"Shadow Fleet" and the Dynamics of Sanctions on Russian Oil

The term "shadow fleet" has gained traction in discussions surrounding the Russia-Ukraine conflict, particularly regarding the transportation of Russian crude oil. Western media outlets depict this fleet as a network of tanker ships allegedly "laundering" Russian crude, with implications that countries like India are complicit in circumventing international sanctions.

What Are Sanctions?

• Sanctions are punitive measures imposed by one or more countries against another country, entity, or individual to influence behavior, often in response to geopolitical conflicts.
• In the context of Russia's invasion of Ukraine, the U.S. has implemented several sanctions aimed at limiting Russia's ability to finance its military operations through oil sales.
• Mechanisms of Sanction Enforcement
  • Asset Seizure and Freezing: U.S. sanctions target entities and individuals that violate these measures by seizing assets within the U.S. and freezing bank accounts linked to the Western banking system.
  • Price Cap on Oil Sales: The sanctions dictate that Russia can only sell its crude oil at a maximum price of USD 60 per barrel, a strategy intended to curtail its profits and reduce funding for military actions.

Structure of Global Shipping

The global shipping industry is multifaceted, comprising various stakeholders, ship owners, and regulatory frameworks.

• Ownership and Flags: The industry is dominated by Greek ownership (20% of the global fleet), with significant contributions from China and Japan. Ships are registered under flag states, which ideally indicate their country of origin.
• Flags of Convenience (FoCs): Nations like Panama and Liberia allow ship owners to register vessels under their flags to benefit from lower regulatory scrutiny and tax advantages, obscuring ownership.
• Classification Societies: These organizations certify ships for safety and environmental compliance, facilitating insurance coverage, including Protection and Indemnity (P&I) insurance for liabilities.

Challenges in Enforcing Sanctions

• Complex Ownership Structures: Many vessels operate under intricate ownership models, often involving shell companies that disguise the true ownership and origin of the ships.
• Flag Switching: Ships may change their flag to evade scrutiny, utilizing FoCs that do not comply with rigorous international maritime regulations.
• Insurance Loopholes: Ship owners can navigate around P&I insurance risks by contracting with European managers or registering under non-compliant jurisdictions.

India's Role and Accusations

• Increased Registration: Following the sanctions, many Russian vessels sought connections with Indian shipping firms, resulting in a rise in registrations with the Indian Register of Shipping (IRS). Critics argue this links India to the shadow fleet narrative.
• Dubai as a Hub: Many Russian vessels shifted operations to Dubai, where Indian entities have a significant presence, raising concerns about the laundering of Russian crude.
• IRS Defense: The IRS has stated that its primary responsibility is ensuring vessel safety and that it provides classification services to ships under flags like Liberia and Cyprus, which do not raise immediate red flags.