FRANKFURT, Germany — The Group of Seven (G7) nations has been actively working to limit Russia’s crude oil export income, a crucial source of funding for its ongoing military operations in Ukraine. However, according to insights from Western governments and sanctions analysts, Russia has adapted to these restrictions by utilizing what is known as a shadow fleet. This clandestine network comprises hundreds of aging oil tankers, often with unclear ownership and questionable safety standards, effectively circumventing sanctions while allowing the flow of oil revenue to continue.
Understanding the shadow fleet’s structure is essential. This fleet consists primarily of older vessels, typically acquired second-hand by obscure entities, frequently registered in countries that have not imposed sanctions, such as the United Arab Emirates or the Marshall Islands. Many are flagged in nations like Gabon or the Cook Islands. Some of these ships are directly owned by Sovcomflot, the Russian state shipping company. Their primary function is to assist Russian oil sellers in bypassing the $60 per barrel price limit set by the G7 nations aiding Ukraine. As per estimates from various sources, over 400 vessels are currently capable of transporting crude oil and its derivative products like diesel and gasoline.
Interestingly, the shadow fleet isn’t entirely hidden from view. The vessels openly dock at Russian oil terminals, and some have clear links to Russian enterprises, particularly those linked to Sovcomflot. In many instances, the actual ownership and operational practices surrounding these ships remain ambiguous. Nonetheless, what differentiates these vessels is their capacity to operate outside the jurisdictions of G7-sanctioned territories while still transporting Russian oil. So far, Russian authorities have refrained from making public comments regarding this shadow fleet.
Another key component of this situation is the price cap itself, which is designed to curb Russia’s oil revenue while ensuring that oil continues to flow onto the global markets. This initiative went into action on December 5, 2022, and works by prohibiting service providers, including shipping managers and insurers, from engaging with oil priced above the set threshold. The enforcement mechanisms primarily target companies from Western nations, making it easier to implement sanctions effectively.
A recent study shows that before the cap was introduced, around 70% of Russian oil was shifted using vessels insured by the International Group, a consortium of Western insurers. Currently, that figure has plummeted to just 10%. The clandestine fleet exploits this loophole by acquiring older ships, which they then connect with new insurance options located in Russia and other non-Western jurisdictions, thus navigating around the cap successfully.
Despite these evasive maneuvers, the sanctions framework remains effective to some degree. The United States, United Kingdom, and European Union have combined their efforts to impose sanctions on roughly 270 vessels identified as violating the price cap restrictions. As a result, any transactions linked to these ships can entail serious consequences for customers, traders, and banking institutions, particularly under U.S. sanctions, which carry the threat of disrupting business operations with one of the world’s leading economic forces. Recently, the U.S. added 183 more vessels to its sanctions list, many of which belong to the shadow fleet, while also blocking transactions with two Russian insurance firms.
The fate of many of these targeted vessels has taken a downturn, with approximately two-thirds rendered inactive, illustrating that the costs associated with engaging in prohibited trade can accumulate despite total prohibition being unfeasible.
Environmental worries also arise due to the age and condition of these vessels. With an average lifespan nearing 18 years, these ships are increasingly susceptible to accidents, especially if they lack adequate maintenance. The reliability of non-International Group insurance outside of established Western networks is questionable, raising concerns regarding financial liability for environmental crises, particularly if an oil spill occurs in the Baltic Sea, the Aegean Sea, or the English Channel—major transit routes for Russian tankers servicing clients in countries like China, India, and Turkey.
Incident reports have already surfaced; for instance, in May 2023, a shadow fleet tanker faced engine failure and nearly ran aground while navigating through the Danish Straits. In response, several countries, including the UK and the Nordic nations, have begun mandating insurance disclosures from suspected shadow vessels. While vessels aren’t being halted, those that don’t provide proof of sufficient insurance risk being added to sanctions lists.
The Baltic region has seen enhanced monitoring due to concerns about potential damage to critical undersea infrastructure. A recent seizure by Finnish authorities involved a shadow fleet vessel suspected of anchoring risks that threaten the Estlink 2 power cable connecting Finland to Estonia.
The significance of the shadow fleet plays a crucial role in the broader conflict with Ukraine. Experts suggest that by circumventing the price cap, Russia has managed to maintain a competitive price for its oil in global markets. The discount on Russian oil relative to the benchmark Brent crude has noticeably decreased, from about $35 per barrel down to under $10. Consequently, Russia’s oil revenues have remained stable, averaging around $16.4 billion monthly between 2023 and 2024, even garnering a profit boost from evading sanctions worth $9.4 billion.
Such earnings have implications for not just military funding, allowing the Kremlin to finance weapon production, but also economic stability. Revenue from oil production supports the Russian economy by keeping budget deficits manageable and stabilizing the ruble’s value. This trade balance sustains Russia’s financial position, ensuring that the country is not significantly constrained in its military or budget spending as assessed by economists from the Kyiv School of Economics.
