Western nations imposed a $60 per barrel price cap on Russian crude to reduce the Kremlin’s war funds. Since Monday, tankers carrying Russian crude have to adopt the price cap to obtain insurance coverage from European Union and Group of 7 companies, which control up to 90 percent of the global marine insurance market.
In an earlier TMC article, I explain why the West’s price cap could backfire. Russian crude trades at $50/barrel — that’s $10 below the price cap — and Russia has also built a “dark” tanker fleet to reduce its reliance on Western shipping companies.
This dark tanker fleet helps Russia evade the West’s sanctions. But the vessels are substandard and operate outside of global regulatory frameworks. Sanction-busting involves risky activities that can cause accidents and oil spills, with catastrophic consequences for the marine environment.
Shipping regulations are designed to cut maritime risks
Global shipping is a dangerous business, but maritime safety records have improved in recent decades. Most nations have adopted global shipping conventions and cooperate with efforts to ensure safety at sea. For example, countries enforce regulations in their ports, and countries that register marine vessels maintain safety standards on their vessels to avoid costly port inspections. Insurers, charterers and shipowners support these efforts to minimize compliance risks.
Of course, shipping accidents still happen — like the 2020 MV Wakashio oil spill off Mauritius, or the 2021 Ever Given’s blockage of the Suez Canal. With more oil tankers now operating outside the rules, more accidents may be likely.
Sanctioned oil exporters such as Iran, Venezuela and now Russia rely on dark tankers — fleets of elderly and substandard vessels with questionable insurance and safety standards — that don’t necessarily comply with shipping rules. These vessels often register in small countries, such as Palau or Cameroon, that haven’t adopted major maritime conventions or lack the capacity to enforce regulations on their vessels.
Dark tankers then operate between smaller ports and sanctioned countries where authorities don’t require safety licenses. According to one analyst, “the risk that these vessels are involved in accidents is elevated and so is the potential harm that could be inflicted on the crews and the environment.”
Russia’s sanction-busting tankers, in fact, have already caused at least one dangerous accident. On Sept. 28, the Panama-flagged tanker Zephyr crashed into a Maersk container ship in the busy Malacca Strait off the Malaysian coast. Owned through anonymous shell companies, the 20-year-old tanker was allegedly part of an illicit shipping network connected to Iranian oil exports. The tanker was carrying Russian crude to China, which has become a big importer of Russian oil.
An environmental catastrophe is one risk
The risk of shipping accidents will probably increase dramatically as Russia expands its dark tanker fleet to evade the West’s shipping sanctions. Analysts have identified more than 160 tankers that already carry sanctioned Iranian and Venezuelan crude around the globe. In early November, 43 elderly tankers carrying Russian, Iranian and Venezuelan crude were anchored off Malaysia, “amplifying marine casualty risks,” according to one report.
Russia produces more than twice as much oil as Iran and Venezuela combined, so this fleet could grow to more than 400 vessels in the coming months. The market for aging crude oil tankers is already booming. An anonymous Chinese buyer, for instance, recently spent $376 million to buy 13 old tankers to transport Russian crude to China.
Many of these tankers will sail through the Danish straits, following Russia’s major oil export route. Nearly 200 tankers pass through the Danish straits each month, carrying about 1.5 million barrels of crude per day. The routes are treacherous, with rocky coasts, islands, tides, sandbanks and frequent storms. Therefore, most vessels — up to 95 percent in August — follow the recommendations of the International Maritime Organization and rely on navigation pilots provided by the Danish Maritime Authority.
Under the West’s sanctions, however, Danish officials might no longer be allowed to assist tankers carrying sanctioned Russian crude. Tanker operators might also refuse to take on official pilots who could investigate their activities. According to Danish authorities, a rise in unsupervised Russian oil shipping “poses an environmental risk to Danish territorial waters” and a navigational safety risk to these ships and their crew.
Covert ship-to-ship oil transfers are another risky activity that’s likely to increase dramatically due to the West’s sanctions. Sanction-busting tankers often transfer oil to other vessels to “launder” their cargo and to cover up its illicit origins. To evade sanctions, these tankers ignore the International Convention for the Prevention of Pollution from Ships, which regulates legitimate ship-to-ship transfers. For example, sanction-busting tankers often turn off their vessel tracking systems, and they don’t share information with their coastal and flag state authorities, who are responsible for monitoring oil transfers. One investigation found that the lack of oversight allows illicit tanker operators to use deficient equipment that can cause oil leaks.
The eastern Mediterranean has already become a major hub for covert Russian crude transfers. Tankers from Russia conducted 175 oil transfers off the Greek coast between February and August 2022, compared to nine transfers in 2021. Another area for illicit and high-risk tanker activity is the North Atlantic, where floating storage vessels facilitate dangerous Russian crude exchanges between tankers for shipment to Asia. Russia’s covert tanker activities to avoid the West’s shipping sanctions thus significantly increase the risk of dangerous accidents and oil spills.
Can sanction-busting tankers operate more safely?
Ensuring safer operations of tankers operating outside maritime regulatory frameworks will become a major challenge for E.U. and G-7 maritime authorities. If G-7 and E.U. authorities seek to mitigate the safety risks, one option would be to conduct enhanced satellite monitoring of risky shipping activities. And Western countries could also undertake advance preparations to assist sanction-busting tankers in distress. They could also cooperate with India, China and other big importers of Russian crude to guarantee safety standards on sanction-busting vessels. Enhancing marine safety cooperation will be vital to help make Russia’s dark oil shipments less risky — even if this helps the Kremlin evade the West’s seaborne crude oil sanctions.