Greek operators regain share in Russian crude exports despite tighter sanctions

G7-linked tankers were carrying a higher proportion of Russian crude exports in February on the month, with the return of Greek operators amid strong freight rates despite tighter sanctions enforcement.

Slightly over 1.1 million b/d, or 33% of total seaborne Russian crude exports last month were lifted by tankers flagged, owned or operated by companies based in the G7, the EU, Australia, Switzerland or Norway, or insured by Western protection and indemnity clubs, according to data from S&P Global Commodities at Sea and Maritime Intelligence Risk.

This compared with 30.1%, or 1 million b/d, in January, which was the lowest since December 2022, the month when G7 countries and their allies banned companies in their jurisdictions from servicing Russian crude exports unless the oil was sold for no more than $60/b.

While a far cry from their market share of 52.4% last May, February's monthly reading suggested G7-linked tankers were coming back to Russia even as tougher due diligence procedures took effect Feb. 19-20 for companies covered by the price cap regime.

Tighten enforcement rules, first announced in December, had curbed mainstream tanker operators' appetite for trading in Russia, but Greek companies were not expected to stay away for long once they became accustomed to new regulations.

Ships operated by those based in Europe's top ship-owning nation lifted 16.6 million barrels last month, up from 11.5 million barrels in the longer January, according to the S&P Global data, as Greek players regained their crown as the largest transporter of seaborne Russian oil after losing share to Russian and Chinese peers.

Nikesh Shukla, a freight analyst with S&P Global Commodity Insights, said major operators in Greece could have found ways to "technically" comply with the G7 regime.

Market conditions

The monthly average price of Russia's main crude export grade, Urals, was $65/b last month on an FOB Primorsk basis, according to Platts, part of S&P Global. But there were times when Urals briefly dipped below the $60/b threshold.

"Russia will keep the prices below the price cap to avail the services of [G7] tanker companies," Shukla said. "Shipments of cargo sold over price cap can be done by vessels owned by Sovcomflot or shadow operators."

Freight rates for Russia-related trades have been strong partly due to risk premiums, with the lump-sum rate for a Suezmax carry Urals from Novorossiisk to the western coast of India heard around $8 million-$9 million in early March.

Reflecting higher freight costs, Platts had assessed the Urals DAP West Coast India at a $3.50/b discount to Forward Dated Brent for most of February, the narrowest since the assessment began in January 2023. The discount stood at $3.55/b Mach 5.

While the US and UK have been sanctioned tanker operators for evading the price cap in recent months, Laura Deegan, counsel at law firm Miller & Chevalier, said the EU enforcement could be "disjointed" as each member state would take action individually.

"Whether a member state cares about the G7 sanctions or chooses to enforce them is a different story," Deegan said. "[They] might not have the resources to take sanctions enforcement seriously."

Enforcement

Observers said Washington has been the most rigorous among G7 authorities in sanctions enforcement, with over 10 companies and dozens of ships put on the sanctions list for price cap circumvention since October.

On the eve of the two-year anniversary of Russia's war in Ukraine last month, US Treasury formally sanctioned Sovcomflot after targeting some tankers and affiliates of Russia's largest state carrier in previous actions.

Tankers operated by companies linked to Sovcomflot, like the UAE-based SUN Ship Management, transported 333.3 million barrels of Russian crude between December 2022 and February 2023 according to the S&P Global data. This was unrivalled by any other shipping group.

But China and India, which have emerged as the largest Russian crude buyers since the war, are not expected to reject sanctioned tankers as they could design non-US dollar payment mechanisms, according to Shukla, even though importing firms in the countries could use the price cap to bargain for lower prices.

"Russian exports to India and China are here to stay," he said. "Physical flows will be there."

Tankers operating outside of the price cap, such as those operated by Russian state interests or shadow companies, were responsible for 59% of the Russian crude shipments destined for India and 82% for China last month, according to the S&P Global data. These were little different from 60% for India and 83% for China in January.