Russia is building a “shadow fleet” of tankers to ease oil sanctions

Russia has been quietly amassing a fleet of more than 100 old tankers since its invasion of Ukraine to circumvent western restrictions on the sale of Russian oil, according to shipping brokers and analysts.

Shipping broker Braemar estimates that Moscow, which relies heavily on foreign tankers to transport its crude oil, has added more than 100 vessels this year through direct or indirect purchases. Energy consultancy Rystad says Russia will add 103 tankers in 2022 through the purchase and reallocation of vessels serving Iran and Venezuela, which are under Western oil embargoes.

The Kremlin’s push to assemble what the oil shipping industry calls Russia’s “shadow fleet” is an attempt to circumvent new international restrictions on the country’s oil. These include an EU seaborne import ban that came into force on Monday and a new global price cap of $60 a barrel, which the bloc backed on Friday and is part of a wider G7 initiative.

Traders say the shadow fleet will mitigate the impact of such measures, but will be powerless to eliminate it.

Punitive measures by the EU and G7 are expected to cut Moscow off from a large part of the global tanker fleet, as insurers such as Lloyd’s of London will be barred from covering ships carrying Russian oil – regardless of their destination – unless it is sold below the price threshold. scheme.

But Russia will not deal with any country that imposes the ceiling for a long time, which means it can refuse oil supplies on the terms imposed by the West.

Instead, it aims to use its new navy to supply countries such as India, China and Turkey, which have become bigger buyers of its oil as Europe cuts back.

The largely anonymous tanker purchases can be traced to a large increase in anonymous or new buyers appearing on the registers. Anoop Singh, head of tanker research at Braemar, said the vessels are generally 12 to 15 years old and are expected to be scrapped in the next few years.

“These are buyers that we, as longtime brokers, are unfamiliar with,” Singh said. “We are sure that most of these ships are headed for Russia.”

In 2022, Russian-linked operators are suspected of buying 29 supertankers, known as VLCCs, each capable of carrying more than 2 million barrels of oil. The country is also expected to add 31 Suezmax tankers, each capable of carrying about 1 million barrels, and 49 Aframax tankers, each capable of carrying about 700,000 barrels.

Andrey Kostin, head of Russia’s state bank VTB, confirmed the move in October, saying the country needed to spend “at least 1 trillion rupiah ($16.2 billion)” to “expand its tanker fleet.” Russian Deputy Prime Minister Alexander Novak said in March that his country would build “supply chains” in oil. The Kremlin did not respond to a request for comment on the tanker purchase on Friday.

“The number of ships that Russia would need to transport all of its oil is simply eye-watering,” said Craig Kennedy, a Russian oil expert who has been watching the build-up of Russian ships at Harvard’s Davis Center. “In recent months, we have seen a significant number of sales to unnamed buyers, and several weeks after the sale, many of these tankers show up in Russia to pick up their first cargo of crude oil.”

Kennedy questioned whether the VLCCs would be used by Moscow because some were too large to load in Russian ports, even if they could be used for ship-to-ship transfers. He added that all ships bought by anonymous or unknown buyers cannot go exclusively to Russian service.

Russia is still expected to face a shortage of tankers and may struggle to maintain export levels in the first months of 2023, which will push up prices, analysts said.

Kennedy said the shortage could increase when the EU ban applies to Russian refined fuels in February. Russia will need access to more tankers than ever because the length of each trip will be longer; Oil previously sold within Europe will be sent to new buyers in Asia.

Braemar expects Russia’s deficit to be between 700,000 and 1.5 million barrels per day. Rystad estimates Russia will have a shortfall of 60 to 70 tankers and expects seaborne exports to fall by about 200,000 barrels per day.

If Moscow retaliates by cutting off pipelines to Europe that are not subject to sanctions, without enough tankers to reroute them, Russia’s total loss in the market could eventually reach 600,000 barrels a day, Rystad said.

“Russia needs more than 240 tankers to maintain its current exports,” Rystad analyst Viktor Kurilov said.

Kennedy of the Harvard Davis Center added: “You can come up with all sorts of clever schemes, but there’s only so much oil to move – they’re always going to struggle to operate at the scale needed to keep Russian exports intact, there’s no price cap. Sales.”

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