Around two years after the U.S. and Europe imposed sanctions on Russian energy, following the Russian invasion of Ukraine, Russia is still evading international sanctions by using shadow tankers and other clandestine methods to transport its crude. Despite strict sanctions on Russian energy, several world powers have found it difficult to ensure they are not importing Russian oil due to the complexities of tracking the crude through the refining process and to its final destination. Now, recent studies show that Russia is still exporting large quantities of oil, using covert techniques.
According to a report from the Kyiv School of Economics (KSE), published this Monday, Russia is expanding its fleet of shadow oil tankers to export higher levels of crude without being detected. Many of these tankers are poorly kept and underinsured. The volume of oil being exported by these shadow fleets has almost doubled within a year, to 4.1 million barrels a day by June, according to the publication.
The U.S., EU, G7 countries, and Australia imposed sanctions on several of Russia’s energy products in 2022 to put pressure on Russia’s economy and encourage Putin to withdraw from Ukraine. Sanctions on Russia have steadily increased as the EU has moved away from a reliance on Russian LNG by strengthening its supply chains with other gas-producing countries.
These major powers also introduced a price cap of $60 a barrel to limit Western companies from transporting, servicing or brokering Russian oil supplies to reduce Russia’s oil trade, as it is heavily dependent on western-owned and insured tankers. This move was chosen over an outright embargo on Russian oil to help avoid a global oil price shock due to an abrupt reduction in the world crude supply, which could have led to soaring prices.
In response to the sanctions, Russia quickly began using shadow fleets of older tankers without the same modern tracking devices as new ships. The KSE report suggests that Russia has invested at least $10 billion in the fleet since early 2022. Over 630 tankers, some of which are over 20 years old, are being used to transport Russian crude. The report states, “The strategy has significantly reduced the sanctions regime’s leverage.” The report’s authors not only call for greater action to be taken to ensure the sanctions on Russian oil are effectively imposed, but they also suggest that if nothing is done to stop the use of the old tankers it could lead to an environmental catastrophe in European waters.
The report states, “There have been several instances of shadow tankers being involved in collisions or coming close to running aground in recent months.” The authors add, “Large oil spills have so far been avoided but a major disaster is waiting to happen, and cleanup costs would reach billions.”
This is not the first time oil-rich countries have used shadow fleets to circumvent sanctions. Both Iran and Venezuela were found to be using old tankers to transport oil and petroleum products in recent years, to avoid U.S. sanctions. In recent years, China has been importing greater quantities of Venezuelan and Iranian oil at a discounted rate, using alternative routes and ghost ships to transport sanctioned oil. China has made these imports possible by using three techniques. Firstly, sanctioned oil often arrives on old ships that are set for the scrapyard. Secondly, oil comes in tankers that have gone dark – their transponders are turned off to avoid detection. And, thirdly, oil cargoes are transferred at sea from tanker to tanker to avoid knowledge of where the oil came from.
In September, in an effort to crack down on these clandestine activities, the U.K. announced sanctions on 10 ships that it thought were central to Russia’s oil export operations. The U.K. foreign secretary, David Lammy, stated of the move, “Putin’s war machine is funded by a dark and illicit economic system that this government is committed to destabilising… Today’s sanctions further undermine Russia’s ability to trade in oil via its shadow fleet. Alongside our partners, we will continue to send a stark message to Russia that the international community stands with Ukraine, and we will not tolerate this illicit fleet.”
There have been other challenges to imposing sanctions on Russian oil, such as the complexities in tracking crude during its transit to refining locations and onto further destinations. Last year it was reported that much of Russia’s oil was being refined in India, and blended with other foreign oil to produce gasoline, diesel, and other products, before making its way back onto the market. These products could be legally bought by companies that were upholding sanctions on Russian energy, showing a significant loophole in the sanctions.
While Russia’s oil exports have fallen due to the strict sanctions imposed on Russian energy, Moscow is increasingly finding clandestine methods to continue shipping its crude to other countries. This has meant that the sanctions, aimed at restricting Russia’s oil revenues, have had a much weaker impact on the Russian economy than anticipated. Authors from the Kyiv School of Economics and other actors around the globe are putting pressure on the U.S. and EU to introduce tougher sanctions, but due to the use of shadow fleets and other covert techniques, imposing these sanctions is particularly difficult.
By Felicity Bradstock for Oilprice.com