Russia's shadow fleet is expanding despite sanctions: what implications does this have for Ukraine?

Sanctions Against Russian Tankers and Insurance Companies: Are These Measures Effective?

Recently, the United Kingdom imposed sanctions on 30 tankers from Russia's shadow fleet that transport oil and petroleum products worth billions of pounds, as reported by the British government. This sanctions package is the largest from the UK against Russia's shadow fleet. The insurance companies "AlfaStrakhovanie" and "VSK," which provide coverage for these vessels, are also included in the restrictions.

The UK has imposed sanctions on 30 tankers from Russia's shadow fleet that transport oil and petroleum products worth billions of pounds.

The UK government emphasized that oil revenues are a significant source of funding for Russia's illegal war in Ukraine. Additionally, the shadow fleet poses considerable risks to global trade. Many vessels employ deceptive navigation methods and endanger the environment—numerous tankers blatantly disregard essential safety standards, increasing the likelihood of catastrophic oil spills.

However, as noted by energy expert Andrian Prokip, such actions by Ukraine's ally cannot be deemed powerful.

"Firstly, the number of entities sanctioned is drastically lower than those operating in the market. Secondly, even while under sanctions, tankers can continue to transport Russian oil and earn billions in oil dollars. These sanctions do not affect vessels moving directly between Russian ports and buyer countries that do not support sanctions, such as China and India. Moreover, shadow fleet vessels, even if sanctioned, can transship oil to other tankers that deliver the resource even to Europe," Prokip wrote.

The Shadow Fleet System: Why Is It So Difficult to Sanction?

The shadow fleet is a system of several tankers used to evade international sanctions imposed on countries or companies exporting oil and petroleum products These vessels are owned by anonymous entities registered in countries like Panama, Liberia, Malta, the Marshall Islands, and Gabon.

Since the onset of Russia's full-scale war against Ukraine in 2022 and the imposition of sanctions by the US, EU, and G7 countries, the Kremlin has adopted the methodology of dark and shadow fleets.

According to classifications by analytical firms Windward and Vortexa, the entire fleet can be categorized into three groups:

• white — tankers that comply with sanctions and trade regulations;
• gray — vessels whose operations are in a zone of legal uncertainty, often due to frequent flag changes;
• dark fleet — ships actively involved in evading sanctions, with disabled identifiers and falsified routes.

Both gray and dark fleets fall under the shadow fleet category.

With the beginning of Russia's full-scale war against Ukraine in 2022 and the imposition of sanctions by the US, EU, and G7 countries, the Kremlin has borrowed the methodology of dark and shadow fleets by disabling identifiers (AIS - Automatic Identification System, making it invisible for tracking), falsifying documents regarding the origin of oil, and transferring cargo at sea, which helps conceal the source of oil, along with fabricating routes.

Ukrainian political scientist and chairman of the Center for Applied Political Studies "Penta," Volodymyr Fesenko, adds that this is a comprehensive set of measures to circumvent sanctions that Russia has developed during the war. The shadow tanker fleet is merely a tool to achieve its goals.

In addition to oil revenues, Russians actively utilize so-called unofficial reserves—funds that their state banks and state companies and oligarchs have extracted from Russia.

In December 2022, a price cap of $60 per barrel for Russian oil transported by sea came into effect. Initially, the tool was effective, but the Kremlin set the task of waging a war of attrition against Ukraine, leading to the procurement of old tankers.

By March 2023, their shadow fleet already numbered around 600 vessels, increasing by 25-30 tankers each month.

Economist and former member of the NBU Council Vitaliy Shapran adds that, besides oil revenues, Russians actively use so-called unofficial reserves—funds that their state banks and state companies and oligarchs have extracted from Russia.

In his view, the Russian shadow fleet poses a problem not only for Ukraine but also for the ecological safety of the entire region, as Russia typically purchases or charters older tankers, accidents involving which could result in significant damage.

About 30% of all Russian oil exports are conducted through the shadow fleet. This equates to 1.4 million barrels of oil per day. In 2023 alone, Russia earned over $6 billion through the shadow fleet. Currently, the shadow fleet transports approximately 10% of all Russian oil.

Many shadow vessels lack reliable insurance, making them potentially hazardous to the environment.

Moreover, many shadow vessels do not have reliable insurance, rendering them potentially dangerous to the environment. In the event of an oil spill, the responsibility for mitigating the consequences may fall on the countries whose waters they traverse. This has already occurred.

"Therefore, countries in the EU, India, Turkey, and the Middle East need to increase insurance requirements for these tankers and carefully check policies at transit and destination ports. Currently, this issue is not regulated," Shapran added.

The tanker fleet is primarily registered to operators from offshore countries, with India being the main purchaser of Russian oil outside the EU.

Volodymyr Fesenko supplemented this list with countries such as China, Morocco, and Turkey.

"There are entire hubs where oil is transshipped and mixed, as well as hubs through which the shadow tanker fleet operates. Russian oil reaches Europe through intermediaries or via Turkey and Morocco," Fesenko explained.

Devaluation of the Russian Ruble: Does It Affect the Russian Economy and Citizens' Wallets?

While the Russian shadow fleet continues to grow despite the attempts of Western allies to influence it, the aggressor is facing a challenging situation with its currency. The Russian ruble, which has recently rapidly lost value against the dollar and euro, has already surpassed the "psychologically important mark" of 100 rubles per dollar. Meanwhile, Russian authorities have no intention of curbing it. On November 27, the Central Bank set the rate at 105.06, and by November 29, it was 109.57 rubles per US dollar. In banking apps, Russians can purchase dollars at significantly higher prices. "The cessation of trading currencies of unfriendly countries in the exchange market has led to changes in the methods used by the Central Bank to determine the rates of the dollar and euro," some Russian experts commented on the situation. In the future, the rate in Russia may exceed 120 rubles per dollar. Unfortunately, this is unlikely to reflect on the real economy of Russia and the wallets of its citizens.

Ukrainian experts assert that a falling ruble might someday drag the Russian economy down, but currently, the devaluation, on the contrary, allows the Kremlin to earn, finance the war against Ukraine, and does not affect the active life of the shadow fleet.

"The devaluation of the ruble is designed to make exporters from Russia feel somewhat better than they currently do due to sanctions. The current devaluation clearly demonstrates that the entire sanctions complex is working, which I cannot say about the shadow fleet, whose very existence is a tool for circumventing sanctions," Vitaliy Shapran added.