How Russia Can Ship Its Oil To Asia Despite Sanctions: NPR


Oil tankers are seen at the Sheskharis complex, which is part of Chernomortransneft JSC, a subsidiary of Transneft PJSC, in Novorossiysk, Russia, on October 11. It is one of the largest facilities for oil and petroleum products in southern Russia.

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Oil tankers are seen at the Sheskharis complex, which is part of Chernomortransneft JSC, a subsidiary of Transneft PJSC, in Novorossiysk, Russia, on October 11. It is one of the largest facilities for oil and petroleum products in southern Russia.

AP

Before Russia’s invasion of Ukraine last February, Europe was by far the largest customer for the oil sales that give Moscow its wealth, even larger than Russia’s domestic market. But since European countries banned most Russian oil imports last year, Russia has been forced to sell more of it to other places like China and India.

However, Russia faces a dilemma. It can’t get its oil to those places like it did in Europe, and its tanker fleet can’t carry all of it. Needs more ships. But the United States and its allies have also imposed restrictions to prevent tankers and shipping services from carrying Russian oil, unless it is sold at $60 a barrel or less.

At the moment, the leading Russian brand of oil, Urals, is selling for less than this price. But that could change. So Russia will have to resort to a fleet of tankers willing to circumvent sanctions to get its crude to locations further afield, in Asia or elsewhere. It is known in the oil industry as the “shadow fleet”.

The shadow fleet consists of 200 to 300 vessels, says Erik Broekhuizen, an analyst at Poten & Partners, a brokerage and consulting firm specializing in energy and maritime transport.

“A lot of these ships have been bought in recent months in anticipation of this EU embargo,” he says. “The sole purpose of these ships is to transport Russian crude oil just in case it would be illegal for some kind of private owner to do so.”

Broekhuizen says the use of shadow fleets is a common practice and has long been used by Iran and Venezuela to avoid Western oil sanctions.

“So the Russians are just taking a page out of the same book and they’re kind of copying what the Iranians and the Venezuelans did,” he says. The main difference is that Russia is the largest oil exporter in the world.

Most of the ships in shadow fleets are owned by offshore companies in countries with more permissive shipping rules, such as Panama, Liberia and the Marshall Islands, says Basil Karatzas, CEO of Karatzas Marine Advisors in New York, a shipping finance advisory firm.

“A ship can change its name. It can change ownership while in transit,” he says. “So a ship can arrive at a port with a given name, and by the time it arrives [another] In port, he could be in the same ship with a different name and a different owner.”

Or they could surreptitiously move oil through ship-to-ship transfers in the middle of the ocean.

He says shadow fleet tanker owners have limited exposure to US or EU governments or banks, and so their fear of being penalized is limited. Implementation is difficult. The risk-reward ratio is favorable for shadow fleet tanker owners, Karatzas says.

“If you can make $10 or $20 a barrel. And the ship has a million barrels of oil in it, you can make the equivalent of $5.” [million]$10 million profit per flight. “If you could do that five times a year…you could see the economics of that.”

Shadow fleet carriers tend to be old and battered, Karatsas says. But since the beginning of the Ukraine war, it has become highly valued for shipments.

“In February 2022, the value of a 20-year-old ship was fairly close to scrap,” he says, adding that it could easily double in price. Now these ships are worth $40 million a year. And Putin gave the ship owners a very nice gift.

Currently, it is legal for any ship to transport Russian oil because it sells at prices below the cap imposed by Western countries, says Craig Kennedy of Harvard University’s Davis Center for Russian Eurasian Studies. But if the price rises above $60 a barrel, tankers will have to think twice.

And suddenly the Greek tankers are saying, ‘Wait a second, your loads are at $70. I can’t touch it. ” And suddenly there are no more ships for Russia. ” Greek tankers carry about 70% of the world’s crude oil.

Kennedy says Russia has a huge fleet but can carry less than 20% of its crude oil exports by sea.

He adds, “The shadow fleet and the Russians will remain. But the problem is that it is not nearly enough to maintain full Russian exports.” “Thus, the Kremlin will have to make a difficult decision. Does it cut production or lower prices?”

However, with such a highly lucrative business – and with little chance of getting caught – perhaps more tankers could be lured into joining the Shadow Fleet.

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