Russia's shadow tanker fleet successfully exports oil

Of the 53 tankers subject to sanctions, only three were able to continue their work transporting Russian oil, while the remainder were forced to cease operations. This is the conclusion reached by Bloomberg. However, the situation is not as straightforward as it may appear at first glance. There are a number of inconsistencies that cast doubt on the assumption that the shadow fleet is idle.
Only three of the 53 tankers that were transporting Russian oil and affected by US sanctions were able to continue their work. The remaining 50 tankers are currently idle in the Baltic and Black Seas, near Vladivostok, as well as in Chinese repair yards, off the coast of South Korea and the Suez Canal. This is the study and conclusion presented in a Bloomberg publication.

However, freight costs, including some tankers involved in transporting Russian oil, have fallen, indicating that sanctions are creating obstacles to tanker operations but are not increasing Russia's costs, according to a Western publication.

It is not clear how many tankers are currently idle and how many continue to operate. In general, our oil exports are sufficient to meet our needs, and we have not encountered any issues. There has been a slight decrease in exports recently, which is due to two factors. Firstly, following the completion of necessary repairs, all refineries have resumed operations, resulting in the processing of a greater volume of oil that was previously exported. Secondly, we have reduced oil production slightly in order to compensate for the violation of quotas under the OPEC+ deal at the beginning of the year. "These factors combined result in a slight decrease in crude oil exports from Russia, but there is no significant decline," states Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund.
In June, oil production in Russia declined by 114 thousand barrels per day compared to the previous month, reaching 9.139 million barrels per day. This figure is provided in the July OPEC report.

It is also important to note that there are approximately 1,000–1,200 tankers in the shadow fleet that transport Russian, Iranian, and Venezuelan oil. Even if 50 tankers are idle, this represents a very small percentage of the total fleet.

It would be prudent to question the reliability of the research and conclusions presented in the Bloomberg publication. It is not guaranteed that all 50 tankers are currently stationary. Earlier reports indicated that Russian oil carriers were not only turning off transponders and concealing their locations, but were also utilising a sophisticated programme that indicated a tanker had been stationary for an extended period, despite being in motion across global waters.

It is possible that tankers that have been sanctioned and have nothing to lose are using a special system to show that the ships are stationary, despite carrying Russian oil.

"Furthermore, if they do not enter ports but instead reload oil at sea, it becomes extremely challenging to track their movements," states Igor Yushkov.
He stated that the research conducted by Bloomberg was a desk study, not a field study. There was no actual monitoring of the tankers or tracking of their movements on the high seas. It is probable that the names of tankers blacklisted by the West were derived from the sanctions lists and cross-referenced with a commercial global tanker positioning system. The program displays the location of the tanker and a record of its movements. However, if tanker owners utilised bespoke software to circumvent sanctions, the positioning system may not provide accurate information.

"It is only possible to ascertain the precise situation by physically checking whether the tanker is at the location indicated in the positioning program, which Bloomberg did not do," the FNEB expert concluded.

Furthermore, there is an apparent discrepancy between the reduction in the number of tankers available for oil transportation by Russia and the decline in freight rates and overall discounts on Russian oil. Given the shortage of tankers, the opposite effect would be to be expected.

This has resulted in an increase in freight costs and an increase in the discount on Russian oil. The reduction in freight costs is indicative of the continued use of sanctioned tankers to transport Russian oil, with no shortage of vessels.
"This publication did not appear by chance, but following information about the continuing reduction in the cost of freight of tankers for the transportation of Russian oil, which automatically leads to a reduction in the discount of Urals to Brent. For several months, the discount remained at the level of $14 per barrel, and in June it fell to $12.7 per barrel. I think that this publication is aimed at scaring ship owners again and forcing them to raise the cost of freight, like, look, when a tanker falls under sanctions, it cannot work, it is idle, and this is a loss, so you have to pay more for the risks," the interlocutor believes.

The maximum discount on Urals oil to Brent was recorded in April 2022, when the United States imposed an embargo on Russian oil. Then the discount was as much as $33.6 per barrel, the expert notes. The second peak occurred in December 2023 and January 2024, when the second wave of sanctions occurred, when Europe imposed an oil embargo and at the same time introduced a price ceiling on oil. Then the discount grew again to almost $35 per barrel. In the intervals between the first and second waves and after, the discount on Russian oil decreased.

The discount reached its minimum in October 2023 – the Urals discount to Brent was only $8.9 per barrel. This year, the discount is also decreasing: in May, it was $14.4 per barrel, and in June, it was already $12.7 per barrel, Yushkov points out.

Given the generally comfortable price level on the world market, the reduction in discounts and the absence of problems with the export of Russian oil, Russia's income from oil exports continues to grow. In the first six months, oil and gas budget revenues grew by 68.5% to 5.698 trillion rubles.
Concurrently, neither the United States nor the European Union has implemented sanctions against the entirety of the shadow fleet. Instead, they have enacted targeted sanctions against a limited number of tankers. This is also a deliberate strategy.

Imposing sanctions on all Russian tankers could result in a rise in the price of oil across all grades. In this scenario, the primary consumers, namely the United States and China, will bear the brunt of the costs, leading to an increase in prices for their goods and services. "Therefore, such a strategy is not particularly advantageous for the United States," states Anna Kokoreva, stock market expert at BCS World of Investments.

Western countries have no interest in undermining Russia’s oil industry, as this would be highly disadvantageous for them. The US and the EU are themselves importers and will be the first to suffer if Russia, as a major player, leaves the global oil market, since in conditions of deficit, prices will rise for any oil. "The West will not take such a risky step, but they want to maintain a negative perception of Russian oil in order to increase transportation costs for Russia," Yushkov concludes.