Russia’s Shadow Fleet Poses Threat to Other Countries: Report

The ageing fleet of vessels Russia uses to transport its main export and evade oil sanctions would cause an environmental catastrophe, according to a Ukranian report released Monday.

The Kyiv School of Economics think tank, the KSE Institute, has raised the alarm over the ecological dangers of the “shadow fleet” that the Kremlin uses to circumvent a G7 ban on firms from insuring, financing and shipping Russian seaborne oil exports sold above $60 a barrel.

The goal of the price cap was to choke revenues fueling Russian President Vladimir Putin’s war machine, but Moscow has responded by transporting oil through vessels whose ownership is reorganized to hide Russian links, often through shell companies.

Despite this crackdown, Russia has expanded the capacity of oil transported by its shadow fleet of oil tankers by almost 70 per cent year on year—from 2.4 million barrels per day in June 2023 to 4.1 million in June 2024, the KSE said in its report.

As well as thwarting sanctions, transporting oil on ageing and inadequately insured ships means that Russia is risking an ecological catastrophe, with two recent near misses in the Danish straits highlighting the environmental risks the vessels pose.

Benjamin Hilgenstock, a senior economist at KSE Institute and the report’s co-author told Newsweek: “So far, we have been lucky because either an incident was narrowly avoided or, when it happened, the vessel was empty. But it’s really a question of time until that luck runs out.”

In the first half of 2024, 72 percent of Russian seaborne oil was shipped from Baltic and Black Sea ports, 58 percent of which was moved on shadow tankers, the KSE said.

This means that more than 75 million barrels every month travel on ships that are on average 18 years old, not properly maintained and likely inadequately insured, said the report, which recommended that coastal states need to push for “shadow-free zones.”

In March 2024, a 15-year-old shadow tanker, the Andromeda Star, collided with an unnamed vessel near the northern tip of Jutland, Denmark, the Danish maritime agency said. The tanker was heading towards Russia and so was unloaded, but on an outbound voyage it would have carried up to 700,000 barrels of crude oil.

In May 2023, another shadow fleet tanker, Canis Power, loaded with 340,000 barrels of Russian oil products and coming from the Russian port of Vysotsk, lost engine power while passing through the Danish straits and almost ran aground.

The KSE report said the loss of engine power is a frequent issue for shadow fleet tankers and can be serious, especially in narrow and shallow waters.

The Hera 1 experienced such issues while passing through the Dardanelles strait near Turkey in May 2024, as did the Turba off the coast of Indonesia in October 2023, and the Destan near Vadinar, India, in August 2024.

Hilgenstock said: “Governments know this is a critical issue and a pretty urgent one, and that the consequences would be fairly catastrophic and that they would end up paying for it as well. The thing, is they haven’t entirely figured out what to do.”

Insurance is Shadow Fleet’s weak spot

The KSE said that in order to curb Russian oil revenues and ensure safety on the seas, governments should demand insurance documentation from all vessels passing through or near their waters.

A ship’s protection and indemnity (P&I) insurance, which is mandatory under international maritime law, can be used to pay out in the event of an incident. Countries imposing the oil price cap should also pressure flag state authorities (the country that a ship is registered in) to verify the adequacy of oil spill insurance when providing or renewing registrations.

Moscow has spent around $10 billion on developing Russia’s shadow fleet, purchasing older tankers on the second-hand market and stripping them of links to price cap coalition countries.

Around 70 percent of Russian’s seaborne oil exports overall, and 90 percent of crude oil products particularly, were recently transported by shadow tankers and so did not fall under the price cap, the KSE said.

But Moscow has been forced to look for other insurance, via state-owned insurer Ingosstrakh, for tankers from Russia’s largest shipping firm Sovcomflot after they faced sanctions.

These P&I policies were reinsured by the Russian National Reinsurance Company (RNRC), a subsidiary of the Central Bank of Russia.

At least three other Russian companies appear to be involved in giving P&I insurance to the shadow fleet, the KSE said. Oil spill insurance for Russian ships is likely to be insufficient. Information on insurance coverage is available to the flag states the vessels are sailing under, but it is not known to countries whose coasts the vessels sail by.

Newsweek has contacted Ingosstrakh, Sovcomflot and the Russian Ministry of Foreign Affrais for comment.

Hilgenstock said:”What we want to do is to use the threat of vessel designations to impose this insurance requirement and really get at the environmental issue.

“If governments want to sanction more shadow fleet vessels out of existence, that’s wonderful, but we want to use this as a more systematic mechanism to really address the environmental concerns.”

In June, Danish Foreign Minister Lars Løkke Rasmussen said that Denmark and a group of other Western countries will try to limit or stop Russia’s shadow fleet moving through the Baltic Sea, by invoking some form of coastal state rights to prevent environmental harms.

In August, the KSE said that 307 shadow tankers had carried Russian crude oil between January 2023 and June 2024, of which 45 were part of the “core” shadow fleet.

The KSE will share its latest findings with sanction authorities in partner countries, as the issue of Russia’s oil transportation is likely to increase over time. Last week, the BBC reported that the British Treasury had investigated 52 unnamed U.K.-linked companies for breaching Russian oil sanctions, but is yet to hand out a single fine.

Hilgenstock said: “The fact that the shadow fleet is environmental menace and that it has to do with insurance is broadly accepted within sanctions coalition governments. They just haven’t figured out what to do about it.”