India looks to increase its oil tanker fleet

In response to the Ukraine crisis, the United States and its allies imposed economic sanctions on Russian oil in February 2022. Later that year, they introduced a $60 cap on crude and an embargo on Russian seaborne oil, with the aim of hurting the country's economy while ensuring the continued flow of Russian crude to global markets to prevent price hikes.

The sanctions also prohibited Western companies from providing services such as insurance, financing, and flagging to Russian tankers that sell crude oil above the agreed price cap.Despite these measures, Russia successfully redirected its oil exports to alternative markets, notably China and India. China primarily receives Russian oil through pipelines, while India, which increased its seaborne imports by over 60% in 2023 compared to the previous year, has significantly increased its maritime oil imports. Therefore, India was most affected by the sanctions on tankers.Media reports on Monday indicated that the outgoing Biden administration is planning to impose further sanctions on Russia, targeting its oil revenues by taking action against tankers carrying Russian crude.
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Discussions regarding sanctions against Russia's so-called 'shadow fleet' have recently escalated, with US Treasury Secretary Janet Yellen indicating that Washington is in the process of developing sanctions on tankers and is 'considering' the possibility of imposing measures on Chinese banks, as it seeks to reduce Russia's oil revenue.In December 2024, the EU passed a 15th sanctions package targeting several dozen vessels of what Western officials and media refer to as "Russia's shadow fleet".

New Delhi has been closely monitoring these developments.Since the escalation of the Ukraine crisis in 2022, India has emerged as Russia's second largest buyer of oil, overtaking China as the number one buyer this summer.Plus India has increased its sales of crude oil to third parties and vastly increased its sales of petroleum products worldwide particularly to Europe so it and Russia need to increase their tanker fleets so as to protect themselves from sanctions.    

The size of oil tankers varies significantly, with capacities ranging from a few thousand metric tons of deadweight (DWT) to ultra-large crude carriers (ULCCs) capable of carrying up to 550,000 DWT and a cargo capacity of over three million barrels (equivalent to over 500 million liters).These vessels play a crucial role in the global oil transportation network, with an annual cargo transport capacity of approximately two billion metric tons, making them second only to pipelines in terms of efficiency. The average transportation cost for crude oil by tanker ranges from $5 to $8 per cubic metre ($0.02 to $0.03 per US gallon).
In addition to standard tankers, there has been an emergence of specialised vessels such as naval replenishment oilers, which have enabled the refuelling of moving ships. The construction of a new tanker typically takes around two years from order to delivery, with the actual construction phase lasting nine to 15 months. In recent years, the industry has seen the delivery of between 150 and 250 new ocean-going tankers annually, almost exclusively built in China, South Korea, and Japan.

The global oil tanker fleet is predominantly controlled by Western companies, with major international insurers also headquartered in Western capitals. Among the largest oil tanker companies, Tokyo-based Mitsui OSK Lines is a notable player, operating a fleet of over 930 vessels with a total deadweight tonnage of 66 million tons.

These companies provide essential chartering services for oil companies and government agencies. Notable owners of substantial oil tanker fleets include Canadian Teekay Corporation, Denmark's A.P. Moller-Maersk and DS Torm, Frontline PLC of Cyprus, Japan's MOL Tankship Management, Florida-based Overseas Shipholding Group, and Euronav of Belgium.

International law mandates that every merchant ship be registered under one country's colours, referred to as its flag state. The flag state exercises regulatory control over the vessel, conducting regular inspections, certifying the ship's equipment and crew, and issuing safety and pollution-prevention documents. The two largest flag registries for tankers, Liberia and the Marshall Islands, are managed by US-based firms.

Panama holds the distinction of being the world's largest flag state for oil tankers, with 528 registered vessels. Additionally, six other flag states have more than 200 registered oil tankers: These are Liberia (464), Singapore (355), China (252), Russia (250), the Marshall Islands (234), and the Bahamas (209). In comparison, the United States has only 59 registered oil tankers.
The term 'shadow fleet' refers to vessels that typically conceal their ownership and the origin of their oil products. This concept has been in existence for some time, initially emerging when Iran and Venezuela transported oil under sanctions. Shadow fleets often consist of older tankers that lack proper insurance.
This often results in a lack of accountability for environmental incidents such as oil spills in the event of an accident.Furthermore, these vessels are frequently barred from entering certain ports, prompting them to conduct oil transfers at sea.Estimates indicate that up to 18% of the world's tankers are part of the shadow fleet, with approximately 1,500 of the 7,800 tankers in the global fleet falling into this category.

Media reports suggest that Moscow has been leveraging shadow fleets to sell a significant portion of its oil above the $60-per-barrel price cap.At one point, these tankers were responsible for transporting up to 70% of Russia's seaborne oil.The volume of such transfers nearly doubled in the first year following the escalation of the conflict in Ukraine. According to Bloomberg, Russia has invested at least $10 billion in its shadow fleet since early 2022. This strategy has significantly undermined the effectiveness of the sanctions regime.Lloyd's List Intelligence, a London-based maritime information service, has reported that more than 630 tankers, some over 20 years old, are currently involved in shipping Russian oil and Iranian crude that has been subjected to sanctions.

The Russian fleet is on average three to four years older than the fleets serving the major Arab countries, with most vessels under twenty years old.Since 2022, Moscow has pivoted its oil exports away from Europe, where many major oil-trading hubs do not allow any ships older than twenty years, to Asian markets with less stringent requirements. 
Since 2022, Russia has been actively expanding its tanker fleet, with CNN reporting in March 2023 that it had approximately 600 tankers of various capacities. Current estimates suggest that Russia may directly or indirectly control between 1,400 and 1,800 tankers, positioning it as the largest operator of a shadow fleet. Despite lower financial performance reported by Sovcomflot, Russia's leading tanker group, due to sanctions, many of its tankers continued to deliver oil priced above the price cap to Indian refiners.
The extensive Russian shadow fleet operates with relative impunity; even previously blacklisted tankers are now functioning more freely.Concerns regarding potential Western financial repercussions for customers accepting these vessels in their ports appear to have waned, as noted in a Bloomberg report. Operators are becoming more transparent about their activities and locations at sea, moving away from previous efforts to conceal their operations.Some oil continues to be transported by vessels owned by shipowners or insured by insurers that are subject to price cap coalition regulations.Shipping documents, sometimes stamped by Russian customs, may falsely attest that the sale price does not exceed the price cap. Blacklisted ships avoid Western ports and refrain from utilising Western services such as insurance or financing, and are owned by companies that are similarly insulated from potential penalties.
The vessels transported an average of 48 million barrels of oil per day, with the remainder likely moving via pipelines to refineries.Very few ships engaged in international crude oil transportation dedicate their entire capacity to Russia, Iran, or Venezuela. As of 2024, approximately 25% of the global tanker fleet is engaged in transporting Russian cargo, indicating that the so-called shadow fleet is neither as distinct nor as obscure as previously perceived. This illustrates an impotence among Western governments in hampering Russian oil transfers.
The global supply chain has highlighted the need for both Russia and India to expand their tanker fleets.As of 2023, India's oil tanker fleet had 197 vessels, an increase from 168 in 2018, with a combined deadweight tonnage (DWT) of approximately 12.7 million tons. The Shipping Corporation of India, a state-owned enterprise, is the largest tanker owner in India, with a well-diversified fleet including crude oil tankers of various sizes.However, many Indian ports face challenges such as constrained terminal infrastructure, draft limitations, and insufficient tankage capacity, which necessitate careful scheduling for tanker arrivals.

Lighterage operations (unloading some oil off a vessel before it enters a port) are often employed to ensure a swift turnaround for tankers unable to dock due to these restrictions.It is clear that there is an urgent need for expansion within the Indian tanker fleet to address these operational challenges.