Smuggling operations have existed throughout human history, so it’s not a surprise to people involved in the shipping industry that sanctions against Russia would result in some off-the-books transactions.

What most people may be missing, according to Joel Hanley, a global director for S&P who oversees crude and fuel oil markets, is the size of the operation, the widespread acceptance of “shadow fleet” tankers around the globe and the environmental threat the vessels bring along with their cargo.

 “You can't talk about this issue without talking about the ecological time bomb,” said Hanley, who sat on a panel at CERAWeek by S&P Global conference on March 11.

In January, the U.S. sanctioned 183 Russian vessels. The majority were oil tankers, including 75 ships that are known to be in the shadow fleet.

The term generally refers to ships that operate without usual official sanctions. Many captains who pilot the illegal ships turn off their transponders while underway—hiding from international traffic monitors but also raising the risks for a collision.

Russia employs a host of deceptive maneuvers, such as repeated ship-to-ship transfers of liquid cargo, blending oil from multiple countries and spoofing ships’ location data, according to a Feb. 27 study by the Brookings Institution. 

Since the U.S. and EU imposed sanctions on Russia after the invasion of Ukraine, the shadow fleet includes more than 1,000 ships. The ships tend to be older than legitimately operating ships and lack insurance, Hanley said.

The ownership is usually enigmatic, but traces back to shipping companies in the West, primarily Greece, according to the Brookings’ study.

The growth of the shadow fleet has been expensive but crucial for Russia. The country spent about $10 billion on tankers since the invasion. However, the fleet allows Russia to keep its economy from collapsing, as its ships make their way around sanctions.

Beyond that, legitimate shipping operators have to work around a two-tier market and uses aging equipment and inexperienced workers, said Andrew Jamieson, co-head of Clearlake Shipping.

“We don’t see any evidence that these vessels are being maintained at all. We don't see any evidence that the crew are getting trained,” Jamieson said.

Clearlake now competes on the open market with other companies who are moving sanctioned oil. In 2024, the company saw the effects. Costs went up for legitimate vessels as the sanctioned vessels do not pay the same fees.

“Getting your normal business done is very expensive,” Jamieson said.

Comments