to you by S&P Global Market Intelligence. I'm your host, Kristen Hallam. In this episode, we're going to be with us to discuss
very topical subject.
with you. No with the basics. Can you provide a brief overview of what the shadow fleet is and how it's evolved since the introduction of the oil price cap?
beginning, the oil price cap was introduced on the 5th of December 2022, and it's a measure to basically curb Russian oil exports following the Russian invasion of Ukraine. And the term shadow fleet kind of emerged following this introduction and refers to a group of oil tankers that basically operate outside what you would call the traditional
regulatory framework. They often are sanctioned tankers and they evade those sanctions or restrictions that have been imposed by them by different governments and institutions. And since the introduction, the fleet has definitely evolved in several ways. We've seen an increased activity as traders and companies seek to circumvent these sanctions and continue to trade oil at prices above the cap. So the cap is $60
per barrel. This has led to a rise in the number of vessels operating outside the traditional shipping routes and regulations. shipping routes to less conventional paths includes rerouting shipments to countries that are less likely to enforce the price cap or those sanctions, especially what we see here as destinations of India or the UAE. tankers are often older vessels that may not meet modern safety and environmental
standards. These vessels are cheaper to operate because of the way they are oil discretely or they're trying to transport oil discretely. And we've seen a few incidents already that I think we're going to talk about we've seen over the past 3 years, I want to say. And so so the scrutiny from governments and organizations monitoring oil trade. There are more sophisticated tracking technologies being employed to identify and monitor those vessels.
just now that the shadow fleet has grown. To the best of our knowledge, how many vessels are in the
tankers, whereby we've only looked at tankers that are above 27,000 deadweight and 420 tankers that have what we call an opaque ownership. So these only includes vessels that previously were owned by a Russian individual registration in Russia or ships that are more likely to be involved in sanction activity or with the fleet of sanctioned tankers.
And how do these vessels manage to evade sanctions on the movement of oil and its refined
Yes. So one way to keep track of ships is via AIS. That's an automated ships send out position basically. And this is, of course, used for safety reasons, but it also allows for tracking a vessel position. You can, however, turn that AIS signal off. For example, where we've seen somewhat justified reasons in the past year or so is when ships are traversing even some sanction authorities recommend turning off the AIS signal while traversing the Suez Canal to avoid
attacks on ships. But in our case, from studying AIS regularly turn off their AIS signal. So what happens when they do that, they are at sea, and they then use ship-to-ship transfer of oil. So that is -- again, that can see this on our AIS platform, that's not necessarily something products happens when the ship is bunkering. used to supply another ship with fuel.
But what happens in the case of the shadow fleet is that they are transferring oil that's come from Russia, so from a sanctioned ship to a less nefarious one to then ship oil to Asia. So that's mainly why those ships don't want to be tracked and found. And that's in sanctions. They don't call at ports, for example. They are not allowed to call, for example, at
European ports. So that is one way. What -- the other thing that we see happening is we -- it is possible to transmit a different location that the ship is actually not in you would then need satellite data or even people on location to prove that the ship is actually elsewhere. So you can a location that the ship is actually not in. It might sometimes even see ships hovering over a land mass. So there's definitely
something going on. And then the other thing that we see is -- I mean, there's interesting even see zombie ships emerge. That is another tactic to avoid recycled, it doesn't exist anymore. And then one ship in the shadow fleet takes
on the IMO number. The IMO number is a unique identifier for a ship and a ship from the shadow fleet takes on this number from the that has a beneficial ownership that you know who owns this vessel that is -- that suddenly comes back to life and different -- the longer this goes on, the more obviously, measures operators take to not be detected.
tactics there that you described. And I do love that term zombie ships. It almost sounds like a screen play coming soon to a streaming service near
scene for our listeners, how did we approach this pull together this picture of the shadow fleet?
selected the ships based on criteria around the operations profile. So as I said, we know that they're involved in well. Do we even know who the owner is? That is the main question, the main criteria. And then we filtered those vessels by tiers. So for Tier 1, that includes, as I said, the sanctioned tankers that is in for some years. So these vessels have been sanctioned by the U.S. authorities also such as the U.K. Foreign
the main sanction authorities. Tier 2 comprises vessels with determine the beneficial owner of a ship. So for us, it is always important to kind of follow owner for a to know is who really sits behind that on the financial side. But also vessels Iranian or Venezuelan nationality or registration. And then Tier 3 has more legitimate owners. So the beneficial owners, for example, are set prior to 2022. So we know that they
have been around for a while. They have not been set up solely for the purpose for a vessel to basically go into this shadow trade. However, those vessels are then engaged in, for example, Russian port calls. indicator, but also the ship-to-ship transfers where the oil gets transferred from a sanctioned ship to a more legitimate ship after the 5th of December after the G7 oil cap.
Right. And what were the main findings of the report?
you. So the shadow fleet increased from 2024 by 45%. So that is quite an increase that we now have because mainly the increase we see in the Tier 3 vessels that are now more than 2,000 makes up this big increase of 45% compared to the 2024 iteration of this white paper that my colleagues already did last year. The shadow fleet constitutes of 17% of the in-service crude and product tankers that are on the
water today. So that is quite a bit. But again, this only takes into consideration vessels that are above 27,000 deadweight. So the percentage might be a bit higher there by 17% of the total tanker crude and product fleet. And then to do more with the vessel characteristics, the average age of a shadow fleet 20 years. That ship operates up to maybe 20, 25 years. Obviously, capacity. So take it the average size of a tanker with a 27,000 deadweight and
above is 13 years. So that's quite a difference to the shadow fleet tankers average age of 20 years. And then another interesting stat that we found is that 48% of all in-service crude and product tankers have engaged in the shipment of Russian all the in-service tankers have shipped oil since the 5th of December 2022.
stats here at the decisive and there's some big ones there that 48% is pretty impressive and also the average age of the shadow fleet recent sanctions against Russia, Iran and Venezuela affected the operations of the shadow fleet? Can you share some specific examples with us of enforcement actions that have been taken?
Yes, for sure. So I think it's taken some time. until governments came up with a plan on how to counter these developments. But this year, especially has seen countries in Europe mean, we've seen before, okay, the ships are not allowed to call it European ports anymore, but of course, they are still going through European waters. But obviously, governments can only act if a ship comes basically happening now because we're not aware of any non-port this is just where a vessel
December 2024. But now we've seen, I think the most prominent case was earlier in May in Estonia when the Estonian Navy wanted to detain a crude oil tanker that was then escorted by a Russian fighter airspace. that broke into Estonian followed the Russian Parliamentary Defense Committee's plan that they set out earlier in February this year that any attack of regarded as an attack on Russian
territory. So clearly, we see an escalation here on both sides on the enforcement side, but also on Russia responding to these enforcement actions. This marked the conducted by maritime authorities successfully diverting the vessels into national waters, detaining a vessel and also in the case in Germany, confiscating the cargo. So that where we see the
development of enforcement action. The next step for the Baltic state governments will be that they are in the process of drafting legislation, permitting these vessel seizures and enabling arrests in more distant zones because, again, government can only be active if a ship comes out of the international shipping channel and comes within includes the national waters of a country.
Very interesting that these enforcement actions are picking up. It will be interesting to see how that evolves as the year goes on. you observed in the transportation of Russian, Iranian and Venezuelan oil over the past year? How has the shadow fleet adapted to these changes?
Yes. I think what, unfortunately, we see is how ineffective these sanctions are, right? Russia is still able to trade oil, but of course, with new partners. As we know, the supply chain in any case for any traverse the oceans. So -- and unfortunately, this is an outcome of the sanctions being opposed. However, what we also most recently see is that the Brent oil price is now under the G7 cap of $60
per barrel. So that means that, for example, Greek tanker owners will be returning to ship Russian oil as they won't face any restrictions or will be accused of sanction evasion. And those vessels are much better maintained than the shadow fleet. So this might be another change we will see happen ships joining the shadow fleet. if more legitimate vessels come to transport Russian oil because obviously, it's not completely impossible for Russia to
export oil. It's get exports out above the price cap.
Yes. leads me to my next question, which is who are the benefactors of the G7 oil price cap, if there are any?
the situation. I mentioned AIS earlier, the way to track vessels at these ships do transmit a location, they obviously enable us to form a picture of where those ships trade. And of course, also if you turn the AIS off, just a little side note. And then weeks later, you turn on a different location algorithms that will be able to calculate where a ship could have been in the meantime. we can see is that these focus areas as fishing grounds in the Arabian Sea
between India and the Middle East. So a lot of the Russian oil that's no longer going to Europe has instead gone to India and to Mainland China because they're traversing these waters that I've just mentioned. We also know this from looking products that show us import and export statistics as well as shipment data. So in combining these sources, we get quite a good overview of where this oil flows. Now given the average age of the vessels that you
in the shadow fleet as well. And this was something you wrote about in your report on fraudulent flags, which is available on our website. What can you tell us about safety concerns? very shadow fleet tankers is 20 years compared to the 13 years of the other tankers in service. we all know, when you get older, you have more issues, same thing for a ship that
you need to take care of. And if you don't do that, then that will have consequences, breakdowns of engines, there might be oil spills from that ship. So there might be different issues that could occur from mechanical failures of a ship. On the admin side, the ships are often where we have an oil spill, if a ship breaks down, then who's going to pay for
that. And the issue is you will have a very hard time getting a salvage team out to help one of those ships if they don't know who will reimburse them for their efforts for sending out a vessel for cleaning up the oil. So that is obviously an issue for the environment. normally, what happens port call, a ship gets inspected to see if it's fit to go and trade in international waters, same to a car MOT And these ships because they it
well. So their safety record, to consider is that there are people on board. There is a there's obviously a big issue when the crew sail on. And they also -- they will not go around the engine room before they leave vessel is seaworthy. So they are then exposed to all these dangers and potential incidents that I into the administrative side of a ship. So what happens is shipping ownership is very layered. We have this beneficial
owner. We have have someone who then we have a place where a ship is registered. That doesn't have to be a place where the owner choose to register your vessel in a different country. And we have seen something that, again, register a vessel a ship is registered with one of those flags, it still will get inspected. It will be checked that there is an owner behind these ships. What we see with the fraudulent flags is that a ship used to
be registered with a flag. However, it was deleted from that flag, and it continues to, for example, broadcast on AIS that is still registered with that flag. But it turns out it has no flag register. But having a flag register is mandatory if you operate a vessel in international waters. So wanting to be detected, sanctioned, they will not go to a flag state and try and register we have seen a massive increase of these
cases. And because of the work that we do on behalf of the International Maritime Organization, for ships as well as companies, we then also receive documents from a ship owner to say what flag state a vessel is registered with. And we then see that these certificates from a few certain flags where we know that they are fraudulent, where we've seen a massive increase of these registrations
pop up. And then on the other hand, and this is also somewhat the background for why the Estonian Navy wanted to detain the tanker was that, that vessel had no registered flag state attached to it at all, which is illegal according to the IMO regulations.
So based on your foresee as the future of the shadow fleet? Are there any emerging risks or trends that companies should be aware of?
There are always new business opportunities that of, for example, undersea cables they might be out there to -- they might not longer be out there to transport oil. They might be out there to damage infrastructure that is undersea instead. Russia, for example, uses research vessels for that. And of course, that then means they also come across undersea cables when doing this. So there is a
somewhat dual use for this as well. But these incidents of undersea cables being damaged is something that also has led some of the -- especially of the Baltic states, governments to try and detain vessels because there have been a few incidents in the Baltic Sea of undersea cables
but it's time to wrap up our discussion. Andes, challenges facing sanctions compliance teams in the maritime industry today? And how can they address these challenges effectively?
Yes. So I think knowing who you deal with is important. We have a comprehensive database showing who beneficially owns a vessel in the that is condition that, that vessel is in. I've mentioned the age, the maintenance. We can even look at when the ship goes into has to do with maintenance of a ship. And I ships. Crew abandonment cases have quadrupled since 2019 and alone this year, we've seen an increase of cases
again. What happens when crew gets abandoned is that a ship operator when a ship gets detained just decides that it is not worth their money to get the ship out of that detention basically. lead to for years. And because the country that they are in might not issue them a visa, they are not allowed to leave the ship. So they are trapped on a ship without an employer that is responsible for
repatriating them back home. I think another important interesting development in this kind of context is there are more and more products being considered dual use or that face export controls, especially for Mainland China. also following the tariff escalations that we see from the U.S. administration. And the latter in itself is a big issue for anyone involved in a company's supply a topic that will, I think, keep us all
busy this year. I think the best advice is to come to us, come to S&P Global, discuss how we can help. I think we have a solution for any of your maritime and logistics problems.
on. today. That wraps up