S&P Global — 27 June 2024
Daily Update: June 27, 2024
Russia’s Shadow Fleet Evolves to Beat Oil Sanctions
By Nathan Hunt
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Prior to its invasion of Ukraine, Russia was a major player in global oil markets. Formed in late 2022, the Oil Price Cap Coalition — comprising the G7, the EU and Australia — sought to reduce the amount of oil revenue available for Russia to fund its invasion without causing a global oil shortage and a price shock that would impact the economies of coalition member states. The solution they agreed upon nearly two years ago was a price cap on Russian oil rather than an embargo. Russia was still allowed to sell oil in the global market, but it would be forced to accept a reduced price. The designers of the oil price cap probably knew that Russia would attempt to circumvent the sanctions to sell for a higher price and that there would be plenty of buyers for cheaper oil of dubious provenance on the global market. But attempts to circumvent the price cap are costly, and circumvention is only worthwhile if Russian oil is cheaper. The price cap continues to accomplish its purpose of reducing Russian oil revenues whether it is circumvented or not.
However, this mechanism is only effective if coalition member states continue to enforce the price cap and evolve that enforcement to address attempts to evade sanctions. This makes up-to-date knowledge of Russia’s “shadow fleet” important for both governments and oil market participants. Despite the ominous name, the shadow fleet is simply a group of 591 oil tankers that use concealment tactics to evade sanctions. Those concealment tactics include frequent flag hopping, disabling or manipulating automatic identification systems, voyage irregularities, complex ownership or management, and transshipment. S&P Global Market Intelligence and S&P Global Commodity Insights produced a detailed report on the composition and characteristics of all tankers operating as part of the Russian shadow fleet. A summary of the report may be viewed here.
The report’s authors divide the Russian shadow fleet into tiers. Tier 1 comprises oil tankers designated by a regulator as evading sanctions and transporting oil outside of the price cap. Tier 2 tankers have ambiguous ownership structures but have previously been flagged or registered with a Russian-affiliated owner or association. Tier 3 tankers have legitimate ownership predating the 2022 sanctions but appear to be frequent visitors to Russian oil transport hubs.
The size of the fleet has increased 33% since a previous S&P Global Market Intelligence estimate in 2023. Most of the 271 Tier 1 tankers are operated by Russian, Iranian or Venezuelan state interests. Those countries are subject to sanctions and have little motivation to participate in the oil price cap.
Tier 2 tankers show frequent flag changes — 35% of these vessels have changed their flag twice, and 12% have changed more than three times. Most of these vessels are registered in countries with minimal ownership disclosure requirements, such as Gabon, and were registered by companies formed after 2022. Many of those companies appear to own only a single tanker. While 73% of the tankers in the Russian shadow fleet are owned by companies that did not exist two years ago, the tankers themselves are on the older side. The largest concentration of vessels is in the 16- to 20-year age bracket.
The full report from S&P Global details the specific characteristics, ownership and evasion tactics employed by each tier in the Russian shadow fleet.
Today is Thursday, June 27, 2024, and here is today’s essential intelligence.
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—Read the article from S&P Global Commodity Insights
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—Read the article from S&P Global Ratings
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—Read the article from S&P Global Commodity Insights
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—Read the article from S&P Global Commodity Insights
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—Read the article from S&P Global Mobility
2024 Global Emerging Markets Virtual Conference: Is Emerging Asia Picking Up Steam? (July 3, 2024)
Join us for an engaging exploration of the latest trends and opportunities in emerging markets across Asia. This virtual event will feature a dynamic mix of industry professionals and S&P Global Ratings speakers who will share their insights and perspectives on the evolving landscape of emerging Asia.
—Register for the virtual event from S&P Global Ratings