By: Erlend Hokholt

Introduction
Over the past few months, the presence of the Russian "shadow fleet" has grown significantly. ‘“Shadow fleet" or “dark fleet” describes the use of old tankers with questionable ownership to help ship crude oil. Due to the complex and frequently shifting ownership structures, determining the exact number of vessels within this "shadow fleet" is challenging, which is advantageous for those who wish to conduct their business discreetly. However, It is estimated that about 400-600 crude oil vessels have “switched” from mainstream trades to “ostensibly do Russian business,” in the grey market. This accounts for an estimated 10% of all crude oil transported via sea.

Russia has faced heavy sanctions since Ukraine’s invasion, such as the G7 and the EU’s ban on almost all Russian oils and fuels since December 2022, to stop the financing of the Russian government. Therefore, Russia needs a fleet of oil tankers to transport them on ships to other clients willing to accept their oil and gas. In this assessment, I will analyze how the sanctions are implemented, Russia’s need for a dark fleet, the methods of evading sanctions, and how ship-to-ship transfer outside the coast of Spain is a hub for transferring Russian oil. I will trace two vessels, Veronica and Anshun II, also known as An shun II, that complete ship-to-ship transfer of Russian oil outside the coast of Spanish Ceuta and then transport it to buyers in Asia. 

Denial of insurance and services as a sanctioning tool

The shipping and oil sectors are particularly impacted by two significant sanctions mechanisms: the EU oil embargo and the price cap. The EU has imposed strict sanctions on Russian oil exports to Europe, However, a complete restriction on Russian gas exports could destabilize global markets. Therefore, the price cap aims to limit Russia's revenue by setting a low price for their oil on the global market as well. The EU and US enforce the price cap by denying services and insurance to non-compliant entities.

Western countries have attempted to restrict tanker access to companies that transport Russian oil and gas by restricting access to insurance and other essential services sold above the agreed cap price of 60 dollars and denying Russian-affiliated ships into EU ports. This is made possible because most of the biggest insurance companies are located in the UK and the US. The so-called p&I insurance club consists of a handful of companies that provide insurance for approximately 90% of the world’s tonnage. As a result, by denying Russian vessels insurance and ports, you close them out of international shipping and halt their capability of transporting their oil.

     Russian dark fleet keeps the oil flowing 

The sanctions to stop the flow of Russian oil seem less effective than previously thought because of the increased use of the “shadow fleet”, which continues the trade of oil shipped from the Russian ports of Primorsk, Ust-Luga, and St Petersburg in the baltic sea to buyers in India and Asia primarily. We have also seen a transition away from using insurance and services from traditional insurance companies to more unknown internal Russian insurers instead. 

Using ships that are hard to trace, not transparent about ownership, and neglect the need for insurance, makes it possible to avoid the price cap. For example, Russia can deliver a load of crude oil sold to a Chinese or Indian firm for more than the $60-per-barrel limit. Furthermore, shadow ships can also transport Russian oil to buyers in nations that would prefer to keep their dealings with Moscow under the radar.  This grey market is a lucrative business for shipowners willing to take the risk as vessels that would be scrapped and replaced by newer ships are used in the grey market. As a result, the shipowners earn more profits than in the compliant market. Furthermore, vagueness in what is allowed and what is not, makes it difficult to stop the grey trade authorities. However, there is political pressure, especially from Ukraine to stop the trade of Russian oil. However, it is unlikely that this will halt the grey market because the demand for cheap oil is still great. 

Evasion techniques 

Russia uses several ways to evade sanctions, many of them similar to those Venezuela and Iran have used in the past. Iran and Venezuela have developed techniques, especially in the last decades, to evade international sanctions and trade with willing buyers. The techniques to evade sanctions include:  

• temporarily disabling vessel-tracking transponders 

• using multiple ship-to-ship transfers (STS)

• using obscure sailing patterns. 

These practices are often paired with other measures, such as using vessels with complex ownership structures and flagging vessels in jurisdictions with minimal oversight. In addition, we have seen how older vessels were acquired around the same time as the invasion began for the goal of shipping Russian oil. Furthermore, an increase in Russian ships without a reported destination arose, a sign that Russia wants to keep their vessels’ destination unknown.  For months these practices have come together and been used outside of Ceuta’s coast, in Spain. Ceuta has become a transit hub for ship-to-ship transfer of Russian oil. Since early February, Spanish authorities warned local shipping services firms reminding them of a prohibition on providing fenders for ship-to-ship transfers if that involved Russian oil, or the suspicion of Russian oil, even in international waters. However, these practices continue as the tankers Veronica and Anshun II are evidence for. 

STS is a beneficial way to change the cargo from a sanctioned ship onto a non-sanctioned ship as by changing ships,  the cargo’s origin is concealed. For example, almost 30 million barrels of Russian Urals have been moved between tankers this year. Ceuta accounts for about 43% of these activities, and Kalamata in Greece has almost all the rest. Russia is also attempting to conceal the origin of its crude oil by blending and re-naming it as a ‘Latvian blend”.  A ship-to-ship transfer is often done in international waters to avoid government control and because Russian-affiliated ships are banned from EU ports.

Ship-to-ship transfer (STS): tracking veronica and Anshun Il

Tracking Veronica 

the methodology in this report is based on OSINT sources such as AIS tracking and open ownership registrations. Veronica was built in 2006 and has Chinese owners, but the registered owner changed a month ago, IMO:  9326055.

Veronica has sailed from southeast Asia, close to Singapore.  The vessel has been lying outside the coast of Ceuta, as seen in Image nº2. The vessel has been waiting to transfer oil from another vessel, as we will see in the following image (top right corner). As this post from @Michellewb has confirmed, the two tankers, Vesna and Veronica, are undertaking a ship-to-ship transfer of Russian oil outside of Ceuta (March 1). Vesnas IMO is 9233349. Vesna came with Russian cargo from the Russian port of Ust-Luga on Feb 14. After the successful transfer of Russian oil to Veronica, Veronica is now heading south outside the coast of Africa. In image nº4, you see Veronica leaving the Mediterranean. Veronica’s next destination is “FOR ORDER”, meaning there is no end destination reported. However, it is most likely that Veronica is headed south,  very likely heading to buyers in Asia, as seen in the potential customers buying Russian oil. 

Tracking Anshun II 

Another example is the tracking of the ship Anshun II, IMO: 9253117. Anshun II was built in 2003. However, it is harder to find information about the owners of this vessel. Allegedly it is reported to be managed by Amarine ship management ptw, where owners are registered as Cayman Islands Laurel Shipping Ltd.

Anshun II sailed from the Chinese port of Dongjiakou on January 13. The vessel is still outside the coast of Ceuta, as you can see in image nº7.  The vessel has reportedly received cargo from one other smaller vessel, and it is anticipated that STS will happen. One of these ships that transfer Russian cargo onto the Anshun II is most likely the vessel Merope. Merope was built in 2003 and registered in Liberia, IMO: 928189. However, it was hard to find registered owners through open sources. Merope left the Russian port of Primorsk on February 22 with Russian cargo. Merope past track overlaps the track of Anshun II, and the two vessels completed an STS, shown in the picture. Anshun II and Merope together outside Cueta. Anshun II will complete the same trip to Asia as Veronica after completing the STS in the near future. 

As mentioned earlier, these evasion tactics are used together with other tactics to hide and create uncertainty regarding owners and cargo. For example, in February 2022, around the same time as the invasion, we saw a rise in oil tankers being bought and changing owners. These new owners have complex ownership structures often registered in jurisdictions with low regulatory accountability, for example, Dubai or Hong Kong. In both the cases of Veronica and Anshun II’s vessels, pinpointing the real owners is complicated as ownership has changed several times over a short period.

Temporarily disabling vessel-tracking transponders (also obscuring the vessel-tracking system)  

There are ways to turn off the vessel's AIS tracker or manipulate the tracker, so it looks like you are elsewhere. By turning off tracking or showing that you are in another place, the actor or vessel can create deniability in transporting goods from sanctioned actors or ports. We see this in both the cases of the Vessels Veronica and Anshun II. Both vessels have a history of turning off their AIS tracker to disguise where their cargo came from.

Consequences and risks 

There are several potential risks connected with the unregulated market of the dark fleet. Firstly, the dark fleet may stall the sanctions' effect on Russia. It questions the government and industry’s effectiveness in complying with the sanctions they have put in place, especially as we can see that the trade is happening outside the Mediterranean coast. Furthermore, the dark fleet is an example of actors taking advantage of the vagueness of sanctions. 

However, It appears that Russia's financial losses may not be as severe as initially thought, although the lack of transparency in the industry makes it difficult to accurately measure the impact. Nonetheless, there are indications that Russia's economy is still being adversely affected. The EU oil embargo forces the tankers to haul longer distances, keeping them at sea for weeks and halting the possibility of shipping Russian oil. Furthermore, STS and other evasion tactics often need a longer time to deliver,  slowing down the oil’s delivery. 

Secondly, many of these ships are old tankers that were supposed to be off the market. These tankers are less safe and polluted than newer models, and there is a higher risk that these ships can become an environmental hazard. For instance, this happened in the case of the grounding of the Young Yong VLCC in Southeast Asia. A 21-year-old blacklisted tanker ran aground in the Singapore strait and was reported to have several critical faults. Lastly, without insurance and a transparent ownership structure, it becomes harder to give accountability if an accident happens on the ship. For example, there is uncertainty if an internal Russian insurer is willing or able to cover damages.

  Future of the dark fleet

The future of the grey market is influenced by three key factors. Firstly, the West's ability to enforce the price cap is a crucial determinant. Secondly, the willingness to exert pressure on geostrategic allies like for example India, also plays a vital role. Thirdly, there are potential benefits of tolerating sanction evasion and keeping the business going, as it may help stabilize the global oil market and keep inflation under control. To summarize, a burgeoning illicit shipping market increases business risks. Nevertheless, there has been a noticeable rise in the determination of both regulators and the industry to combat this shadowy fleet. It remains to be seen whether their efforts will be fruitful in the coming months and if there is a willingness to enforce the sanctions.