How can Russian oil tankers elude the proposed price ceiling?

With less than two weeks left until the start of the European embargo on Russian oil, all eyes are on the size of Russia’s crude tanker fleet, how it can circumvent sanctions and the proposed price cap.

Analysts and market observers believe that the fleet of Russian crude tankers is small, and that it cannot circumvent the plan of the European Union, the Group of Seven countries and Australia to impose a ceiling on the price of seaborne crude starting from December 5 (2022), according to Reuters.

It is expected that Russia will have difficulty exporting the same quantities when the decision to ban Russian oil derivatives enters into force on February 5 (2023).

This means that Russian exports will decline by about 1 million barrels per day to the global market, compared to the current flows of 3.5 million barrels per day, and this will result in higher oil and fuel prices and exacerbate inflation pressures worldwide.

Meanwhile, Russia plans not to sell its crude oil to countries that support the price cap, according to the specialized energy platform.

fill the gaps

Analyst specializing in energy and shipping markets, editor of “Lloyd’s List” newspaper, Michelle Weiss-Bockman, said that imposing a ceiling on Russian oil prices would oblige the G-7 leaders to close regulatory loopholes in the shipping industry worldwide.

And she noted, in her article, that Russian oil producers and buyers in China are taking advantage of the same methods used to ship Iranian and Venezuelan oil, which are banned by the United States.

Energy and shipping analyst Michelle Wes Buckman. Photo courtesy of the

It believes that strategies to obscure the Source and destination of oil are multiple, and threaten the integrity of the global regulatory system that forms the basis of global trade, explaining that ship-to-ship transfers depend on a fleet of old tankers owned by unknown parties, which resort to changing their names and flags regularly, and often obscure their identification numbers.

Bockman added that the security of these tankers is often questionable, and it is difficult to track their movements, because the tracking data of the ships is suspended or tampered with.

She explained that these hidden tankers roam the world’s busiest waters, carrying billions of dollars’ worth of oil.

The volume of quantities transported from Iran and Venezuela ranges between 1.5 million and 1.6 million barrels per day, which represents approximately 3% of the total maritime oil trade.

Iran’s production ranges between 1 million and 1.2 million barrels per day, and Venezuela’s production ranges between 400 and 500 thousand barrels per day.

In this context, Russian oil exports transported by sea to the European Union amounted to about 1.7 million barrels per day, and 1.7 million barrels per day to China, in addition to exporting huge quantities to India.

Dodge penalties

About 220 oil tankers are believed to be circumventing shipments of Iranian and Venezuelan oil, which are subject to US sanctions, most of which are destined for China and Syria.

The IMO is studying the practice, and a report is expected in 2024.

Russian oil producers will be able to quickly scale up logistics solutions with buyers; With the aim of enabling them to circumvent the ban and the price ceiling, and there is evidence that this has begun.

At least 12 oil tankers previously engaged in the trade of Iranian or Venezuelan oil have diverted to Russia in the past 3 months with the imminent imposition of the European and American embargo, and amid self-imposed sanctions by many shipowners in northwest Europe.

After the sanctions, about 400 ships will be available to transport oil from Iran, Russia and Venezuela, or about 10% of the global tanker fleet, according to estimates from the Paris-based BRS group.

“The fundamental question is the extent to which the Group of Seven wants to impose a ceiling on Russian oil prices,” she said.

An unidentified Chinese trader has spent $376 million since February (2022) to purchase a fleet of 13 old tankers to transport Russian crude to China from ship to ship in the Mid-Atlantic, and the fleet represents the basis for a new high-risk shipping center for the transportation of Russian oil.

She explained that the oil is transferred from the Russian Baltic ports to larger tankers sailing to China after the ship tracking devices were closed.

The same mid-Atlantic transshipment practices for Russian oil are observed off Ceuta and Kalamata in Greece, and the port of Kafkaz and Alexandria in Egypt, and similar centers for Iranian crude are seen off the UAE, Oman and Malaysia.

These techniques allow ships to display misleading details about their location or identity.

Senior Advisor on Foreign Policy and Energy Geopolitics, Umud Choukri

Russian oil transportation

The European embargo seeks to deprive Moscow of revenues from the sale and export of oil to finance its military operations in Ukraine.

The impact of Western sanctions and refiners’ avoidance of buying Russian oil is still limited, especially with China, India and other Asian importers boosting imports from Russia.

The price cap is also likely to have a limited effect if it disrupts the market, drives up prices, and thus fails to reduce Russian revenues.

The G-7 plan, which is set to take effect from December 5 (2022), will allow the shipping sector to export Russian oil based on a set price.

Umod Shukri, chief adviser on foreign policy and energy geopolitics, expects that the European Union’s decision will make the terms of selling Russian oil more difficult to Europe, but Moscow can sell its oil at a significant discount.

He said – in exclusive statements to the specialized energy platform -: “The continued imposition of restrictions due to the Corona pandemic in some major Chinese cities will force Moscow to find other oil clients besides China.”

He pointed to the decline in China’s economic growth and the continuation of the quarantine, and its impact on the decrease in the demand for oil, explaining that this could reduce the price in the market.

He continued, “Oil sales in Russia will decrease, and the Russian economy will also face challenges as a result.”

Build a parallel fleet

Alexei Gromov, an analyst at the Moscow-based Energy and Finance Foundation, believes that maintaining the volume of seaborne flows, amounting to 3.5 million barrels per day, requires about a third of more oil tankers than Russia can reach.

He said that Russia needs to boost its fleet by about 157 Aframax vessels, 65 Swiss Max vessels and 18 very large oil tankers.

He explained that 60 tankers owned by Russian companies, and 70 others were sold to unknown companies during the current year (2022), may trade in oil outside the price ceiling.

Aframax tankers carry about 600 barrels of oil, Swiss Max 1 million barrels, and very large oil tankers about 2 million barrels.

Gromov added that this would leave a shortfall of about 110 tankers if Moscow sought to circumvent the entire price ceiling.

In this regard, senior advisor on foreign policy and energy geopolitics, Omod Shukri, said – in exclusive statements to the specialized energy platform – that US Treasury Secretary Janet Yellen announced on October 12 (2022) a ceiling for the price of Russian oil at $60 a barrel.

He added that the main assumption of the above decision is based on the small fleet of Russian oil tankers and its inability to transport a large amount of oil for export, and thus Russia will take a long time to strengthen its fleet, and then oil production and income will decrease.

He assumes that Russia will have to cut production and impose long-term costs on its oil fields if it refuses to sell according to the specified ceiling.

He said, “These measures seem to undermine expectations for the energy sector in Russia.. However, the price ceiling is still an untested mechanism, and there are doubts about its effectiveness and potential repercussions on Russian-Asian cooperation in the energy sector.”

Self insurance

Moscow may seek to bypass the restrictions by pooling its freight with those of major buyers who have not yet capped prices.

Aleksandr Dokic, partner at global law firm Hogan Lovells, has suggested ways to bypass these restrictions by using self-insurance through ships – whether Chinese, Indian or Russian – that are not under the jurisdiction of the United States or the European Union.

He emphasized that building a fleet for Russia would take some time.

Trafigura’s global head of wet freight, Andrea Olivi, added that during the month of September (2022), nearly 40 oil tankers were sold to entities from the east at prices higher than the market, given the age of the ships.

He said Russia could theoretically find enough oil tankers, but lacked the supply of refined derivatives tankers.

Russian oil tanker
Russian oil tanker – Photo courtesy of OilPrice.com

While an official at the US Treasury Department stated that oil exports and refined derivatives from Russia may decline between one million and two million barrels per day.

JPMorgan agreed with that estimate, noting that Russia won’t be able to ship all of its crude oil on newly purchased tankers until 2024, and its products until at least 2025.

Will you face an export crisis?

Umod Shukri, senior adviser on foreign policy and energy geopolitics, ruled out that a Russian oil price cap would be necessary for Asian buyers, such as China and India, especially as they buy Russian crude at a discount.

However, setting a price cap could weaken Russia’s ability to negotiate the sale of oil to Asia, and with the prospect of joining the price cap, Asian buyers could jeopardize trade in goods and services with Russia.

Shukry explained that given that China and India have become the largest buyers of Russian oil, the secondary sanctions appear to be restrictive, and with their increasing influence on the global market and supply chains, the United States is likely to avoid starting trade wars on several fronts, and these concerns leave more space for Russia and Asia to cooperate in energy sector.

He said, “In the event that the ceiling for Russian oil prices is announced, it is likely that Asian countries will sign their contracts with Russia and continue to buy Russian crude at a reduced price. Therefore, developing countries will be the main beneficiaries of prices, and their dependence on Russia will increase economic benefits and energy security.”

He believes that the longer these countries depend on cheap Russian supplies, the more difficult it will be for Russia to get out of supply chains, in addition to curbing efforts to phase out fossil fuels and restricting the energy transition.

He pointed out that the economic war between the West and Russia, if it continues, Asia will become the main beneficiary in this geopolitical game.

He added that Moscow announced in September (2022) an increase in crude oil exports to Asia, in response to the proposal of the Group of 7 countries to impose a ceiling on the price of Russian oil, as India, Turkey and the rest of the countries can buy cheap Russian oil.

Shukri believes that Iran will be the loser from the European decision, especially since Tehran cannot sell oil because of the sanctions except on the black market.

With the Russian oil price cap set, the conditions for selling Iranian oil in the East Asian market will be difficult, and Iran must give more discounts to its customers to be able to compete with Russian oil.

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