RUSSIAN SHADOW FLEET GROWS DESPITE WESTERN REPRESSION

Moscow's capacity to transport oil on old and uninsured ships has increased by 70 percent compared to last year, the report says.

Russia has increased the capacity of its shadow fleet of oil tankers by nearly 70% compared to last year, despite recent crackdowns on insurers and shipping companies. The flotilla is helping Moscow circumvent Western sanctions, a new study has shown.

The volume of Russian oil transported by poorly maintained and underinsured tankers increased from 2.4 million barrels per day in June 2023 to 4.1 million in June 2024, according to a report published in Kiev on Monday.

The trend comes as the United States, Canada, Japan and European allies increasingly target global insurers and shipowners in an effort to limit Moscow’s ability to earn export revenue. They have also added companies and individual ships associated with Russia’s shadow fleet to their sanctions list.

“Sanctions on tankers have been quite effective, but the campaign to blacklist ships has been too limited to really curb Russia’s shadow fleet,” said Benjamin Hilgenstock, one of the report’s authors.

He added that sanctions should be used "systematically" to enforce adequate oil spill insurance and thus "eliminate the serious and urgent environmental threat posed by shadow fleets."

Many of these vessels regularly sail in busy European waters, including the Baltic Sea, the Denmark Strait and the Strait of Gibraltar, increasing the risk of environmental disasters for the EU and neighbouring countries.

The report’s authors propose creating “shadow-free” zones in European waters to reduce these risks. Otherwise, disaster is simply “waiting in the wings on Europe’s doorstep,” the report argues. “Weak links in the regulatory framework, as well as the dramatically increasing role of shadow tankers in Russia’s oil trade, mean that a major environmental disaster is only a matter of time.”

In June 2024, 70% of Russia’s seaborne oil was transported by a shadow fleet, which the report estimates Russia spent $10 billion to build. This is 89% of total crude oil supplies, much of which has traded above the $60 per barrel price limit since mid-2023, and 38% of Russia’s refined product exports.

By bringing together this fleet, Moscow has severed ties with coalition countries over rate caps that forced global insurers to comply with the sanctions regime, reducing Russia’s options to mostly domestic insurers.

This has raised serious concerns about the quality, reliability and scope of insurance coverage. The combination of the age of the tankers - 18 years on average - and the lack of adequate insurance makes the ships extremely dangerous, the Kiev report says.

The risks are further increased by the fleet’s use of anonymous ownership structures under the banner of grey-listed states. They often involve multiple intermediaries, such as British accountants and Dubai-based firms, hidden across multiple corporate structures, a recent FT investigation found.

There have already been several incidents involving shady vessels linked to Russia. In March this year, the 15-year-old shadow tanker Andromeda Star collided with another vessel off the coast of Denmark. No oil spilled during transport to Russia and unloading.

Over the past two years, four ships of Russia's shadow fleet have lost engine power, including in the Dardanelles and the Denmark Strait.

Shadow fleet vessels used to transport oil from other sanctioned sellers have also suffered engine failures, maintenance issues and explosions. In May 2023, a 27-year-old, 700,000-barrel Gabonese-flagged vessel used to transport Iranian oil suffered a massive explosion near Indonesia. It was empty at the time.

Several ships in the shadow fleet have been involved in oil spills, some of which have fled the scene after causing environmental damage. In 2019, the 23-year-old Ceres I, previously involved in the Iranian oil trade, collided with another tanker near Singapore, turned off its signal and tried to escape, but was caught by the Malaysian coast guard.