Oil Smuggling

What is Oil Smuggling? How Can It Affect the Shipping Ecosystem?

Oil smuggling is the illegal transportation, sale, or purchase of petroleum products, such as crude oil, gasoline, diesel, or other refined products. Smugglers may attempt to avoid paying taxes or fees on the oil, or try to evade sanctions/embargoes on oil imports and exports. Smuggling can occur through various methods, such as smuggling oil in containers or hidden compartments in ships, illegal ship-to-ship (STS) transfers, or through fraudulent documents and mislabeling of cargo.

Avoid Ships Engaged in Oil or Fuel Smuggling

Oil smuggling is a big, albeit illegal, business. According to a previous Windward blog post, in 2022 a Chinese merchant paid over $375 million to engage in a ship-to-ship transfer of crude oil from 13 Russian tankers. This is hardly an isolated incident, and doing business with companies that violate the law can trigger sanctions, such as monetary penalties and/or jail time. 

Oil smuggling can have significant economic, environmental, and social impact. Some of the issues it can cause are the loss of tax revenues for governments, the depletion of natural resources, the destabilization of energy markets, and the funding of criminal or terrorist activities. It can also pose a risk to public safety and the environment, as smuggled oil may not meet safety standards or regulations.

The consequences of oil and fuel smugglers can be felt even by those who were not knowingly involved in this illegal activity.  

• Any company or individual involved in illegal oil smuggling activities can face legal consequences and reputational damage. Shippers who transport smuggled oil can be subject to fines, imprisonment, or revocation of their license, and they may be blacklisted by customers and the authorities.
• Shippers who transport legitimate oil cargoes may face delays or disruptions at ports or borders due to increased scrutiny and inspections by authorities. This can lead to increased costs and potential losses if cargoes are seized or delayed. It’s important to know a ship’s history, and the cargo it’s transporting, before loading your cargo on the vessel. 
• Shippers who operate in regions where oil smuggling is prevalent may face increased security risks, as smugglers may resort to violence or other criminal activities to protect their operations. This can pose a threat to the safety of shippers’ employees and vessels.

To lower these risks, it’s essential to implement a comprehensive strategy for detecting and identifying deceptive shipping practices (DSPs) and due diligence procedures. Best practices include investigating corporate structures and screening vessels, shipments, and non-maritime entities.Use Cases: How Oil Smuggling Can Be Prevented

By taking measures to prevent oil smuggling, stakeholders can safeguard their interests, maintain the integrity of the industry, and promote transparency and accountability in the supply chain.

• Government agencies: the official bodies responsible for regulating the oil and gas industry can use their power to increase border control at the port, monitor shipments, and collaborate with other international agencies. These measures will go a long way to locating and stopping the smugglers.  
• Oil and gas companies: it is in oil and gas companies’ best interests to prevent oil smuggling. They are responsible for ensuring that anyone shipping their product is in compliance with regulations and avoids legal risks. For example, they can screen chartered vessels, conduct due diligence on suppliers and customers,, and use technology, such as artificial intelligence (AI), to track and monitor oil shipments.
• Shipping companies: shippers can better understand which regions and ports have recently seen an increase in likely smuggling activities, to prevent or reduce the amount of oil smuggling. By doing so, they will reduce their legal and reputational risks and maintain the safety of their ships and employees.
• Financial institutions: financial institutions are responsible for conducting a thorough background check on any client before becoming involved in funding or investing in a shipment. This includes monitoring transactions for suspicious activities and reporting any suspicious activities to authorities.

How AI Can Detect Oil Smuggling  

Using a Maritime AI™ platform, can significantly reduce your risk of sanctions. It can detect deceptive shipping practices (DSPs), or other abnormal and suspicious behavior.

Here are the four main operation patterns that can be a sign of oil smuggling, or other suspicious behavior. 

1. Aimless journeys and STS operations that occur far from shore, which may indicate illegal activities, such as oil smuggling.
2. Checkpoint avoidance, such as taking a longer route back to a starting point, to evade inspections and conceal illegal activities.
3. Identifying floating storage vessels that are involved in fuel exchange between tankers, which is often associated with oil smuggling, by analyzing suspicious behavior, such as drifting and course deviations.
4. Detecting ID and location tampering, where ships turn off their automatic identification system (AIS) transmitters to hide their movements, through the analysis of vessel movements and identifying patterns of suspicious behavior.