Russia bets on growing ‘dark fleet’ to ship its oil
An unusually large number of tankers have changed ownership in recent months in what analysts and shipping industry officials believe is a push from Russia to continue shipping large volumes of its crude and entities willing to profit from Russian oil trade in a sanctions regime.
The ‘dark’ or ‘shadow’ fleet of oil tankers is growing to now include tankers not only shipping sanctioned Iranian and Venezuelan oil, but also increasingly larger volumes of Russian oil and products. The EU and G7 now ban maritime transportation services for crude above the $60 per barrel price cap, while Russia says it’s not accepting the cap and will trade with “friendly” partners willing to take on its crude uninsured by Western companies.
Ahead of the December 5 EU embargo on imports of Russian crude oil, which was announced months ago, hundreds of vessels—mostly older ones nearing the end of service life and bound for scrap—have changed ownership to companies not associated with the EU or G7, such as firms based in Dubai.
Many of those tankers have already been found to pop up at Russian ports to load crude.
Shipping oil with old tankers without EU/G7 companies’ insurance is a disaster waiting to happen, shipping analysts and brokers say.
Many deals have taken place off the market, with sales of tankers to previously unknown entities based outside the EU and G7 countries.
“Many sales have been off-the-market and the so-called dark tanker fleet continues to grow,” Erik Broekhuizen, manager marine research & consulting at Poten & Partners, says.
Reputable owners do not want to get involved with the ‘dark fleet’, however, earnings from secretive shipping could be much higher than the market rates, according to Poten & Partners.
“These premium earnings have created a strong incentive for opportunistic, less scrupulous owners to get involved in these trades,” Broekhuizen said in an article last month carried by Riviera Maritime Media.
Between January and early November, at least 60 very large crude carriers (VLCCs), 42 Suezmax tankers, and 93 Aframax vessels changed their ownership, Poten & Partners has estimated. The average age of the tankers is more than 15 years—the age at which tankers are usually sent for scrap.
As a result, the price of second-hand tankers has jumped this year. For example, the price of a 20-year-old Aframax tanker has surged by 86% year to date—from $11.8 million on January 1 to $22 million now, according to data from VesselsValue cited by Reuters.
“The impending sanctions have caused a spike in demand for vintage Tanker tonnage, consequently showing an increase in values for this sector. Tankers that continue to trade in the ‘dark fleet’ will tighten vessel supply, which could continue to support this sector in terms of earnings and values,” VesselsValue’s Rebecca Galanopoulos Jones wrote last week.
“There is a growing speculation of the Tanker market splitting into two categories; those operating in Russian waters will now move to other trades, and those seeking to capitalise on the premiums resulting from Russian trades despite the sanctions.”
According to research for TradeWinds, as many as 393 tankers, or 43% of the vessel transactions ... were sold to unknown owners or newly-established companies. Moreover, dozens of tankers registered in EU member states, such as Malta, Cyprus, and Greece, have left their registry so far this year, an official from the Malta flag administration told TradeWinds.
Anoop Singh, head of tanker research at Braemar, told the Financial Times,
“These are buyers that we, as longstanding brokers, are not familiar with,” adding that “We are confident that the majority of these vessels are destined for Russia.”
Even with a frenzied market of old tankers going to unknown or little-known new owners, Russia will likely struggle to place all its previously Europe-bound oil to other markets, such as its now biggest customers China, India, and Turkey, analysts say.
Old Tanker Fleet Could Be A Disaster Waiting To Happen
The growing size of the “dark fleet” increases the risk of accidents, Poten & Partners said in early November.
Two incidents in recent weeks involving tankers of 20 and 21 years, including one carrying Russian oil from Primorsk to Turkey, highlight “again the potential risks associated with utilizing old, substandard tonnage for the transportation of crude oil and petroleum products,” Poten & Partners noted.
The EU embargo on Russian imports and the price cap on Russian crude oil have already created “a two-tier market” in the tanker industry, executives said before the sanctions came into effect on December 5.
Frontline, one of the world’s biggest tanker owners, said last week that during the third quarter “the development of a two-tier market in freight has evolved as certain owners avoid carrying Russian oil due to sanctions risks or self-sanctioning whilst other owners choose to engage.”
“Charterers on the other hand may seek to avoid vessels with Russian history, increasing inefficiencies in trade,” Frontline noted.