Shadow Fleet Undermines Price Cap
The World Bank has released a report highlighting the growth of Russia‘s shadow fleet of tankers, which has made the West’s oil price cap “unenforceable”. The report notes that the rapid build-up of this fleet, estimated to number over 600 ships, has enabled Russian crude exports to continue despite sanctions.
As part of efforts to deny buyers of Russian crude the use of Western-supplied services, including shipping and insurance, the G7 group of richer nations introduced a price cap on crude oil last December. A similar measure for products was implemented in February this year. However, Russia‘s shadow fleet has circumvented these sanctions measures.
Exports Shift to Asia
While Russian exports to the European Union, the US, Britain, and other Western countries fell by 53% between 2021 and 2023, increased exports to China, India, and Turkey have replaced these losses, up 40% over the same period. The World Bank’s latest Commodity Markets Outlook report notes that this has made the price cap on Russian crude oil introduced in late 2022 “increasingly unenforceable”.
The report highlights that Russia‘s Urals benchmark crude prices recently breached the G7-led $60 price cap for more than three months, averaging $80 per barrel in August. This suggests that by putting together a shadow fleet, Russia has been able to trade outside of the cap.
Vintage Tankers Enable Sanctions Evasion
The growth of the shadow fleet is part of broader operations aimed at circumventing international sanctions against Russia. The report notes that many vintage ships have been given an extra stay of execution, with tankers still working above 20 years of age making up just 1% of the global tanker fleet pre-covid and 3% before the invasion of Ukraine in late February last year.
Enforcement Action Signals Stricter Approach
The World Bank’s report signals a stricter approach to enforcement action against vessels involved in circumventing international sanctions. The rise of the shadow fleet has seen many vintage ships given an extra stay of execution, with tankers still working above 20 years of age making up just 1% of the global tanker fleet pre-covid and 3% before the invasion of Ukraine in late February last year. However, they are now on track to make up 11% of all tanker demand by mid-2025, according to data from brokers Braemar. This rapid growth has enabled Russia to maintain its crude exports despite sanctions.
Original Article: Growth of the shadow fleet has made Russian oil price cap ‘unenforceable’: World Bank — Splash247