Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is markets editor and analyst at Lloyd’s List
If G7 leaders really want to enforce a proposed strict price cap on Russian oil exports, then they will have to do more to plug the regulatory gaps in the global shipping industry.
Russian oil producers and Chinese buyers are already exploiting the same tactics used to ship US-sanctioned Iranian and Venezuelan crude around the globe.
Such strategies to obfuscate the origin and destination of oil are numerous, and are threatening the integrity of the global regulatory system underpinning world trade.
But at the core of these tactics are multiple ship-to-ship transfers on a fleet of elderly, anonymously owned tankers, which regularly change names and national flags, often with laundered identification numbers. They also tend to have questionable insurance, and switch off or manipulate vessel-tracking data so movements cannot be traced.
This underbelly of substandard ships travel some of the world’s busiest waters carrying billions of dollars of oil unchecked.
Combined Iranian and Venezuelan volumes are about 1.5mn-1.6mn barrels a day, which is 3 per cent of total seaborne trade in oil. Iran is 1-1.2mn b/d of this and Venezuela 400,000 to 500,000 b/d. To put that in context with Russia: In August, 1.7mn bpd of Russian seaborne crude exports went to EU, 1.7mn b/d to China and 1mn b/d to India.
About 220 tankers are thought to use subterfuge to evade detection of shipments of US-sanctioned Venezuelan and Iranian oil, mostly to China and Syria. The legal committee of the UN agency responsible for shipping, the International Maritime Organisation, is investigating the practices with a report due in 2024.
Russian oil producers will be able to quickly scale up logistics workarounds with buyers so that at least some of its oil can circumvent embargoes and price caps; there is evidence this has already begun. At least a dozen tankers previously engaged in Iranian or Venezuelan oil trades have switched to Russia in the past three months as European and North American bans begin, and amid self-sanctioning by many north-west European shipowners.
Post sanctions, once Russia-linked and newly acquired ships are added to the mix, 400 vessels could be deployed on transporting oil from Iran, Russia and Venezuela, according to an estimate by Paris-based shipowner BRS Group. That would be about 10 per cent of the international tanker fleet.
At least one anonymous Chinese buyer has spent $376mn since February to acquire a fleet of 13 elderly tankers now at the centre of a fully operational, mid-Atlantic tanker shipment hub for Russian crude to China, a Lloyd’s List investigation showed. This hub, located in international waters, enables high-risk, ship-to-ship transfers of Russian-origin crude.
Under scant regulatory and technical oversight, oil from Baltic Russian ports is transferred to larger tankers, often with vessel-tracking transponders off. The tankers then sail for China.
The same mid-Atlantic transshipment practices for Russian oil are seen at anchorages off Malta, Ceuta (the Spanish autonomous city on the Moroccan side of the Strait of Gibraltar) as well as Kalamata off Greece, Kavkaz in Russia, and Alexandria in Egypt. Similar hubs for Iran crude are seen at anchorages in international waters off the United Arab Emirates, Oman and Malaysia.
Other tactics allow vessels to broadcast or display misleading details about their location or identity. The transmission of laundered Maritime Mobile Service Identity numbers, a nine-digit number assigned to a ship’s radio, allows owners to change things around in much the same way as putting in new SIM card can change a mobile phone’s number.
More worryingly, the North Korean playbook shows Russia it is possible to launder identity numbers, which are issued by the UN agency and meant to remain with a ship for its lifetime, no matter how many times its name or ownership changes. Any accompanying phoney documentation goes unchecked because shipowners target countries to register, or flag, vessels where law enforcement is poorly resourced.
A key question though might be how strict the G7 wants to be in enforcing a price cap. It is clear that even if the grey market in Russian oil expands, it is still not enough to carry all the volume sailing to China, India and the EU. A shortfall in supply will add to upward pressures on oil prices, risking more cash going to the Kremlin.