The oil market is having an extremely eventful year. The war in the Middle East has dominated headlines in recent months due to the growing risk of attacks on key infrastructure in Iran, the country with the world’s third largest reserves of crude oil. However, much closer to Europe, another equally dangerous situation is occurring that seems to go unnoticed by much of the press. Oil transported by sea on extremely old and poorly maintained ships is skyrocketing. Responsible for this worrying trend is Russia’s Ghost Fleet, a ploy by Moscow to continue “smuggling” its licensed oil to almost every corner of the world, thereby endangering the seas and the wildlife that “populate” them. Russia has increased the capacity of its shadow fleet by almost 70% over one year despite the Western offensive (notably the United Kingdom and the United States) against insurers and shipping companies which allows Moscow to escape the Western sanctions.
Even if the “sensations” in the sector and the navigation data indicated a rebound in the activity of this Russian ghost fleet in recent months despite Western sanctions, the data ended up confirming it. In a comprehensive report published this Monday by the Kyiv School of Economics (KSE), it is indicated that the volume of Russian oil transported by This dangerous floating “scrap metal” exceeded 2.4 million barrels per day in June 2023 to 4.1 million in June 2024, the aforementioned 70% annual increase. For reference, when the crude oil price cap came into effect in December 2022, this volume was only 2.2 million barrels per day.
To put this data in context, only the oil transported by Russia’s dangerous ghost fleet would be enough to cover demand. of daily crude oil from “two entire Spains”. But all indications are that the amount of crude oil carried by these old and (in many cases) defective ships continues to increase.
The report also offers important and more than revealing information: in recent months, About 70% of Russian maritime oil exports were transported by ghost tankers and, therefore, they were not subject to the price limit set by the G7, led by the United States, and the EU. This includes almost 90% of crude oil, which has been trading above the $60 per barrel cap set since mid-2023. In the case of petroleum products, the quota transported on these old ships is 38%.
“The ghost fleet allows Russia to circumvent the oil price cap of the G7 and its allies and obtain additional export revenues to finance its war of aggression. Although the investment has been considerable – it is estimated at $10 billion since the beginning of 2022 -, “This strategy has significantly reduced the influence of the sanctions regime,” write analysts from the KSE Institute in the report.
The size of the ghost fleet
The exact size of Russia’s ghost fleet has been widely debated. In another recent report, the KSE Institute documented that more than 300 tankers carried Russian crude in 2023 and the first half of 2024, while More than 430 tankers transported Russian petroleum products during this period time. However, not everyone did it regularly. The Institute identified 45 oil tankers and 41 product tankers that were systematically part of the ghost fleet in 2023 and the first half of 2024, i.e. a “core” ghost fleet.
From this think tank, they resignedly admit that Stricter enforcement of regulations or sanctions unlikely to affect Russian export volumes. In a very crude and simple way, Russia cannot afford to reduce its oil supplies to the global market – especially in a situation where export prices are falling – since it remains directly dependent on oil sales for its income and to balance its expansive budgets (a war costs a lot of money). Furthermore, the immensity of Russia and its powerful allies (China and neutral India) make strict enforcement of sanctions impossible. Trying to stop the flow of Russian oil is like trying to put gates on the countryside..
On the other hand, even if the sanctions have succeeded in reducing the price at which Russia sells its crude oil, this does not constitute a serious problem for Moscow either: “This is due to the fact that the production costs of crude oil Russian are quite weak. – it is estimated that they are on average around 10 to 15 dollars per barrel -“, underline these experts.
Oil travels on “floating scrap metal”
In addition to denouncing what this dynamic means in geopolitical terms – more financial power for the Kremlin to finance the invasion of Ukraine – the report warns of the environmental risk weighing on Europe: “The dependence continues Russia’s commitment to production and export infrastructure for its traditional markets in Europe means that large quantities of oil pass through European waters every day. Russian oil travels on what might be called “floating scrap metal” under exotic flags. The states that fly the flag of this ghost fleet are, for example, Panama, the Cook Islands, Cameroon, Palau and Vietnam.
“Given the imminent and significant threat to the environment posed by the Russian ghost fleet, we urge coalition countries to take rapid action and implement a plan to ensure that all tankers passing through European waters have “adequate insurance against oil spills, which is payable in the event of an accident”, urgently requests the Ukrainian think tank.
Loss of engine power is a common problem on ghost fleet tankers and can have serious consequences, particularly in narrow, shallow waters, these experts say. Russia has acquired a vast fleet made up of old oil tankers which sail under the flag of third or fourth order countries, or even tax havens. “The negligence in monitoring the States that fly the flag of these vessels is the weak link in the regulatory framework. Although the International Maritime Organization is the body by which the standards are established, it does not have the authority to enforce them. Ensuring compliance with standards is primarily the responsibility of flag states, i.e. the countries that provide ships with registration documents.
In the first half of 2024, 72% of Russian maritime oil left Baltic and Black Sea ports, and 58% was transported on ghost fleet tankers. “This represents more than 75 million barrels per month on ships with an average age of 18 years.insufficient maintenance and probably inadequate insurance”, they point out from the KSE Institute. The truth is that these tankers cross European waters several times a day, on average 2.9 times through the Denmark Strait and the English Channel. 2.8 through the Strait of Gibraltar and 2.2 across the Aegean Sea.
