Establishing ‘Shadow-Free’ Zones

KSE Institute has released a new report titled “Creating Shadow-Free Zones”, which highlights the environmental dangers posed by Russia’s shadow fleet. The report proposes a mechanism to enforce a requirement for proper oil spill insurance and thereby create “shadow-free zones” to mitigate risks to the environment.

Russia has invested $10 billion since 2022 to expand its shadow fleet, built to circumvent the G7+ oil price cap. More than 70% of its seaborne oil exports are now transported using aging, poorly insured vessels, significantly increasing the risk of a major oil spill in European waters.

In H1 2024, close to 75% of Russian oil was shipped from the Baltic and Black Sea ports, with 60% of that carried on shadow tankers. This means that three loaded shadow tankers per day pass through Northern European waters, including the Danish Straits and the English Channel. Incidents like near-groundings and collisions have already occurred and a major incident is only a question of time with the potential for a costly environmental disaster.

The KSE Institute report outlines a strategy to mitigate the environmental risks posed by Russia’s shadow fleet. The proposed plan focuses on enforcing a requirement to carry adequate oil spill insurance – to protect the environment and ensure overall maritime safety in coalition waters. The key elements of the strategy include:

• Insurance disclosure: Vessels in coalition waters must show proof of compliance with spill insurance requirements established in international conventions and IMO regulations, including documentation that allows to assess the coverage’s adequacy, such as audited financials and a credit rating from a recognized agency.

• Enforcement mechanism:

1. Diplomatic outreach: Work within the existing regulatory framework by pushing flag states and classification societies to ensure tankers have proper oil spill insurance and comply with all international rules and regulations.

2. Commercial incentives: Hold flag states, certification societies, shipowners, and charterers accountable for non-compliance with the insurance requirement as well as the consequences of an incident.

3. Designation of uninsured vessels: Sanction tankers that fail to comply with the insurance requirement or carry inadequate coverage, thereby removing them from operations.

4. Interdiction in high-risk cases: Coalition countries should have the authority to stop vessels posing immediate environmental or safety risks.

KSE Institute’s strategy ensures that rights under international maritime law are not interfered with and oil markets are not disrupted, which could lead to higher prices. The plan is designed to safeguard the environment without compromising global oil supply:

• Minimal disruption: A credible sanctions threat will compel shadow fleet operators to comply, as non-compliance would result in significant financial losses from sidelined ships. The existing oil spill insurance systems allows to easily acquire adequate coverage.

• No impact on oil prices: Since the start of the shadow fleet designation campaign in late 2023, tanker listings have not affected oil prices. Data analysis shows that they are largely driven by OPEC+ decisions, not sanctions.

• Limited impact on Russian exports: With low production costs of $10-15/barrel, Russia is unlikely to cut oil exports. It can also not afford to do so, given its dependence on oil for export earnings and budget revenues.

Considering severe and urgent environmental risks, coalition countries must ensure that vessels passing through European waters have adequate oil spill insurance.

The report follows previous studies, “Assessing the Shadow Fleet” and “The Core of Russia’s Shadow Fleet,” which analyzed the shadow fleet’s growth and identified ships for future sanctions.