Sanctions against Russia's "shadow fleet": underway, but insufficient

Bypassing sanctions means additional funds for the aggressor and financing its war against Ukraine. Since the imposition of sanctions, Russia has gradually increased the number of tankers registered and insured outside the EU and G7, which it uses to shadow export oil and oil products without complying with the price ceiling.

In May 2024, only 40% of Russian oil and oil products were transported by tankers subject to the price ceiling, of which 26% of oil in May and 63% of oil products. The remaining 60% in May (74% of oil and 37% of oil products) were transported by "shadow tankers".

In order to prevent the loss of control over the implementation of the sanctions regime due to the activities of the "shadow fleet" of tankers, the U.S. Treasury Department has been requiring partners to report on oil purchases and to approve any transactions with Russian oil since February 19, 2024. In case of non-compliance with the rules of the sanctions regime, legal entities and individuals who help Russia circumvent the sanctions will be subject to them. Restrictions include the making of any contributions or provision of funds, goods or services by or for the benefit of any blocked person, as well as the receipt of any contributions or provision of funds, goods or services from any such person (effectively disconnecting from the U.S. financial system).

On February 23, 2024, the United States imposed new sanctions on the second anniversary of the Russian invasion, including on Russia's largest shipping company, Sovcomflot, and its 14 tankers that violated the G7 price ceiling for Russian oil.

In this way, the U.S. Treasury Department is gradually withdrawing "shadow tankers" serving the Russian Federation from commercial circulation. As of April 12, 2024, out of 41 sanctioned vessels, 37 did not make further voyages, 3 completed current voyages, and one vessel was engaged in cabotage transportation in violation of the U.S. Treasury Department's sanctions, but only within the Black Sea. On April 4, the U.S. Treasury Department's Office of Foreign Assets Control also imposed sanctions on 13 tankers for transporting oil from Iran, 7 of these 13 tankers also transported Russian oil.

Russia, however, manages to maintain its "shadow tanker fleet" by exporting 35 new tankers in the first months of 2024 to replace those that fell under U.S. sanctions.

According to the KSE study, from early 2023 to mid-2024, 307 shadow tankers transported Russian oil at least once, but only a fraction of them, identified in the study as 45 tankers, operated steadily throughout all six quarters. These 45 tankers, which form the "core" of the "shadow fleet" for crude oil transshipment, accounted for 28% of the total fleet tonnage in the first half of 2024.

With regard to Russian oil products, a total of 432 shadow tankers transported them at least once, but only a subset, identified in the study as 41 tankers, was involved continuously in each of the six quarters from January 2023 to June 2024. These 41 tankers, forming the "core" of the "shadow fleet" for transshipment of oil products, accounted for 29% of the total fleet tonnage in the first half of 2024.

This dynamic makes it clear that current sanctions and approaches to limiting the shadow fleet are clearly not enough. And it is precisely these successes with oil tankers that have encouraged the aggressor to develop a gas shadow fleet to circumvent sanctions against Russian LNG.

One very interesting fact. In May, the Greek Navy began conducting military exercises in the Laconian Gulf. Since the end of 2022 (i.e., actually since the imposition of sanctions against Russian oil exports), this gulf has been one of the main places for transshipment of oil from shadow fleet vessels to other commercial tankers in order to conceal the routes of Russian oil supplies. And since the exercises, the volume of shadow oil transshipment has significantly decreased. However, this does not mean that this oil was not transshipped from shadow fleet tankers, reducing the volume of trade in circumvention of sanctions. In fact, those ships that were unable to transship near Greece did so in other regions, such as Egypt, Malta, and West Africa. Subsequently, after realizing this fact, the Greek authorities repeatedly extended these naval exercises, which lasted intermittently until almost August.

Last week it became known that Ukraine is consulting with its partners on sanctions against the "shadow fleet" that serves Russian fuel exports. In particular, Kyiv proposes to impose new sanctions and strengthen sanctions mechanisms. And it is clear that sanctions by international partners should become more active, as the existing ones still do not prevent the involvement of new tankers. All entities involved in gray oil transshipment should be subject to sanctions.

Certain changes to Ukrainian legislation are also needed, as we can impose sanctions on individual companies, but there are no mechanisms for sanctioning individual tankers. Of course, this is a relatively symbolic step on Kyiv's part, because we do not have the same leverage as the United States or the United Kingdom. But the very fact that some of the one-day companies that operate some of the shadow fleet vessels are linked to Medvedchuk simply requires us to take such steps, even if they are purely symbolic.

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.