FACTBOX: Global shadow tanker fleet moves growing volumes of sanctioned oil

Led by the US, Western governments have tightened sanctions on Russia, Iran and Venezuela amid escalating geopolitical conflicts, often targeting the countries' oil exports to choke off their main revenue streams.

In response, OPEC+ producers are amassing tanker capacity to bypass the trade restrictions and continue their seaborne oil shipments, often destined for China, the world's largest oil importer that has publicly opposed Western sanctions.

The "shadow" tanker fleet is mostly controlled by Russian, Iranian and Venezuelan state interests that have been able to acquire a large amount of vintage ships in secondhand transactions via opaque, little-known firms based in third-party countries like the UAE.

An analysis of S&P Global Commodities at Sea and Maritime Intelligence Risk Suite data has found 889 tankers of more than 27,000 dwt that may have been used to transport the sanctioned oil. With a combined deadweight tonnage of 111.6 million, the shadow fleet makes up some 17% of the global oil tanker fleet.

Industry officials said the ships tend to be less maintained, lack sufficient insurance and often manipulate their ship-tracking signals to hide operational patterns, leading to maritime safety worries.

Trade flows:

Russia's seaborne crude and product exports have grown by about 5% to 6.3 million b/d since the start of 2022 when the country invaded Ukraine. The G7's 'price cap' on Russian exports -- designed to curb Moscow's oil revenues while avoiding a supply crisis -- came into effect at the end of 2022 and early 2023. After plummeting during the first Trump administration, oil production in Iran and Venezuela has recovered under President Joe Biden, with the focus of sanctions moving to Russia. Both countries are exempt from quotas under the OPEC+ agreement, allowing them to pump as much as they can. They produced a combined 4.15 million b/d in September, according to the Platts OPEC+ Survey by Commodity Insights, up from 3.2 million b/d in February 2022, when Russia invaded Ukraine.

Russia

• The share of Russian crude exports on tankers operating outside of the G7's price cap, most of which were the Russia-linked shadow ships, reached an all-time high of 83.8% in September, according to estimates by S&P Global Commodity Insights.
• India was the top destination for the shadow tanker shipments between Jan. 1 and Oct. 15 (58%), followed by China (15%). Myanmar, which has an oil pipeline to China, took 6%.
• Crude shipments from Russian ports averaged 3.74 million b/d in October, up 240,000 b/d or 7% from September levels and the third monthly rise from an eleven-month low of 3.24 million b/d in July, according to S&P Global Commodities at Sea tanker tracking data.
• India, Russia's biggest crude buyer, imported 1.74 million b/d of mainly Urals crude, according to data, down 90,000 b/d on the month but still representing almost 40% of total arrivals in October. China is the second biggest buyer, receiving 1.23 million b/d in October. The biggest increase in crude exports during October was to Turkish refiners, with flows to the country's ports surging by 144,000 b/d, or 84%, month on month to a four-month high of 316,000 b/d. Turkey's 212,000 b/d Star refinery in the western of the country restarted at the end of October, following planned maintenance that started Sept. 5.

Iran

• After plummeting during the first Trump administration, oil production in Iran and Venezuela has recovered under President Joe Biden, with the focus of sanctions moving to Russia.
• Iran, while under US sanctions, has managed to raise crude exports by expanding shipping capacity beyond its core National Iranian Tanker Co. fleet post-2020.
• China is by far the largest buyer of Iranian oil, often receiving its barrels via transshipments in Southeast Asian waters.
• Iran and Venezuela are exempt from quotas under the OPEC+ agreement, allowing them to pump as much as they can. Their combined output rose to 4.15 million b/d in September from 3.2 million b/d in the same period.

Venezuela

• The US has targeted seaborne Venezuelan oil exports with sanctions since mid-2020 but offered multiple reprieves, of which the latest ended this April.
• Venezuela's crude exports have risen to average 620,000 b/d so far in 2024, up from around 450,000 b/d in 2022, according to S&P Global Commodities at Sea.
• Most of Venezuela's crude exports end up in China and the US under import waivers to US producers such as Chevron.

Infrastructure

Russia

• Russia controls 586 ships totaling 57.1 million dwt to bypass the price cap regime, including 260 Aframax/LR1 and 84 Suezmax tankers, which are suitable to lift from Russia's Baltic and Black Sea terminals.
• Russian state carrier Sovcomflot, sanctioned by multiple Western authorities itself, operates a large chunk of the fleet either directly or via affiliates in other countries.

Iran

• The country's fleet consists of 155 ships with 35.7 million dwt, including more than 90 VLCCs that are often active in the Persian Gulf, East Asian waters and even occasionally in the Gulf of Guinea.
• State-owned NITC was responsible for nearly one-third of Iran's shipments between Jan. 1 and Oct. 15, while opaque, little-known companies -- also likely to have ties to Teheran -- covered the rest.

Venezuela

• A total of 113 tankers with 14.1 million dwt have recently lifted oil from Venezuela or been controlled by sanctioned Venezuela-linked entities.
• With limited financial resources, Venezuela is likely to be only able to exert regular control over some 20 ships owned by state-run PDVSA. Many of the remainder are operated by opaque firms likely seeking risk premiums.

Others

• Another 35 tankers with 4.7 million dwt could be used to transport sanctioned oil but are not necessarily devoted to any of the three countries.
• Some of them have loading records in Iran and Venezuela, which have swapped petroleum cargoes in recent years.

Prices:

• The G7, EU and their allies have not sanctioned all Russian oil exports but established price caps to ban maritime services to barrels sold above certain thresholds: $60/b for crude, $45/b for discounted products and $100/b for premium products.
• Russia's growing shadow tanker fleet has come as discounts for Russia's crude shrink from record levels of -$40/b to Dated Brent in 2022 after Russia's invasion of Ukraine. Attempts by Western authorities to clamp down on the shadow tankers able to sidestep the G7-led price cap on Moscow's oil have done little to help devalue the exports, with Russia's flagship Urals crude mostly trading above the cap since July 2023.
• Differentials for Russia's flagship Urals crude were stable in October at a discount of around $12.25/b to Dated Brent. Platts, part of S&P Global Commodity Insights, assessed Urals on a FOB Primorsk basis at a $12.15/b discount to Dated Brent on Nov. 4, up from a post-Ukraine invasion low of $11.9/b on Aug. 7.
• Dated Brent was assessed by Platts at $76.11/b Nov. 6, down $0.82/b on the day. Platts is part of S&P Global Commodity Insights.