Even more than Russia’s domestic market, Europe was by far Russia’s biggest customer before its invasion of Ukraine in February of last year. However, because the majority of Russia’s oil imports from Europe were prohibited last year, Russia has been forced to sell more of its oil to countries like China and India, as reported by NPR.
However, Russia is in a pickle. It cannot pipe its oil to those locations the way it did for Europe, and its own fleet of tankers cannot transport all of it. More ships are required. However, limitations were also put in place by the US and its allies to stop tankers and transportation companies from moving Russian oil unless it was sold for at least $60 per barrel.
The price of Urals, the national oil of Russia, is currently below that markup. However, that can alter. Therefore, in order to transport its crude to other regions in Asia or elsewhere, Russia would have to rely on a fleet of tankers that were ready to circumvent the sanctions. In the oil sector, it is referred to as a “shadow fleet.”
The shadow fleet is made up of 200 to 300 ships, according to Erik Broekhuizen, an analyst at Poten & Partners, a brokerage and consultancy company that specialises in energy and maritime transportation.
Transporting Russian Crude only
Many of those ships have just been purchased in preparation for this EU prohibition, he claims. These ships were built specifically to transport Russian crude in case their normal owners couldn’t do it legally.
According to Broekhuizen, Iran and Venezuela have long employed shadow fleets to get around Western oil restrictions.
He claims that the Russians are simply replicating what the Iranians and Venezuelans did by adopting a leaf from the same book. The primary distinction is that Russia is the biggest oil exporter in the world.
According to Basil Karatzas, CEO of New York-based Karatzas Marine Advisors, a maritime financial consultancy company, the majority of ships in the shadow fleets are owned by offshore firms in nations with more permissive shipping regulations, like Panama, Liberia, and the Marshall Islands.
“A spacecraft has the ability to rename itself. While in motion, its ownership could change “He claims. So, even though a ship has a particular name when it enters a port, by the time it arrives at [another] port, it can be the same ship with a different name and a different owner.”
Enforcement is challenging
Or they could covertly transport oil from ship to ship in the middle of the ocean.
According to him, the owners of the shadow fleet tankers have little contact with the banks or governments of the US or the EU, so they have little need to worry about facing sanctions. Enforcement is challenging. According to Karatzas, the owners of the tankers in the shadow fleet stand to gain from the risk-reward ratio.
“If you can make $10 or $20 spread per barrel. The ship can carry a million barrels of oil, and each voyage can bring in $5 million to $10 million in profit “He claims. “You can see the economics of that if you could do it five times a year.”
Increased payload value
According to Karatzas, shadow fleet tankers typically have a shoddy build. But because of the payload, they have increased in value since the commencement of the Ukraine War.
He adds that boats can easily double in price: “In February 2022, a 20-year-old vessel was more or less valued at close to scrapping.” “These ships are now worth $40 million annually. Putin presented the shipowners with a lovely gift.”
Because Russian oil is currently selling for less than the price cap set by Western nations, according to Craig Kennedy of the Davis Center for Russian Eurasian Studies at Harvard, it is currently permissible for any ship to deliver Russian oil. But tankers may have to reconsider if the price increases above $60 per barrel.
“The Greek tankers then respond, “Hold on a second, your loads are at $70.” I can’t handle it. Additionally, unexpectedly, no ships from Russia arrive “He claims. Around 70% of the crude oil in the world is transported by Greek tankers.
Despite having a substantial fleet, less than 20% of Russia’s seaborne crude oil exports can be carried, according to Kennedy.
“The shadow fleet boats and the Russians will remain. However, the issue is that they are insufficient to completely maintain Russian exports “He claims. “As a result, the Kremlin will need to make a difficult choice. Does it decrease prices or production?”
However, with such a rich industry and a slim possibility of being caught, perhaps more tankers could be persuaded to join the shadow fleet.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!