Russia Sanctions: Shadow Fleet Fuels Oil Trade Rise

The “shadow fleet” used by Russia, Iran and Venezuela to avoid western sanctions and ship cargo is expanding rapidly, raising concerns about potential military confrontations as efforts to counter it intensify. Russia has begun openly challenging Europe by re-flagging some former shadow fleet tankers with its own flag.

Expanding Shadow Fleet and Increased Enforcement

The constellation of aging oil tankers – characterized by opaque ownership and questionable flagging – has drawn increasing international attention this year. Maritime interdictions to enforce sanctions have been carried out, including the recently announced US blockade of sanctions-busting ships in Venezuela.

Earlier this month, US special forces boarded the Skipper, a tanker off Venezuela that the US Treasury had sanctioned in 2022 amid allegations of smuggling oil for Iran’s Revolutionary Guards and Hezbollah.

On Saturday, US forces apprehended a second merchant vessel carrying oil off the coast of Venezuela in international waters, despite it not being on the list of vessels under US sanctions.

Incidents this year have included Estonia and France interdicting vessels suspected of belonging to Russia’s shadow fleet, and recent attacks by Ukrainian air and sea drones on Russian shadow tankers accused of sanctions evasion.

Risk of Confrontation

The increasingly aggressive enforcement efforts, coupled with evidence that Russia is willing to use military assets to protect tankers, have led experts to warn of the risk of confrontation. This was highlighted on Friday when Ukraine announced it had struck a Russian tanker with aerial drones off the coast of Libya, following similar attacks in the Black Sea.

A source in the Security Service of Ukraine described the attack as a “new, unprecedented special operation,” marking Kyiv’s first strike on a Russian tanker in the Mediterranean, carried out 1,200 miles from Ukraine’s borders.

Gonzalo Saiz Erausquin, a research fellow at the Royal United Services Institute, noted that while the shadow fleet itself is not new, it has “exploded” to some 900-1,200 vessels globally since Russia’s full-scale invasion of Ukraine in 2022. He described the fleet as consisting of secondhand vessels, opaquely owned tankers, and companies willing to engage in illicit activity.

The shadow fleet has fostered an illicit network, including a proliferation of fake flag registration websites, unscrupulous brokers, and opaque companies.

The tanker Boracay, interdicted by Estonia and France earlier this year, exemplifies this. It was acquired in 2020 by Baaj Shipping, a company based in Seychelles, and was subsequently blacklisted by the UK and EU for suspected links to transporting Russian oil products and operating under fraudulent flags.

The ship, operating under various names, was also investigated by Denmark’s intelligence services over its possible use to launch drones against Copenhagen’s airport and was allegedly targeted with a limpet mine.

Countries countering the shadow fleet rely on international laws and conventions regarding seaworthiness, insurance, and safe navigation. However, increased enforcement, including the Trump administration’s announcement of a blockade against sanctioned ships visiting Venezuela, carries its own risks.

France has also signaled a greater willingness to tackle vessels in its waters. President Emmanuel Macron stated in October, “We have decided to take a step forward by adopting policies to impede suspicious ships.”

An incident involving the oil tanker known as Jaguar, Blint, and then Nasledie underscored these risks. An attempt by the Estonian navy to intercept the vessel prompted an incursion by a Russian Su-35 jet into Estonian airspace.

Erausquin believes this demonstrates a more direct interest from the Kremlin in protecting the shadow fleet.

Broader Threats and Future Outlook

Chris Kremidas-Courtney, a senior fellow at the European Policy Centre, argued in November that the shadow fleet poses threats beyond sustaining Russia’s war effort, including involvement in drone incursions, cable disruptions, and reconnaissance of critical infrastructure. The Eagle S severed undersea cables after cycling through multiple flags, and Estonia’s attempted interdiction of the Jaguar prompted the scrambling of Russian fighter jets, demonstrating Moscow’s view of the fleet as a strategic asset.

Despite tougher language from Europe, some analysts question the appetite for maritime confrontation with Russia. “It is one thing for the US to board a sanctioned and stateless tanker off Venezuela… It feels like a very different calculation for the Europeans with Russia. It risks upping the stakes in what has become a game of chicken.”

The shadow fleet’s growth is partly attributed to US resistance to sanctioning major Russian oil producers, Rosneft and Lukoil, and the continued reliance of China and India on Russian oil. Russia has adapted quickly to sanctions, with new companies emerging suspected of exporting crude from Rosneft and Lukoil.

Despite recent US sanctions, Indian imports of Russian crude have increased since October. Russia’s adaptability and the complex structuring of its shadow fleet operations, mirrored by Iran and Venezuela, contribute to this.

New EU sanctions announced this month targeted nine businessmen and entities, including shipping companies based in the UAE and Vietnam, accused of involvement in the shadow fleet.

Tomer Raanan, a specialist reporter for Lloyd’s List, believes the potential profits attract shipowners to operate the sometimes dilapidated ships. He highlighted the proliferation of fraudulent flag registrations, including websites falsely claiming to be the Malawi Maritime Administration.

Raanan also believes this highlights a critical problem with the shipping industry’s registry system and expects the sanction-busting trade to continue despite enforcement efforts. “Sanctioned oil is often sold at a discount, while shipowners moving these cargoes typically earn premiums for taking on the risk. I think that as long as market participants view the economic incentives as outweighing the risks, sanctions evasion will likely continue.”