Before Russia launched a war in Ukraine, Europe was by far the largest customer for oil sales, which gives Moscow its wealth even more significant than the domestic market of Russia.
But since European nations banned most of Russia’s oil imports in 2022, Russia had to sell more of it to other countries, including India and China.
Yet Russia keeps facing a dilemma. It cannot pipe its oil to those places as it did to Europe, and its tanker fleet cannot carry it all. It needs additional vessels.
But the US and its allies imposed limitations to prevent shipping services and tankers from transporting Russia’s oil unless it is sold under or at $60 for a barrel.
The flagship oil brand in Russia, Urals, currently sells below the price. But that might change. Therefore, Russia would’ve to turn to a fleet of tankers wanting to get around the sanctions to move crude to farther locations in Asia or otherwise.
It is known in the oil industry as a “shadow fleet”.
Erik Broekhuizen, an analyst associated with Poten & Partners, a consulting and brokerage firm, says that the shadow fleet comprises 200 to 300 vessels.
According to him, the use of shadow fleets is regular and has been used by Venezuela and Iran to evade Western oil sanctions.
Most ships of the shadow fleets are reportedly owned by offshore firms in nations that have relatively lenient shipping norms, like the Marshall Islands, Panama, and Liberia, says Basil Karatzas, the CEO of a New York-based firm named the Karatzas Marine Advisors.
A ship can change its name and ownership when it is in transit. So a vessel can reach a port with a name, and by the time it goes to another one, it could be the same ship but have a different name and owner.
Or the ship can surreptitiously move the oil via ship-to-ship transfers in the ocean’s middle.
The owners operating the tankers that belong to the shadow fleet have limited exposure to the EU or the US governments or banks, so the fear of being sanctioned is limited.
Enforcement is tricky. Karatzas mentions that the risk-reward ratio is quite favourable to owners of shadow fleet tankers.
Craig Kennedy, who is associated with the Davis Center for Russian Eurasian Studies at Harvard, says at the moment, it is legal for any vessel to transport Russian oil as it is selling at prices below the cap placed by Western nations.
But if the price shoots above $60 a barrel, then oil tankers need to think twice.
Kennedy has to say that Russia boasts a sizable fleet but can carry less than 20% of the total seaborne crude oil exports.
He adds that Russians and the country’s shadow fleet boats are here to stay. The issue is they are not enough to keep Russia’s exports whole.
Thus, the Kremlin has to decide whether to cut production or prices. With such a lucrative business — and with little chance of being caught — more tankers may be lured into being a part of this shadow fleet.
References: NPR, WJCT News