April 11, 2023News / Smuggling Of Illicit GoodsIn order to circumvent the economic sanctions affecting Russia, a shadow fleet has emerged. Its aim is simple : to continue trading hydrocarbons without being subject to sanctions. For this purpose, old ships are used to carry out illegal transshipments. Thus, the origin of the shipments is blurred and the financial manna earned is more important.
Sanctions on the Russian economy
Following the Russian invasion of Ukraine, the European Nations took measures to weaken Moscow. Exports have been mainly affected by sanctions aimed at weakening the Russian oil sector.
EU intends to harm Russian economy. In June 2022, the Council of the European Union adopted a sixth set of sanctions that, among other things, prohibits the purchase, import or transfer of crude oil transported by sea and certain oil products from Russia to the EU. The only exception applies to European countries that cannot find viable alternatives. Nonetheless, these measures should have a real impact knowing that Russian exports reached 24 billions of euros in 2019.
The restrictions apply progressively from the 5th December 2022 for crude oil and from February 5, 2023 for other refined petroleum products. Since most Russian oil delivered to the EU is transported by sea, these restrictions will cover nearly 90% of Russian oil imports to Europe by the end of 2022. This will significantly reduce Russia’s trade benefits.
The motivations behind the development of Russian shadow fleet
Recent media reports on January 2023 data reveal that federal budget Russian revenues from oil and gas taxes were down 54 % from December 2022 and 46 % from the same month in 2021.
Russian oil is still transported by tankers covered by western insurance. This insurance is only available if the oil was purchased at a price below the cap. The price of oil from the Urals, Russia’s main export grade, has fallen to a level $30-40 per barrel below international benchmark crudes such as Brent.
According to the Center for Research on Energy and Clean Air (CREA), Russia earns 560 millions euros a day from the export of fossil fuels. This 560 millions represent :
280 million euros from the sale of crude oil
160 million for oil products
60 million for natural gas via pipelines
60 million for coal
40 million for liquefied natural gas LNG sent by ship
These amounts explain the creation of a shadow fleet. It allows Moscow to be less dependent to the Western countries and to bypass the embargo.
Thus, there are several reasons for the use of illegal transshipment by Shadow fleet. First, it reduces the risk of sanctions for processing exports directly from Russian ports.
Secondly, due to the length of the voyages, it is necessary to transship small cargoes to larger tankers.
How is created the Shadow fleet ?
The Shadow fleet is composed of old vessels of medium capacity. They could be divided in two categories.
The first one is the black ships, long used by Iran and Venezuela to circumvent Western embargoes. They were mainly used to transport oil and petroleum products.
The second category is about grey ships. Most of them were sold after the Russian invasion of Ukraine. They were sold by Europeans to companies from the Middle East and Asia without any experience in the oil market. Their main goal was to bypass the sanctions.
Modernization obligations are pushing companies to put many seaworthy vessels on the second-hand market. This offers a wide range of ships in seaworthy condition to create a shadow fleet. In 2022, 29 VLCC “very large crude carriers” were purchase. There are each capable to carrying 2 million barrels of crude oil. In addition, Russia would acquire 31 Suezmax vessels of 1 million barrels each and 49 Aframax-sized vessels (700,000 barrels).
The acquisition and ownership of these vessels is opaque. The buyers are anonymous and travel to Hong Kong and Dubai, Cyprus and Singapore to purchase tankers.
The Sovcomflot (SCF) is accused of being linked to the Russian shadow fleet. SCF is subject to European sanctions for providing 70% of the oil transport in Russia’s interest. The company Sun Ship Management, which has acquired several vessels, is said to be a subsidiary of SCF. However, any connection is still denied by SCF.
Today, the ghost fleet is estimated at between 400 and 600 vessels, or 10% of the world’s oil tankers.
What is the shadow fleet role ?
The term “shadow fleet” refers to old vessels that operate without an AIS (Automatic Identification System). AIS transmits a ship’s position so that other vessels are aware of its position. Without it, they can perform illegal ship-to-ship transshipments (STS). These transshipments make the origin of products opaque. Typically, two to three STS are performed to transfer Russian oil.
These illegal transshipments take place around Ceuta, and more generally on the North African Mediterranean Coast. The number of vessels conducting STS activity in the Ceuta areas increased from 2 per month in May 2022 to 20 in January 2023. The Peloponnese region of Greece and South Korea are other locations where STS takes place.
Most of the shipments are destined for countries in Africa and Asia. China has recorded a 19% increase in Russian oil imports in 2022 compared to 2021. India has recorded an 800% increase to 900,000 barrels per day in 2022.
The dangers of the shadow fleet
The shadow fleet is source of several hazards. The vessels used are old, about 15 years. They usually are retired by oil companies due to risk of wear and tear. They are now used in the shadow fleet to travel around the globe, carrying tons of fossil fuels.
The story of the tanker Prestige is a paragon of possible disaster. The vessel broke up and its cargo leaked. No less than 50 000 tons of fuel oil spilled on the Spanish and Portuguese coasts.
Finally, the use of a phantom fleet hinders the achievement of the primary function of the embargo. Russia is not as weakened as was hoped. The shadow fleets mitigate the impact of the sanctions and provide a financial income to Russia. Furthermore, the multiplication of embargoes can encourage the integration of a shadow fleet. Shadow economies become profitable and may lead to a decrease in white shipping revenues.
Actions are starting to be taken
From 21 to 26 March, IMO (the International Maritime Organization) focused on ship-to-ship oil transfers and “dark fleet” tankers. Countries such as Spain, Australia, the United States and Canada are participating in the IMO’s campaign to strengthen the monitoring of obscure oil trade activities that have emerged over the past year.
They ring the alert about this practice. The risks of pollution for coastal states are significant. There are at high risk of incidents such as collisions. The Committee was informed that a fleet of older ships, including some not inspected recently, having substandard maintenance, unclear ownership and a severe lack of insurance, was currently operated as a ‘dark fleet’ or ‘shadow fleet’ to circumvent sanctions and high insurance costs.
They alert about the increasing risk of oil spill or collision. Another meeting will take place from 27 November to 6 December 2023.
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November 16, 2022FLASH NEWS / Smuggling Of Illicit GoodsNovember 8, The U.S. Navy and the U.S. Coast Guard have seized a cargo of explosive chemicals from a dhow en route to Yemen.According to 5th Fleet Commander Vice Adm Brad Cooper : “This was a massive amount of explosive material, enough to fuel more than a dozen medium-range ballistic missiles. The unlawful transfer of lethal aid from Iran does not go unnoticed. It is irresponsible, dangerous, and leads to violence and instability across the Middle East.”
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April 6, 2021Drug Trafficking / Illegal Exploitation Of Natural Ressources / News / Smuggling Of Illicit GoodsThe smuggling of illicit goods, in particular fish the Totoaba that is as lucrative and much less dangerous in terms of penal sanction than the traffic of cocaine. In 2018, according to an article published in The Guardian, the Mexico City police found 416 swim bladders in the suitcases of a Chinese tourist. The man was arrested and later released after paying a $600 fine.
The Totoaba is a protected endemic species. While scientists believe it to be a cultural fantasy, Chinese medicine believes it to have various medicinal and cosmetic properties, allegedly due to the protein contained in the fish’s swim bladder.
According to a study made by ADM Capital Foundation, a philanthropic group, three quarters of sales of products from endangered wildlife are destined for the traditional Chinese medicine industry.
Because of this Chinese market, the Totoaba is on the verge of extinction, with only a few specimens left in the waters of the Gulf of California. It is this scarcity that is driving up prices, to the point of calling it the cocaine of the seas as sales prices soar from $20,000 to $80,000 per kg.
In its downfall, the Totoaba is bringing with it the disappearance of the smallest harbour porpoise, also known as the little cow of the Pacific Vaquitas. In fact, this could be seen as collateral damage, taking into account the entrapment in the illegal fishing nets used by Totoaba fishermen in the Sea of Cortes.
Factfile on the Totoaba and Vaquitas
The international community and important personalities such as Leonardo Dicaprio are standing up to try to save what can still be saved, even if today the hope of avoiding the extinction of these two species seems very complicated.
In July 2020, the release of the film “Sea of Shadows” directed by Richard Ladkani, highlights the war waged by environmental activists alongside the Mexican Navy against the Mexican cartels and the Chinese mafia.
Finally, If this decline continues, it is likely to be extinguished in 2021.
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