The governments of EU countries and the United Kingdom intend to approve a plan that will strengthen the inspection of Russia’s shadow fleet of oil tankers. Bloomberg reports this with reference to its own sources.
“The United Kingdom plans to launch a ‘call to action’ with a group of European countries this week to target the so-called shadow fleet of oil tankers that Russia uses to circumvent international sanctions,” the article says.
According to the draft statement, an unspecified number of governments are planning to approve a plan to target Russia’s oil fleet on the sidelines of the European Political Community meeting to be held in the UK by Prime Minister Keir Starmer on Thursday.
The participants aim to exchange information about the Russian oil fleet, coordinate responses to the risks posed by its ships and intermediaries, and collaborate with the private sector and other maritime stakeholders to address the threat.
The news agency writes that officials and experts from the UK and EU states will set up a group and meet to “take concrete action.”
The EU and the UK are trying to make Russia’s oil profits harder. By denying Russia access to mainstream tankers and service providers unless the transferred oil fell below a G-7-defined price ceiling, the Group of Seven sanctions aimed to make Russia a pariah in conventional oil-transportation markets. This has pushed Moscow to rely on outdated carriers that operate outside of industry standards, Bloomberg noted.
According to a report on June 23, despite declining demand for Russian oil from China, oil imports from Russia to India reached a record level of about 2.1 million barrels per day in May.
Oil Price Cap and sanctions evasion alert
On February 1, the Price Cap Coalition published an Oil Price Cap (OPC) Compliance and Enforcement Alert. The Alert, which is directed at both government and industry stakeholders, outlines examples of evasion technics to improve compliance measures, and instructs the members of the Price Cap Coalition on how to report suspected oil price cap breaches.
The enforcement alert identifies sanctions evasion methods that industry stakeholders need to diligently monitor. First, there are opaque shipping and extra costs as a result of attempts to conceal price, shipment, customs, and insurance fees.
Second, the use of a complicated supply chain, third-party middlemen, and shell firms to conceal the origin of Russian oil. It includes frequent changes in ownership of vessels.
Third, the use of Russia’s “shadow fleet,” made up of old vessels with hidden ownership that do not adhere to industry standards. Stakeholders must raise red flags in such cases and actively conduct due diligence to prevent Russia from evading the oil price cap.
Oil Price Cap to limit Russia’s ability to fund its war against Ukraine
The Western coalition adopted the Price Cap to limit Russia’s ability to fund its war against Ukraine through the sale of its oil. The Price Cap prohibits maritime providers from engaging with Russian-origin crude oil that exceeds $60 per barrel in price.
In December 2022, the Western coalition set an upper limit of $60 per barrel for Russian oil exports by sea. The sanctions also prohibit Western companies from providing oil transportation services from Russia at a price higher than the ceiling.
The restriction has forced Russia to reorient its oil sales to much more distant countries, such as China and India, and to invest in “shadow fleets” of worn-out tankers that are not officially tracked.
More ways to make sanctions on Russia effective
Although the current Western sanctions against Russia over its war aggression in Ukraine are unprecedented, they are not perfect and have not yet fulfilled their main objective of forcing Moscow to stop the invasion of Ukraine.
The Russian military-industrial complex has found cunning ways to circumvent some of Western sanctions and obtain parts for weapon production, although it has faced serious problems due to the restrictions imposed.
Experts have identified several issues with the EU and US sanctions against Russia and loopholes that help Russia circumvent the restrictions. In particular, they are talking about strengthening the oil embargo—lowering the ceiling on Russian crude oil—and stricter supervision and punishment of violators of the price cap, including companies and countries that cooperate with Russia’s “shadow fleet”.
In March, Yale professor Jeffrey Sonnenfeld, who was key in leading the campaign to penalize Russia for its war, and co-author Steven Tian, the director of research at the Chief Executive Leadership Institute, wrote an article criticizing an insufficient enforcement of Western sanctions against Russia and their omission of significant commodity exports. They recommend three strategies for Western decision-makers to follow to make a stronger impact on the Russian economy.
Last February, the US Treasury Department’s Office of Foreign Assets Control announced the second round of sanctions in 2024 for violating price restrictions on the maritime transportation of Russian oil.
The new US sanctions target four legal entities and one vessel involved in a scheme to violate the $60 per barrel price ceiling for Russian oil at the end of 2023. Three companies registered in the United Arab Emirates and one in Liberia were subject to the sanctions.
