Why Europe still does not apply oil sanctions to Russia?
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(CNN Business) ––
Russia's invasion of Ukraine made the country a pariah in the global energy market.
Since the war began, a de facto embargo on Russian oil has been in place: oil companies, trading houses, exporters and banks have backed off their dealings with Moscow.
All at the same time.
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Now, however, there are signs that Russian energy is attracting interest from potential buyers, at least from the shadows.
As the war in Ukraine drags on, Russian oil tankers, which carry crude oil and petroleum products, are increasingly disappearing from tracking systems.
So-called dark activity, in which ships' transponders are turned off for hours, is something that US officials have previously viewed as a deceptive shipping practice, often used to evade sanctions.
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Dark activity among Russian-affiliated crude oil tankers is up 600% compared to before the war began, predictive intelligence company Windward told CNN.
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“We are seeing a spike in Russian tankers deliberately turning off their transmissions to circumvent sanctions,” Windward CEO Ami Daniel said in an interview.
"The Russian fleet began to hide its whereabouts and its exports."
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And this doesn't just happen with oil.
There are also similar trends with other petroleum products.
During the week of March 12, there were 33 dark activity events from Russian oil and chemical tankers, according to Windward, which uses artificial intelligence to monitor the maritime industry.
That figure is 236% higher than the weekly average for the previous 12 months.
'These Russian tankers want to disappear'
International regulations require ships, such as oil tankers, to keep their transponders on almost all the time.
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In May 2020, the US Department of the Treasury sent a sanctions advisory to the maritime, energy, and metals industries to address "illegal shipping and sanctions evasion practices."
The first example detailed was "disabling or tampering" with automatic identification systems (AIS) on vessels to "hide their movement."
"Tampering with and disrupting AIS may indicate possible illegal or punishable activity," the Treasury Department warned.
Ships can also "vanish" for security reasons, for example when sailing into pirate-infested waters.
But Daniel, CEO of Windward, said that's not exactly why ships are now evaporating from radar.
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“These ships want to disappear from the radar.
From an enforcement perspective, it's a red flag,” she warned.
In a statement sent to CNN, a Treasury spokesman said the agency is "aware of these reports."
And he added that the department works with partners and through a "variety of methods" so as not to rely solely on transponder transmissions to monitor vessels of interest.
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Similar behavior was seen a decade ago when the United States imposed sanctions against Venezuela and Iran, making it illegal to buy oil from those nations.
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"Russia is following the playbook of Venezuela and Iran, with a slight twist," said Andy Lipow, president of consultancy Lipow Oil Associates.
The twist is that, unlike Venezuela and Iran, the West has not directly imposed sanctions on Russia's oil.
The White House did prohibit imports of Russian oil to the United States.
But that does not prevent other countries from buying Russian energy.
A "public relations disaster"
Still, the sheer stigma of doing business with Russia, coupled with the uncertainty of sanctions, has created a de facto embargo.
Analysts say that helps explain the spike in shadowy activity among Russian oil tankers.
Buyers don't want to be branded as those who backed Russia's oil during the deadly war in Ukraine.
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"It's a public relations disaster," said Robert Yawger, vice president of energy futures at Mizuho Securities.
Similarly, shipping companies may want to avoid the scrutiny that comes with handling Russian crude.
“Oil tankers are fading away because they fear that if they take Russian business, they will be blacklisted for a period and won't be able to get future business,” Lipow said.
And yet there is a financial reason to buy Russian oil right now.
The energy demand is very high.
And, largely because of the sanctions, Russian crude is trading about $30 cheaper than Brent crude, the global benchmark.
"You get a huge discount," said Michael Tran, managing director of global energy strategy at RBC Capital Markets.
"The economic incentive is there, if you're not worried about sanctions."
Where does Russian oil go?
The research firm Rystad Energy estimates that between 1.2 million and 1.5 million barrels per day of Russian crude oil exports have vanished in the five weeks since the start of the war.
"The fate of Russia's remaining crude exports...is increasingly 'unknown,'" Rystad Energy wrote in a report this week.
And he pointed out that this mysterious oil accumulates about 4.5 million barrels per day.
So who is buying Russian oil?
Analysts say there is evidence that refiners in China and India, two of the world's biggest oil consumers and fastest-growing economies, are stealthily buying Russian fuels.
Tran said trading houses could be buying Russian oil and storing the barrels, including "floating storage" on tankers that remain at sea.
Beyond the dark activity, Windward found that some ships and companies are still dealing with Russian tankers and engaging in ship-to-ship transfers.
In 2020, the Treasury Department warned that ship-to-ship transfers, especially at night or in areas considered to be at high risk of sanctions evasion, "are frequently used to evade sanctions by concealing the origin or destination" of the oil, the coal and other materials.
Despite the war in Ukraine and sanctions on Russia, the number of ship-to-ship meetings lasting at least three hours between Russian-affiliated tankers and other ships is "relatively normal," Windward said.
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