In the pre-Ukraine invasion era, shipping companies mostly scrapped older vessels that were less safe and emitted more pollution – but a small number were used to evade sanctions against Iran and Venezuela. Older vessels were favored, because illicit actors didn’t want to risk losing new vessels.
More recently, western shippers have withdrawn their services to/from Russia, opening the door for dark fleet operators worldwide to shift from Iranian and Venezuelan oil, to Russian. These dark vessels facilitate Russia’s oil exports to non-EU, non-G7 (Group of Seven nations) countries.
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 1,400 dark fleet vessels.
It’s obvious that being caught trading or engaging with one of these vessels could result in major financial damage due to sanctions, plus reputational risk to your organization, but there are two overlooked factors that can also have a major impact.
Note: Russia’s invasion triggered a new phenomenon known as the “gray fleet.” Overseas companies were quickly established 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. Stay tuned for our upcoming blog post, where we will focus on the gray fleet.
Dark Fleet Vessels Aren’t Insured
The ships of the dark fleet are old, not well maintained, don’t align with industry standards, and, according to the International Union of Marine Insurers (IUMI), many of them are severely uninsured.
Several accidents involving dark fleet vessels have already occurred: According to Allianz, there were at least eight groundings, collisions, or near misses involving tankers carrying sanctioned oil products in 2022, including:
- Shadow tanker Arzoyi ran aground off eastern China in March 2022
- Tanker Petion was involved in a collision in Cuba just days later
- The oil tanker Linda was found with severe deficiencies and was in contravention of pollution regulations for using high-sulfur marine fuel without an exhaust gas cleaning system in November 2022
- The vessel Pablo exploded off the coast of Malaysia, reportedly killing three crew members and washing up oil on nearby shores in May 2023
This is severely problematic for insurers. If a multi-vessel casualty involving a vessel from the dark fleet should occur, it is unclear what the impact would be on insurers and who is responsible for wreck removal, paying for pollution clean-up, and providing compensation to the victims.
The explosion of the Pablo, which was fortunately not carrying any oil at the time, underscores the problem with uninsured older tankers in the dark fleet. As of early September 2023, the Pablo was still sitting off the coast of Malaysia, with no-one stepping forward to pay for the clean-up costs.
The G7, the European Union, and several other countries have limited Russia’s profits from selling oil to countries, such as China and India, by blocking insurance for shipments of Russian petroleum sold above a certain price. They’re able to apply this pressure because almost all tankers in the conventional global fleet are covered by a small number of major European and American insurers, who are bound by the sanctions.
While many dark fleet ships appear to be willing to forgo insurance from the big insurers, other vessels will spoof their locations to maintain their insurance coverage, according to a The New York Times article.
The article estimates that about $1 billion worth of oil is going under the radar as shippers use spoofing to preserve their Western insurance. If one of the insured vessels is carrying Russian oil that’s being sold above the price limit, the insurer would be in violation of the sanctions, and insurance coverage would be automatically void.
The risk of being stuck with massive bills or sanctions repercussions as a result of an insured dark vessel’s activities, is real.
Old Vessels are Risky for the Environment
In an industry where safety is always an issue and affects risk, the dark fleet is treading a very shaky line. The dark fleet appears to mainly use vessels that are over 15 years old, beyond their scrapping age − some have not been recently inspected and have substandard maintenance.
Vessel owners, who aren’t willing to risk losing newer vessels if they are apprehended, buy older ships specifically for illicit purposes. They seek a quick return on their investment, so they spend the bare minimum on repairs and maintenance.
As a result, these old vessels, which operate secretly, are more at risk for operations that could lead to oil spills caused by a collision, grounding, and other accidents as a result of poor maintenance or human error.
Also, the illegal nature of these fleets makes it impossible to find reputable crew managers. These hard to detect, uninsured vessels are a threat to the safety of their crews as well as potentially people aboard other ships.
Just in 2022, there were eight incidents involving sanctioned oil tankers, as mentioned above, including the explosion of the Pablo in Malaysian waters. Though the cause of the explosion remains unclear, it is thought that vapors from the remains of the oil cargo may have played a part.
There are concerns throughout the industry that the continued operation of the sub-standard dark fleet could culminate in a catastrophic maritime casualty, such as a massive oil spill close to a populated area that no one will take responsibility for.
An article in Insurance Journal details a 20-year-old, giant oil tanker, the Titan, that has been renamed seven times. It is managed by a shadowy company with an address that’s a postbox in the Seychelles and its insurance status is unclear. The Titan was detained in China in April, not because it had been carrying about two million barrels of oil from Iran, but for failing its safety inspection on more than 20 counts and posing a serious danger.
Among Titan’s 23 deficiencies were oil accumulation in its engine room and fire safety issues with its inert gas system — the very equipment that helps prevent vapors exploding. Ten days after the ship was released, the Pablo blew up.
Mitigating the Risks
The new and “dark” reality of maritime compliance compels organizations to pay close attention to the dark fleet (as well as the cleared and gray fleets) using actionable, AI-powered solutions. This will empower organizations to better predict risk, so they can continue engaging in wet cargo trades and avoid inadvertently getting sanctioned.