Is oil the Achilles heel in the Russian economy?
London (CNN) --
London (CNN) --
Russian oil continues to reach buyers around the world.
But even those who spend their days tracking its movements across the oceans have a hard time figuring out exactly who is carrying it.
As Western sanctions against Russia increase over its invasion of Ukraine, more vessels have joined an already existing fleet of mysterious tankers, ready to facilitate Russian oil exports.
Industry insiders estimate the size of that "shadow" fleet to be about 600 vessels, or about 10% of the world's number of large tankers.
And the numbers keep rising.
Who owns and operates many of these vessels remains a puzzle.
As the Russian oil trade became more complex last year, many Western carriers withdrew their services.
New and shadowy players swept in, with shell companies in Dubai or Hong Kong implicated in some cases.
Some bought ships from Europeans, while others turned to creaky old ships that would otherwise have ended up scrapped.
"They have gone into the shadows," a senior executive at an oil trading company told CNN, referring to this opaque network.
The importance of the clandestine fleet has grown as Moscow tries to avoid working with Western freighters and as customers in China and India supplant those in Europe, which have now been barred from buying Russian seaborne oil and refined products like the diesel.
Delivering to buyers further afield requires additional ships and shipowners willing to face greater complexity and legal risk, especially after the G7 countries imposed price caps on Russian oil.
Oil pumping jacks operate in an oil field near the Russian city of Neftekamsk on November 19, 2020. Credit: Andrey Rudakov/Bloomberg/Getty Images
The expansion of the shadow fleet highlights the drastic changes that the Russian war has wrought on the world oil market.
In its bid to stay in business, the world's second-biggest crude oil exporter has reshaped decades-old trading patterns and split the world's energy system in two.
"There's the fleet that doesn't do any business with Russia and the fleet that almost exclusively does business with Russia," said Richard Matthews, head of research at EA Gibson, an international shipping broker.
Only a few ships, he added, do "a bit of both."
Russia will reduce its oil production by 5% due to sanctions
"Grey" and "dark" ships
As Europe has divested from Russian energy, Asian buyers have been closing deals.
China increased its imports of Russian oil to 1.9 million barrels per day on average in 2022, 19% more than in 2021, according to the International Energy Agency.
India increased its purchases further, with an increase of 800%, to an average of 900,000 barrels per day.
Russian oil exports to China and India hit record highs in January, after a European ban on transporting Russian oil by sea came into effect, according to Kpler, a data and analytics firm.
Exports to Turkey, another major customer, also continued at a good pace.
(The ban on refined petroleum products did not take effect until February.)
Ships willing to travel are needed to meet these requests.
The Russian national fleet does not have enough ships.
That's where the "shadow fleet" comes into play.
Matthew Wright, senior freight analyst at Kpler, classifies ships carrying Russian crude into two categories: "grey ships" and "dark ships."
The gray ships have been sold since the invasion, mainly by European shipowners to companies in the Middle East and Asia that were not previously active in the tanker market.
The shadowy vessels, for their part, are veterans of Iran's and Venezuela's campaigns to avoid Western sanctions that have recently switched to carrying Russian crude.
"Often there are indications that they have been disguising their activities by turning off their AIS transponder," Wright said of the "shadow" vessels, referring to technology that helps identify and locate vessels.
Although Western countries have banned most Russian oil imports, there is no rule preventing Western vessels from delivering to buyers such as China and India, or providing services such as insurance, as long as price caps are respected. of the G7.
Vessels from European shipowners accounted for 36% of Russian crude trade in January, according to Kpler.
But the legal and reputational risks involved in breaching maximum prices are enormous.
At the same time, Russia is eager to stop working with Western shippers.
This has given rise to the development of a new cohort, whose composition is darker and whose history is more eventful.
Janiv Shah, an analyst at consultancy Rystad Energy, says: "We all expected the dark fleet carrying Venezuelan and Iranian oil to grow, and it has."
One reason: Sending Russian oil on longer voyages to China or India is less efficient than sending it to nearby countries like Finland.
Russia now needs four times as much transportation capacity for its crude oil as it did before the invasion, according to EA Gibson.
As a result, an estimated 25 to 35 vessels a month are sold to the shadow fleet, according to another senior executive at an oil trading company.
Global Witness, a nonprofit organization, estimates that a quarter of tanker sales between the end of February 2022 and January this year involved unknown buyers, roughly double the number the year before.
Demand could increase in the coming months if China needs more fuel to fuel its economic recovery.
Is oil the Achilles heel in the Russian economy?
Questions and risks
If a larger percentage of the world fleet is being used for Russian crude and oil products, that eats up capacity, raising costs for all oil traders.
"There has been a massive increase in inefficiency in the operation of the tanker market," says Kpler's Wright.
There are also questions about who ultimately leads the ghost fleet.
According to Sergey Vakulenko, a former executive of a Russian oil company and now a non-resident researcher at the Carnegie Endowment for International Peace, some suspect that some of the shell companies that have emerged are linked "to the Russian state or to certain actors with political connections." .
Last weekend, the European Union imposed sanctions on Sun Ship Management, a subsidiary of Sovcomflot, the largest Russian shipping company.
The EU stated that the Dubai-based company, registered a decade ago, had been "operating as one of the key companies in the management and exploitation of Russian oil shipping", and that "the Russian Federation is the ultimate beneficiary". of your business operations.
Furthermore, experts have claimed that the shadow fleet may be facilitating Russia's ability to evade sanctions or sell its oil above the maximum price.
It is also making it more difficult to discern exactly the final sale price of Russian barrels.
Experts like Vakulenko have found evidence in customs data that the Urals, the country's benchmark, sells for much higher prices in key ports than official prices indicate.
Security is also a concern.
The shadow fleet is believed to have a large contingent of ships older than 15 years, the age at which Big Oil usually retires them due to wear and tear.
Now, more of these vessels make voyages around the world.
"We have all these old ships that probably aren't being maintained as they should be," says EA Gibson's Matthews.
"The likelihood of a spill or serious accident is increasing by the day as this fleet grows."
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