EU Considers Abandoning Price Cap, Shadow Fleet Grows to 600 Vessels, World Bank Reports
The European Union is considering abandoning the price-cap mechanism designed to curb Russian oil revenues by restricting access to Western shipping services. Such a move would force roughly 43% of Russian oil exports to secure alternative vessels or trigger increased sales of Western-owned ships and a shift in vessel coverage to smaller and less well-capitalized insurers.
A full ban on Western shipping services would require substantial growth in the Shadow Fleet, an outcome that is both possible and probable. Russian freight rates would need to rise in order to attract more vessels into the trade. MRs face the largest replacement gap, with over 180 additional vessels needed. Suezmax and Aframax shadow fleets could also grow significantly.
Market & Trading Implications
The proposal under discussion would eliminate this mechanism. Instead, Western shipowners, insurers, brokers, and other service providers would be barred from supporting any vessel carrying Russian crude or products, regardless of sales price. This move would lead to a significant shift in the global tanker market, with potential implications for oil prices, trade volumes, and the overall economy.
Background on the Price Cap
The price caps were introduced progressively, starting in late 2022 for crude and early 2023 for refined products. They contributed to Russian barrels trading at a discount, although it remains unclear how much of that discount is due specifically to the cap. Crucially, the policy’s most tangible effect has been the creation of a “Shadow Fleet”: tankers operating largely outside Western ownership and insurance, dedicated almost entirely to Russian oil exports.
Current Fleet Exposure
Our analysis identifies 687 tankers with Western ownership and/or insurance that loaded at least one Russian oil cargo (crude, DPP, or CPP) in the last 12 months. An additional 587 tankers in the Shadow Fleet without Western ownership or insurance coverage or for which coverage data is unavailable. While this appears large, vessel counts alone obscure the true importance of these ships to Russian exports.
To understand the real impact, we examined the four tanker classes that account for 95% of Russia’s 5.7 Mbd of liquid exports: Suezmax, Aframax, MR, and Handymax. Count of Western tankers in the Russian market (Nov 24-Nov 25) shows that Western-covered vessels represented 562 tankers (57%) of all vessels loading Russian oil in the last year, carrying roughly 2.3 Mbd (43%) of Russian exports.
Replacement Outlook and Shadow Fleet Growth
Replacing Western-covered vessels would disrupt the trade network supporting Russian exports. However, it remains highly likely that the system would adjust: owners may switch to non-Western insurance or ownership structures; non-Western vessels may increase utilisation; new or repurposed ships may join the Shadow Fleet; some Western vessels may operate covertly. Historically, the Russian export system has proven able to manage periods of reduced Western involvement.
Original Article: Abandoning the price cap would expand the Shadow Fleet and reshape tanker markets — Kpler