New approach needed to tackle Russia's 'shadow' oil fleet

Specifically, the UK has imposed sanctions on 30 tankers and several Russian insurance companies. There is sometimes a sense of euphoria, as if these are powerful steps against the aggressor country. 

Unfortunately, that's not entirely the case.

First, the number of entities sanctioned is far smaller than those operating in the market.

Second, even under sanctions, tankers can still deliver Russian oil and earn billions in oil dollars. These sanctions don’t affect ships moving directly between Russian ports and those of buyer countries that don’t support the sanctions, such as China and India. Moreover, "shadow fleet" vessels, even if sanctioned, can transship oil to other tankers that deliver it even to Europe.

The "shadow fleet" vessels conduct transshipment operations onto tankers that are not under sanctions and then deliver the oil to buyer ports. Several areas have seen widespread transshipment operations, including off the coasts of Greece, Oman, Morocco, and other regions.

In May of this year, Greek authorities began attempting to disrupt such operations by deploying naval exercises off their coast. This effort has started to yield results, as the number of "shadow fleet" tankers in the region has sharply decreased. This success prompted Athens to continue its exercises, which are still ongoing and were recently extended for the sixth time, lasting until March of next year.

"However, there is plenty of space in the seas and oceans, so the "shadow fleet" simply moved its oil transshipment operations to other locations. Specifically, the tankers of the "shadow fleet" have relocated to the islands in the Aegean Sea. Additionally, large volumes of transshipment have taken place over the past year near the coast of Malaysia: in the first nine months of 2024, 350 million barrels of oil, worth $20 billion, were transshipped in the region."

The problem is that the number of these tankers has grown significantly. This situation arose due to delays in imposing sanctions on Russia's oil sector. Western countries hesitated to implement these measures as they prepared to phase out Russian oil, a process initiated nearly a year after Russia's full-scale invasion of Ukraine. Naturally, Russian authorities and companies were equally proactive in preparing for this shift. While the initial sanctions shocked the market, causing a drop in Russian oil prices due to discounts, the situation eventually stabilized. Now, hundreds of "shadow fleet" tankers enable sanctions evasion.

Some analysts suggest intensifying efforts to track all "shadow" tankers, but this raises questions: who will provide the resources? Which navies will be involved? Who will fund the effort? Simply blocking regions where ship-to-ship (STS) operations occur is ineffective. Chasing Russian oil tankers across seas and oceans is akin to carrying water in a sieve.

There are potentially more effective options. Andriy Klymenko of the Black Sea Institute for Strategic Studies rightly noted that blocking straits for "shadow fleet" tankers, particularly those under sanctions, could be a viable measure.

Klymenko highlights that nearly 60% of Russian oil is exported from Baltic Sea ports, amounting to approximately 10-12 million tons per month. Another 20% comes from Black Sea ports, and the remaining 20% from Far Eastern and Northern ports. Based on this data, measures should focus on halting this flow in the Baltic Sea.

This could create an oversupply of Russian oil for its buyers, thereby exerting downward pressure on prices. As a result, India and China might demand steeper discounts from Russia, ultimately reducing its revenues — precisely the goal of the G7 sanctions.

Source

About the author. Andrian Prokip, energy analyst at the Ukrainian Institute for the Future.

The editors don't always share the opinions expressed by the blog authors.