A new set of extended regulations by the Office of Financial Sanctions Implementation (OFSI), the Office of Foreign Assets Control (OFAC), and the European Union (EU) that will come into effect on December 5, 2022. These bodies established an embargo and a limiting price cap on all Russian seaborne oil trade. The new ban is designed to accomplish two goals that will likely be difficult to coordinate and reconcile: ensure the continued flow of Russian oil into the global market so as not to worsen the precarious global economic situation, while maintaining pressure on Russia by limiting the price for the supply and delivery of the oil.
While only traders and importers have direct access to the price of the transactions, the restrictions and price cap apply to all shipping stakeholders across the supply chain, including financial institutions, shipping companies, and insurance brokers. This creates a challenging dependency on counterparties to obtain sufficient evidence for the legitimacy of the deal.
Apart from the dependency on others for price proof, shipping stakeholders now face other challenges following the December 5 go-live date.
According to Vortexa, a company providing real-time information and analytics for crude oil and refined oil product flows, one of these challenges is that Russia will require more than 200 tankers to export its oil to the four countries that will still be able to accept it – China, India, the United Arab Emirates (UAE), and Turkey. It remains to be seen whether there will be a two-tiered fleet:
- Dark Fleet
Or a three-tiered fleet:
- Dark fleet
- Those who maintain ambiguity
The third category has been prevalent in Venezuela trade, with a few Greek vessels sanctioned in 2020 by the Trump administration.
The four legitimate destinations mentioned above are further away than Europe, meaning that there likely will not be enough available oil tankers to extract the oil from Russia and complete the lengthy voyages. During the winter, more ice vessels will be needed, too.
This may cause freight and oil rates to rise, and the effort to extract all the needed oil from Russia will inevitably lead to more ship-to-ship (STS) operations that will occur in known and new hot spots.
While STS operations can be completely legitimate in the maritime industry, a sharp increase in the number of such meetings in specific areas opens a window for illicit actors to conceal illegal activities. Windward’s insights show that while seasonality trends of the global STS operations between Russian-affiliated tankers remained the same when comparing 2020-2021 to 2021-2022, the volume of such operations dramatically increased since the beginning of the war.