Reports

Illuminating Russia’s Shadow Fleet

Executive Summary

The “shadow fleet” (or alternatively “dark fleet”) phenomenon has drawn a great deal of attention from the mainstream media since the outbreak of Russia’s invasion of Ukraine, but it will be valuable to go deeper on this subject. 

“‘Shadow fleet’ has become a buzzword — widely used by the media and within the maritime industry, but poorly defined and ambiguous,” said Ami Daniel, Windward Co-Founder and CEO. “Windward’s Maritime AI™ insights conclusively demonstrate that it will be more actionable and efficient for organizations to focus on the risky gray and dark fleets. This new conceptual framework will empower organizations to better predict risk, so they can continue engaging in wet cargo trades, understand the supply and demand balance, and negotiate freight deals in a more informed fashion.” 

Windward’s Maritime AI™ platform has identified a three-tiered system of vessels to paint a more accurate picture of Russian oil smuggling: 

  • Cleared fleet – tankers not exhibiting any suspicious conduct, such as flag hopping or irregular ownership structure. It is important to be able to quickly identify these vessels, so that maritime organizations are not paralyzed by false positives and indecision that will further hamper global trade. 
  • Gray fleet – a completely new phenomenon evolving from the Russia war. Overseas companies have been quickly established following the outbreak of the war, to obscure vessel origins and ownership, and to appear law-abiding/non-sanctioned. This fleet is described as “gray” because it is difficult to determine legality and sanctions compliance in many cases. A significant number of these vessels also switch flags (“flag hopping”) frequently. Windward has identified over 900 gray vessels around the world. 
  • Dark fleet – this fleet often utilizes “dark activities” (the intentional disabling of the automatic identification system) to move wet cargo, along with other deceptive shipping practices (DSPs), such as ID and location tampering. Windward has identified approximately 1,100 dark fleet vessels. 

The gray and dark fleets are both composed of vessels that pose a legitimate risk due to often hard-to-detect activities related to attempts to smuggle wet cargo from Russia. This sets up a cleared vs. risky dynamic for maritime organizations.

Vortexa’s technology discovered that the gray fleet carried around 2.6 million barrels per day (M-BPD) each month post-invasion, which translates to a 68 percent increase when compared to pre-invasion levels. The dark fleet increased by 21 percent. These volumes are attributed to Russian oil only.

This Windward and Vortexa joint report will shine a light on the different tanker fleets currently in use, explain how they are classified, offer proprietary and exclusive data on the trade flows of Russian oil, and supply insights to provide maritime organizations with a conceptual framework to clear business faster, while avoiding financial and reputational risk. 

The report includes a breakdown of the top three dark and gray subclasses, to show how often oil/chemical tankers, crude oil tankers, and oil product tankers are used by these fleets, respectively.

Perhaps the best news is that 82 percent of vessels are from the cleared fleet, meaning that with the right artificial intelligence (AI) technology, global trade can be easily enabled. The report explains which flags to be on the lookout for and offers a detailed breakdown of the origins and destinations of smuggled Russian oil, by country. 

A Shifting Landscape

The shadow/dark fleet is popularly estimated to number around 600 vessels, with mysterious ownership designed to obscure their transport of sanctioned Russian oil/wet cargo since the start of the Russian war. 

Windward’s comprehensive one-year report on the impact of Russia’s war offers useful background on the West’s oil ban and price cap regulations. As with previously sanctioned regimes, it quickly became apparent that some actors would work diligently to circumvent the West’s efforts to constrain Russia – as we saw in the case of the Nobel vessel, which made news weeks ago. Russia and affiliated organizations adopted several of the deceptive shipping practices used by other sanctioned regimes, such as Iran and Venezuela. This resulted in many vessels that were previously uninvolved in smuggling getting flagged. 

The price cap, with its different tiers, has influenced the types of DSPs that began to occur more frequently. As buyers changed, with a major shift from Europe to India, China, and Turkey, the makeup of the required fleet to transfer Russian crude was also altered. 

To distinguish between the different types of vessels and activities now occurring, many within the maritime industry have started to use the terms “dark fleet” or “shadow fleet” (often interchangeably), yet these definitions are ambiguous, because sources usually only offer generic or vague definitions. 

The Tiers and Categories   

Pre-war, the world was used to clear definitions of vessels: ships engaged in illicit activities/sanctioned ships, and law-abiding vessels. The Iranian and Venezuela-related “shadow fleets” were relatively small and did not significantly impact non-sanctioned trade. 

With the emergence of regulations and the price cap on Russian crude oil and oil products, there are now effectively three groups competing for charterers’ deals. Not all of them would be relevant to all charterers and all deals. 

This market reorganization impacts the commercial market in three ways: 

  1. Supply and demand: when positioning vessels for future trade (next month + ), traders and operators take into consideration the expected supply and demand balance. 
  2. Local deals: while competing for a specific deal, operators consider competing vessels, which impacts pricing and negotiation. 
  3. Compliance fears: traders and operators remain worried about inadvertently trading with a sanctioned vessel or organization. 

Viewing the current Russian maritime landscape through the prism of a tiered system, and detailing these tiers and their sub-categories, will offer organizations a framework to clear legitimate business deals faster, facilitating global trade, while not unintentionally supporting Russia’s invasion. 

The tiers: 

Cleared Fleet

These are tankers not exhibiting any suspicious static conduct, such as flag hopping or irregular ownership structure. Behaviorally, these vessels do not indicate any participation in deceptive shipping practices, such as going dark for periods of time that might suggest involvement in a commodity trade. An additional indication of this fleet’s legitimacy is the areas in which they operate and the level of regulation of the ports and terminals they frequently call. 

Gray Fleet

The oil ban and price cap imposed on Russian oil has led to a major shift in the oil supply chain. The most notable of these changes is the identity of Russian crude and oil product importers. Excluding the countries that ban the import of Russian oil – including the U.S., UK, EU, Australia, and Japan – and the decline of Russian oil prices, has led to the emergence of other buyers. Countries such as China, India, and Turkey, have significantly increased their trade with Russia. This has led to the creation of a quasi-legal fleet working in parallel to the cleared fleet to carry out this trade. 

Windward’s Maritime AI™ utilizes a variety of behavioral and ownership-related indicators. These indicators include, but are not limited to, port calls, ship-to-ship operations, ownership and identity changes, first-time visits and more. We cover new areas of operation and ship-to-ship hubs along the way to the cargo’s final destination, enabling us to identify not only the vessels loading the oil in Russian terminals, but also other vessels further down the supply chain. 

Dark Fleet

These are the tankers carrying out clandestine trade of sanctioned commodities, using diverse methods of obfuscating their origins. This fleet utilizes a variety of DSPs, including both static and dynamic methodologies. These include dark activities, GNSS manipulation, and many more DSPs. 

The fleet is characterized by weak ownership structures and the use of multiple flags of convenience over short periods of time. The size of this fleet has fluctuated substantially with each new regulation published and even more so following the Russian oil ban and price caps.

Getting to Know the Fleets

A deeper exploration of the data unearths some important trends and insights that will empower organizations throughout the maritime system to adopt more strategic decision-making and stay ahead of evolving deceptive shipping practices and masking techniques.  

Let’s start with the percentages of the different types of vessels involved in transporting wet cargo.

This is notable for a few reasons: first, it is interesting that there is close to an even spread of dark and gray vessels. And although 18 percent of potentially questionable vessels (some of the gray fleet vessel behavior is technically legal, hence the “gray” designation) is certainly concerning for the global maritime community, it is important to note that a whopping 82 percent of vessels come from the cleared fleet. With a global recession looming, this is good news. Organizations with the proper maritime technology can continue to quickly clear maritime trades and keep the supply chain moving.

Older vessels comprise a substantial percentage of gray and dark fleet vessels. They were clearly repurposed into the risky fleet after Russia’s war against Ukraine started. A recent The Washington Post article noted: 

“Many (shadow fleet ships) appear to be older tankers that were previously part of the regular fleet. Owners are choosing to offload them for more money than if they were sold for scrap metal and parts…Shipping company executives said it’s likely these vessels will never return to the conventional market.”  

Wet Cargo Subclass Composition

Windward’s AI technology identified the following subclasses (in order of prevalence):

The top three dark subclasses:

  • 35% oil/chemical tankers
  • 32% crude oil tankers
  • 20% oil product tankers

The top three gray subclasses:

  • 33% crude oil tankers
  • 23% oil product tankers
  • 20% oil/chemical tankers 

Flag Distribution for Dark Fleet Vessels

The top five flags of dark fleet vessels are Panama, Liberia, Marshall Islands, Russia, and Malta (an EU country). Unsurprisingly, four of those countries are on the flags of convenience list and the fifth is Russia.

Additional insights: 

  • 11 percent of dark fleet vessels are sailing under a European flag
  • 1 percent – Iran flag
  • 0.6 percent – Venezuela flag

Not many of the dark fleet vessels are flying Iranian or Venezuelan flags, seeming to indicate that these efforts are not on their behalf (or that they have gotten good at covering up such efforts over the years). It’s significant that 11 percent are sailing under a European flag (although again, Malta’s flag is a flag of convenience). Is this a sign that the European’s coalition resolve is weakening, or perhaps an indication that some members are less resolute behind the scenes than they are publicly?

Flag Distribution for Gray Fleet Vessels

The top five flags of gray vessels are the same as for dark vessels:

We see vessels flying flags of convenience most engaged in gray fleet activities. The ability to easily switch the flag is appealing to vessels/groups wanting to quickly appear legitimate. 

Additional insights: 

  • 15 percent of dark fleet vessels are sailing under a European flag
  • 0.1 percent – Iran flag

The European percentage is perhaps notable and worthy of further investigation.

Owner Registration of Dark and Gray Fleets by Company Location

Additional data: 

  • Gray fleet – 31 percent are located in Europe
  • Dark fleet – 20 percent are located in Europe

Another high concentration from Europe – it is noteworthy to see Greece on the dark fleet or vessels list. It has been widely reported that Russian entities established shell companies in the UAE and Hong Kong. For instance, CNN notes, “New, obscure players swooped in, with shell companies in Dubai or Hong Kong involved in some cases. Some bought boats from Europeans, while others tapped old, creaking ships that might have otherwise ended up in the scrapyard.” 

Oil Trade Flow Trends Related to Russia Sanctions and the Price Cap

This following exclusive data comes from Vortexa. Windward and Vortexa established the industry’s first data sharing agreement for maritime cargo flow and risk factors. This has led to greater visibility into compliance and risk across the global tanker fleet.

Ioannis Papadimitriou, Senior Freight Analyst at Vortexa, has illuminating statistics and insights on the amounts of oil being transported and the potential destinations. 

“The involvement of the gray and dark fleets with Russian cargos is quite evident following the invasion of Ukraine. According to our data, the gray fleet has carried around 2.6 million barrels per day (M-BPD) each month post-invasion, which translates to a 68 percent increase when compared to pre-invasion levels. Similarly, the same comparison for the dark fleet is estimated at a smaller, but nevertheless considerable, 21 percent.

Barrels per Day (BPD) Moved Using the Dark and Gray Fleets

The global numbers of barrels per day that are moved using the gray fleet essentially show no change in the past year. But when we drill down into the amount of Russian oil, the picture changes.

Looking at the numbers in the context of Russian oil, there is a 68 percent increase in the monthly average of Russian barrels per day (BPD) carried by the gray fleet after the war. There was a big increase in crude oil prices after the war began, with a peak in May 2023 (this correlates to the peak shown in this graph).

Similar to the gray fleet, the global oil carried by the dark fleet did not change much in the past year, but when looked at in the context of Russian oil there is a clear trend – 22 percent increase in the monthly average of BPD carried by the dark fleet after the war.

The dark fleet is practically unchanged by the war, indicating that the gray fleet took most of the load. 

The total amount of crude and oil products carried by both the dark and gray fleets since the war began is +60 million BPD. With an annual average price of $58 USD per barrel of crude oil in 2022, the crude oil carried by these fleets is worth more than approximately 2 billion USD.

Destinations for Russian Oil from Dark and Gray Fleets

“In terms of where these cargoes are headed, the key buyers of crude oil have been by far India and China since last February. These two countries further increased their share of Russian grades following the EU ban on Russian crude, which took effect on December 5, when the European segment of the Mediterranean countries halted their purchases,” said Papadimitriou from Vortexa. 

“On the clean petroleum products (CPP) side, the interdependence of Russia and Europe remained strong even after the conflict, especially when it comes to diesel. As a result, Belgium and Netherlands (ARA region) continued to be the favorite destination throughout the end of 2022. Since then, the EU started to unwind its exposure on Russian products, which culminated in the February 5 ban, with Turkey emerging as the predominant buyer. Unlike the crude trade, a higher number of buyers has appeared for Russian diesel, in regions such as North and West Africa, the Middle East, and especially Brazil.”

Gray Fleet Top 10 Destinations

A deeper look:

  • The top three destinations for crude – China (+600K BPD), India (+480K BPD), and Turkey (+180K BPD)
  • Top three destination for oil products – Turkey (+80K BPD), Belgium (+37K BPD), and Netherlands (+32K BPD)

When zooming out of the Russian oil context and looking at the top destinations for global crude oil from the gray fleet, the top three countries are China, India, and Italy (replacing Turkey).

Dark Fleet Top 10 Destinations

  • Top three destinations for crude – India (+420K BPD), China (+400K BPD), and Bulgaria (+100K BPD)
  • Top three destination for oil products – Netherlands (+88K BPD), Turkey (+67K BPD), and Germany (+65K BPD)

When zooming out of the Russian oil context and looking at the top destinations for global oil from the dark fleet, the top three countries are China, India, and Italy (replacing Netherlands).

Top 5 Origin Ports for Russian Oil from Dark and Gray Fleets

Gray Fleet Vessels

 

  • Top three origin ports for crude – Kozmino (+500K BPD), Primorsk (+380 BPD), and Ust-luga (+350 BPD)
  • Top three origin ports for oil products – Ust-luga (+122K BPD), Novorossiysk (+120K BPD), and Tuapse (+57K BPD)

Dark Fleet Vessels

  • Top three origin ports for crude – Primorsk (+360K BPD), Kozmino (+270 BPD), and Novorossiysk (+250 BPD)
  • Top three origin ports for oil products – Primorsk (+175K BPD), Ust-luga (+160K BPD), and Novorossiysk (+108K BPD)

When looking at oil on a macro level, the top origin ports for the gray fleet continue to be mainly Russian, but for the dark fleet the picture changes, with Kharg Island and Singapore coming up in the top three origin ports.

Looking to find out more about Russia’s gray fleet?