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24 June 2024

Assessing 🇷🇺 Shadow Fleet: Initial Build-Up, Links to the Global Shadow Fleet, and Future Prospects

Prepared by: Benjamin Hilgenstock, Oleksii Hrybanovskii, and Anatoliy Kravtsev. Editors: Borys Dodonov, Yuliia Pavytska, and Nataliia Shapoval
Editors and co-authors:

KSE Institute has presented a study “Assessing Russia’s Shadow Fleet: Initial Build-Up, Links to the Global Shadow Fleet, and Future Prospects”. Russia’s shadow fleet currently consists of 435 tankers and aims to circumvent sanctions on Russian oil, specifically the G7/EU price cap, by creating transport capacity independent of Western maritime services. Most importantly, shadow tankers do not carry oil spill insurance by the International Group.

Russia’s reliance on the shadow fleet has grown considerably; in April 2024, 83% of crude oil and 46% of petroleum products were shipped on shadow tankers. This represents a major challenge for two reasons: (1) The shrinking role of the mainstream fleet fundamentally undermines the leverage of the price cap. (2) The shadow fleet largely consists of aging and un-/underinsured vessels which pose a significant and rising threat to the environment.

The report investigates the origins of Russia’s shadow fleet, its current size and operations, position within the global shadow oil trade, Russia’s needs to fully bypass sanctions, its ability to counteract vessel designations, as well as prospects for the fleet’s future expansion. The report also offers detailed policy recommendations to rein in the shadow fleet.

The key findings from the analysis are as follows:

1. As of Q1 2024, 435 vessels are part of the Russian shadow fleet – they are not owned, managed, or insured by an entity in the sanctions coalition and, thus, the price cap does not apply to them. 185 are transporting crude oil and 250 products.

2. The Russian shadow fleet can cover ~60% of total crude and ~45% of total products exports independent of restricted maritime services. Despite a concerted and costly effort, Russia still falls short of its ultimate objective with regard to sanctions evasion.

3. To establish its shadow fleet, Russia used three key channels: (1) transfer of tankers previously owned by Russian entities to new managers; (2) 15+ year old vessels from the white fleet, i.e., with IG P&I insurance; and (3) very old vessels (20+ years) from the shadow/white fleets, which would have otherwise been decommissioned.

4. Only a small share of the current Russian shadow fleet was built by transferring vessels from other segments of the global shadow oil trade (e.g., Iran, Venezuela).

5. We estimate that ~500 Aframax equivalent crude oil tankers – mostly from the white fleet – are potentially available for expansion. For oil products, we assess that ~1,200 Seawaymax equivalent vessels are available for further growth.

6. This assessment only reflects the theoretical availability of vessels and does not reflect specific challenges Russia may face, for two reasons: (1) Russia has already spent ~$8.5 billion on the shadow fleet and additional financing may be hard to secure; (2) the EU has recently introduced legislation aimed at cracking down on the sale of mainstream tankers into the Russian shadow trade.

To address the existing Russian shadow fleet, KSE Institute recommends:

1. Continue and expand vessel designation campaign, which has proven to be extremely successful. Authorities should prioritize the vessels most-heavily used for the export of Russian crude oil from Baltic and Black Sea ports to India and China.

2. Make shadow fleet operations difficult and costly by requiring all vessels entering coalition ports to disclose information about their mandatory oil spill (P&I) insurance and by banning the sale of spare parts for use by shadow fleet tankers.

3. Enforce existing oil spill insurance requirements to address the significant and rising environmental threat stemming from aging and uninsured shadow fleet tankers without removing transport capacity and, in turn, affecting global oil supply.

4. Step up investigations and impose significant fines to alter risk perceptions by all actors involved in shadow fleet operations and thereby drive up costs for Russia. Focus on opaque ownership structures and STS operations.

To limit the future expansion of the shadow fleet, KSE Institute recommends:

1. Broaden and enforce restrictions on vessel sales to limit Russia’s ability to acquire tankers. Regulations such as the EU’s authorization requirement should be adopted across coalition countries and applied strictly.

2. Designate vessels acquired from third countries, including those from the white fleet where sales restrictions did not apply or were violated, as well as vessels transferred from other parts of the shadow fleet and/or from Russia’s partners.

The study underscores the need for rigorous international measures to mitigate the risks posed by Russia’s shadow fleet and to ensure the leverage and effectiveness of sanctions.


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