One year after Western sanctions on Russian oil entered into force, a question arises about the extent of their effectiveness in achieving their main declared goal of putting pressure on the sources of financing the war in Ukraine, in light of the recurring sight of oil tankers in the Mediterranean from the country that was rejected by the old continent.
Bloomberg says that Russia’s ways of circumventing Western sanctions have boosted the business of dozens of merchants and shipping companies that are difficult to track, while they receive $11 billion annually from Moscow’s oil revenues between the time the oil leaves Russia and until it reaches buyers, an amount that Bloomberg says is It “evaporates” from the total value of Russian oil sold.
Western sanctions set a ceiling for the price of a barrel of Russian oil transported by sea at $60, $24 less than the average market price over the past year. They also prevent companies in the Group of Seven from shipping crude from Russia or insuring tanker ships if this ceiling is exceeded.
The European Union banned almost all oil imports from Russia, which had until then been the bloc’s main supplier, prompting Moscow to turn to the oil markets of China and India.
The sanctions took the form of setting a price ceiling on shipping and insurance services to restrict Russian oil revenues without causing a rise in global energy prices, but in return, they led to a restructuring of the structure of oil trade and maritime trade in a way that experts believe may be difficult to return to normal at the end of the war or after. Lifting sanctions, as well as leaving the door open to invisible financial flows to the Kremlin to finance the war, according to Bloomberg.
Shadow fleet
Eddie Fishman, a researcher at the Center for Global Energy Policy at Columbia University, says that the “shadow fleet” and alternatives to Western maritime insurance are not new, and Iran has used them for years, but they have become more widespread after a huge producer like Russia resorted to them.
The researcher – who helped formulate previous US sanctions on Iran and Russia – adds that failure to take coordinated measures to increase the cost of using these alternatives will lead to their spread and become a structural feature of global oil trade.
Despite initial indications that the West is reacting in an attempt to thwart Russian solutions to circumvent the sanctions, Greece – the largest country that owns oil tankers in the world – says it is powerless to prevent secret shipping activities off its coast.
Spain – a member of the European Union – was able to eliminate similar activity earlier this year.
Greek-owned ships operate under a price ceiling and have handled more Russian oil this year than competitors from any country except Russia itself.
The Greek owners were able to maintain the commercial activity of their ships without violating European Union rules, after the diplomats of the southern country succeeded in pressuring other member states to ease measures that would have restricted the ability of shipping companies to trade with Russia.
Greek ships have transported 20% of all Russian oil shipments so far in 2023, and nearly a third of its exports of key Urals crude, according to shipping data.
The International Maritime Organization, the regulatory body that oversees shipping, said the illegal activities of the shadow fleet of oil tankers represented a “grave concern” for environmental safety, and called for a global campaign, demanding member states to strengthen measures to prevent illegal operations carried out by the fleet in Maritime sector.
While it avoided mentioning Russia by name, the organization noted that ships “pose a real and high risk of accidents, especially when involved in ship-to-ship transfers.”
The shadow fleet transported about 45% of Russian oil this year.
Lars Barstad, chief executive of the management arm of Frontline Ltd, which owns some of the world’s supertankers, said the shadow fleet “has become entrenched, and this will continue as long as regulators are unable to act against it.”
Double revenue
Russia’s revenues from its main tax-generating sources of oil doubled from April to last October.
Russia’s net oil revenues of $11.3 billion last October represented 31% of the country’s total net budget revenues for this month, according to Bloomberg calculations based on data from the Russian Ministry of Finance.
Local and shadow fleet owners collectively transported more than 70% of Russian oil shipments in the first nine months of 2023, allowing Moscow to maintain control over its exports and gradually increase prices.
Official Indian customs data shows that the price paid for Russian oil averaged $72 a barrel this year on delivery at the Asian country’s ports, $12 higher than the prices declared at the point of export in Russia, according to data compiled by the KSE Institute, an affiliate of For the Kiev School of Economics in favor of imposing strict sanctions on Moscow.
Given that Russia exported approximately 3.5 million barrels of oil per day this year, this means that about $11 billion will go to the “delivery margin,” including legitimate shipping costs, but almost all of it passing through unknown traders or unknown shipping companies. According to Bloomberg.
Before the Russian-Ukrainian war in February 2022, the bulk of Russian oil was handled by a group of traders operating from cities such as London and Geneva.
For his part, President Joe Biden’s energy security advisor, Amos Hochstein, said on Tuesday that his country will look more carefully at the maximum price, and that the US Treasury Department and others are taking measures to ensure a decline in Moscow’s profits from oil trade, following the rise in the price of Russian crude.
He added: “We will take action whenever we deem it necessary to reduce the price to or below the maximum level.”
At the end of the report, Bloomberg asked whether the United States and its allies really want to limit Russian oil flows, which would lead to a rise in global fuel prices, in an election year par excellence for US President Joe Biden.
