its own unspoken and unwritten rules, its own rules for the purchase, operation and disposal of ships. Many countries use the flags of small states - offshore maritime companies, and shipowners are located in different countries.
However, buying/selling a vessel to circumvent sanctions is not enough. To manage the shadow fleet in 2022, 864 new international companies in the maritime sector were created that have connections with Russia. Of these, 87 have ships that previously belonged to Russia or flew the Russian flag. 880 ships belonging to 777 companies from this list called at Russian ports. The owners of these ships are mainly located in Turkey (160 companies), China (120 companies), Greece (110 companies), UAE (100 companies), Hong Kong (83 companies) and India (40 companies).
When reviewing the Russian shadow fleet, the following classification of ships can be introduced.
“Clean” fleet - tankers that do not show any suspicious behavior (change of flag or confusing ownership structure). Such vessels can be easily identified and operate within the law.
The “grey” fleet is a completely new phenomenon that appeared after the Russian invasion of Ukraine. Special companies are created for it, which hide its origin and owners, but at the same time give it a legal appearance and thereby protect it from sanctions. And in many cases, it is difficult to determine how legal the activities of such companies are, including in connection with sanctions. A significant number of them change the flag. Today there are about 900 “gray” ships in the world (approximately 8% of the global fleet).
And finally, the “dark” fleet - ships that are used to transport illegal or sanctioned cargo. They disable automatic identification systems and use technologies to hide and falsify location. The Windward company counted approximately 1,100 vessels of the “dark” fleet, which is about 10% of the global merchant fleet. The majority of vessels in the “gray” and “dark” fleet are over 16 years old - 63 and 83%, respectively. Last year, Russia entered the top five countries in terms of the number of ships of the “dark” fleet: 33% of all “dark” ships based on the location of the owner’s company belong to Panama, 28% to Liberia, 15% to the Marshall Islands, 14% to Russia and 8% - to Malta. In terms of the number of vessels in the “gray” fleet, Moscow has become the absolute leader: 42% of all “gray” vessels in the world according to the location of the owner company belong to Russia, 21% to Liberia, 15% to the Marshall Islands.
After the Russian invasion of Ukraine, the amount of oil transported by “gray” and “dark” ships increased sharply. According to Windward estimates, 2.6 million barrels of Russian oil per day, which were transported by “clean” ships before the start of the war, began to be transported by “gray” fleets after February 24. Thus, the volume of oil transportation by “gray” ships in the world increased by approximately 68% compared to the pre-war level. Transportation volumes by “dark” fleet increased by 22%.
China and India are the main destinations of Russian ships of the “gray” and “dark” fleet. However, according to Windward, Russian “gray” ships call at ports in EU countries such as the Netherlands, Italy, Greece and Belgium, and “dark” ships call at ports in the Netherlands, Bulgaria, Italy, Germany, Greece and Belgium. The largest volumes of oil are transported from the port of Ust-Luga by ships of the “gray” and “dark” fleets. In second place is Primorsk.
The armada of tankers carrying sanctioned oil around the world is starting to get younger, reversing a months-long trend of using the world's oldest and most dangerous vessels.
Shortly after Russia invaded Ukraine early last year, a group of faceless traders, middlemen and investors bought up hundreds of aging tankers to keep Russian oil flowing. According to some estimates, the “shadow fleet”, which was already transporting oil for Venezuela and Iran, has thus grown to more than 900 ships.
Currently, the average age of purchased tankers is decreasing. The catalyst for this shift was the crackdown in Asia. In these countries, in recent months there have been a series of detentions of “shadow fleet” vessels due to security problems.
For example, China, which is one of the largest consumers of Russian and Iranian oil, recently stepped up inspections of old tankers at the key port of Qingdao, forcing some to wait more than a month to unload their cargo. Concerns about aging ships intensified when a 26-year-old tanker exploded off the coast of Malaysia in May 2023. Singapore has also detained tankers in record numbers in recent months because they failed safety checks. Newer ships, provided they are well maintained, should help allay some importers' concerns about their seaworthiness, although the fleet remains filled with older ships.
Safety concerns associated with older vessels are one of the reasons buyers choose newer vessels. The average age of tankers sold to unknown buyers - one of the defining characteristics of a ship in the shadow fleet - fell to 15 years in June, according to Vessels Value. Most recently, in October, it was 19 years.
The characteristics of shadow fleet tankers are different. However, they are often older vessels without standard insurance or other Western services, and their owners are difficult to trace. These vessels are about 20 years old or older, at which age the vessels are usually scrapped.
Some countries are harsh on old ships. In addition to Chinese inspections, India earlier this year banned ships over 25 years old from entering its ports.
Some shipowners are becoming increasingly comfortable handling “banned” oil such as Russian flows as they see the trade is here to stay. They are now more willing to invest in younger vessels that can last longer to meet broader industry standards.
As mentioned above, tankers carrying Russian oil are turning off their location. They are shutting down their location, a tactic often used to buy sanctioned oil from countries like Iran and Venezuela.
The tankers are disappearing from ship tracking systems (AIS) as they approach the Azores, a tiny group of islands 1,500km off mainland Portugal.
They probably transferred their parties to other ships. Such “transfers” of cargo did not occur before Russia made a full-scale invasion of Ukraine, especially with the location turned off.
Some Russian cargo is also starting to disappear from sight en route to Asia.
Although the transfer of oil from a smaller vessel to a larger one is a common phenomenon in the market, and Russian vessels have been stationed off the Danish coast for years with the location switched off, more recently also in the Mediterranean Sea and even off the Azores Islands.
Russian oil, which needs to be redirected from Europe to new customers in Asia, is being transferred in the middle of the Atlantic Ocean, although the transfers were usually carried out in coastal waters for safety reasons.
