Russia increases shadow fleet for crude oil deliveries and insurance

Russia has acquired a fleet of more than one hundred ageing oil tankers. This is to circumvent restrictions on oil sales imposed by the West on Moscow.

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

The West has restricted oil sales to Moscow due to Russia’s invasion of Ukraine, but the Financial Times reported Saturday that Russia has covertly acquired a fleet of more than one hundred ageing oil tankers to get around these sanctions. As a direct result of Russia’s invasion of Ukraine, these limitations have been put in place.

Shipping broker Braemar estimates that Russia, which relies heavily on foreign tankers to transport its oil, has purchased more than 100 ships directly or indirectly this year. Russia relies heavily on foreign tankers to transport its oil. According to Rystad, a consulting firm, Russia has added 103 tankers to its fleet this year by purchasing or reallocating vessels previously serving Iran and Venezuela. These two countries are also subject to an oil embargo imposed by the West.

The publication claims that the desire to avoid new international limits on the sale of Russian oil is the motivation behind gathering a “shadow fleet,” as that term is used in the oil sector. These restrictions include a ban on oil imports by the sea that will go into effect on Monday in the EU and a new global price cap of $ 60 per barrel that will go into effect on Friday in the EU and G7. 

Because of these actions, it is anticipated that Russia will be cut off from a significant portion of the tanker fleet worldwide. This is because insurers such as Lloyd’s of London will only be able to insure ships carrying Russian oil – regardless of where the oil is going – if the oil is sold under a price cap scheme.

Traders think that the so-called “shadow fleet” will lessen the effectiveness of such measures, but not to the point where Russia will no longer feel the effects.

Russia has made it clear for a long time that it will not collaborate with any country imposing the quota, which means that it may refuse to accept oil shipments on terms the West has established. Instead, it plans to utilise its new fleet to serve nations like India, China, and Turkey, which have become larger purchasers of its crude oil due to Europe’s reduced imports. Its new fleet will supply these countries.

An increase in anonymous buyers

Anoop Singh, who works for Braemar, explains to the newspaper that one way to determine whether or not there have been tanker purchases is to observe whether or not there has been a significant increase in the number of anonymous or new buyers appearing in the registers. 

These customers have yet to work with the company, even though they have been brokers for many years. Most of these vessels are likely between 12 and 15 years old, and it is anticipated that they will be dismantled over the next few years, he adds, adding that his company is confident that most of these ships are headed for Russia.

According to Braemar, in 2022, operators with ties to Russia are suspected of having purchased as many as 29 supertankers, also known as VLCCs, with a capacity of more than 2 million barrels each, in addition to 31 Suezmax-class tankers with a capacity of approximately 1 million barrels each, and 49 Aframax tankers capable of carrying approximately 700,000 tonnes each.

It appeared as though this was confirmed when Andrei Kostin, the chairman of Russia’s state-owned VTB bank, stated in October that he needed to spend at least 1 trillion rubles” ($16.2 billion) on “extension of the tanker fleet.

It’s hard to fathom how many ships Russia will need to transport its oil. According to a Russian oil analyst working at the Davis Center at Harvard University, there have been significant sales to unidentified buyers in recent months. Several of these tankers make their way to Russia a few weeks following the sale to pick up their first oil cargo. On the other hand, he is sceptical that Moscow will use VLCCs because these vessels are too large to fit in Russian ports.

It is anticipated that Russia will continue to suffer from a lack of tankers. The country may discover that it is difficult to maintain exports in the first few months of 2023, which would increase the commodity’s price. Kennedy points out that the scarcity may become more severe in February when the EU prohibition will be extended to include refined fuels from Russian suppliers. Because the oil that was previously sold in Europe will be sent to new clients in Asia, Russia will require access to an even greater number of tankers than it had in the past because each voyage would take longer.

Insurance for the ships

Turkey recognises Russian insurance that provides sea freight, and India and China also recognise them for the most part, but not all, Deputy Transport Minister Alexander Poshivay told reporters on November 29. He recalled that specific conditions “are determined by intergovernmental agreements. “The issue (recognition of Russian insurance – Ed.) will have to be worked out with the whole world,” he said.

According to him, vessels flying the flag of the Russian Federation that was rejected insurance by Western businesses are currently insured by Russian insurance companies and reinsured by the Russian National Reinsurance Company JSC (RNRC). The insurance coverage of Russian insurance companies includes all the risks of maritime transportation under international requirements, “Russian insurances have been in use for many months,” he said.

In turn, RNPK increased its authorised capital to 750 billion rubles, but now it is practically unlimited. The Central Bank is a guarantor for RNPK; that is, guarantees in the case of reinsurance can be applied to any quantity of Russian oil and oil products. RNPK is a subsidiary of the Bank of Russia.

Poshivay said that the shipbuilding industry faced new obstacles during the fourth Russian-Chinese energy business event. With the advent of sanctions, Russian marine carriers lost access to insurance services in West Germany. According to customary practice, Europeans and Americans performed these services. In addition, issues emerged due to a considerable increase in the cost of sea transportation, the non-recognition of insurance certificates issued by Russian insurers and the Russian National Reinsurance Company, and the declaration of Russian seas as a war risk zone by Lloyd’s syndicates.


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