2 Years of Turmoil that Transformed the Maritime Ecosystem

Not many people expected Putin to invade Ukraine, or for the war to last two years (and counting). No one could have predicted the ways in which this conflict, which commenced on February 24, 2022, would fundamentally transform the maritime and supply chain ecosystems.

Global trade and sanctions implementation have been significantly altered, perhaps permanently. 

This report contains Windward’s AI-powered insights to illuminate how Russia’s two-year-long war with Ukraine has impacted trade routes, the supply chain, deceptive shipping practices (DSPs), sanctions, and the emergence of the gray and dark fleets. We’ll also look at how smuggling has changed – particularly in relation to grain and new bunkering hubs – and how the ongoing Houthi disruptions in the past few months are affecting the Russia-Ukraine war.  

A few examples illustrating the tremendous impact, comparing 2022 vs. 2023: 

• A 216% increase in dark activities (monthly average) after a port call in Russia
• Number of direct voyages from Russia to the EU by tankers decreased by 72% (monthly average
• A 616% increase in bunkering activities in Catania, Italy

The report closes with tips for conducting thorough due diligence and remaining fully compliant with a constantly evolving regulatory landscape, while continuing to facilitate global trade and/or quickly clear business.

Here are some of the major trends identified by Windward’s industry experts and the company’s Maritime AI™ platform. 

Not that long ago, maritime sanctions compliance almost solely consisted of thwarting nuclear proliferation – staving off ballistic nightmares in North Korea and Iran. A metamorphosis occurred years back and has been accelerated by Russia’s war, with sanctions emerging as a popular foreign policy tool. 

Initially conceived as alternatives to military intervention and instruments of national security, economic sanctions gradually transcended these confines. We now witness their deployment as levers to modify the behavior of governments, entities, and even individuals across a diverse spectrum of transgressions. 

“Informal sanctions” were adopted by some organizations way back in March 2022, following the outbreak of war. Despite potentially lower profits and the loss of previous investments, companies feared reputational harm if they kept up business-as-usual with Russia. An example: direct voyages from Russia to the U.S. or UK dropped by 60% from February 2022 to April 2022.

The Western powers moved quickly to put a price cap on Russian oil after the outbreak of war. This resulted in a maximum price of $60 per barrel for Russian crude oil, followed by a price cap on Russian oil products. 

DSPs and Dark Activities Rise

Illicit actors adopted deceptive tactics to bypass the price cap on oil and conceal the origin of the oil, grains, and other smuggled/sanctioned commodities, resulting in a big challenge for regulators. 

There was a 216% rise in the monthly average of dark activities after a port call in Russia (comparing 2022 to 2023), which seems to indicate that many bad actors have not been deterred – the lure of Russian oil revenue is still very strong.  

The war has significantly impacted trade flows into and out of Russia. The EU and U.S. quickly began weaning themselves off the country that was formerly referred to as “the world’s gas station.”  

Since the war started, the number of direct voyages from Russia to the EU by tankers decreased substantially: 

• Prior to the war (January-February 2022), the monthly average of such voyages was 298
• That monthly average decreased by 61%, to 115, in January-February 2023
• When comparing 2022 to 2023, the monthly average of such voyages decreased by 72%!

The same trend was spotted for U.S. and UK direct voyages. The monthly average of these voyages decreased by 70% when comparing 2022 vs. 2023. Russia is still making money. If Russian oil is no longer going to the U.S. or EU, where is it going? 

Data shows that direct tanker voyages from Russia to Brazil have increased by a whopping 942% (comparing February 2022-December 2022 vs. January 2023-December 2023). This trade flow was essentially non-existent prior to the war and shows how many non-Western countries and organizations have continued, and in many cases increased, their trade with Russia. 

Russia needed to find alternative ways to export its oil, so it started to use older vessels with complex ownership structures, and previous affiliations with Iran and Venezuela. Windward’s Maritime AI™ platform has identified a three-tiered system of vessels to paint a more accurate picture of these new Russian oil smuggling types and tactics: 

• 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 frequently switch flags (“flag hopping”). 
• 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. 
• 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.

What is the current state of the shadow fleet? 

• • There are 854 gray fleet vessels worldwide 
    • Top flags: Russia, Marshall Islands, and Liberia

• 1,766 dark fleet vessels

• • Top flags: Russia, Marshall Islands, Liberia, and Gabon (Gabon has become a new hideout flag)

In the first year of the war, Windward saw a significant decrease in direct port calls in the U.S., EU, and UK from vessels that had called port in Russia. But the number of shipments arriving through ship-to-ship (STS) engagements remained steady, despite the oil ban and price cap regulations. This was likely related to the dark fleet, a group of vessels operating in the shadows, using DSPs to move sanctioned commodities. 

What has been happening more recently with STS trends? 

Windward’s Sequence Search and AI capability for ship-to-ship classification have highlighted several trends:

• There was a 54% increase in ship-to-ship transfers of crude or oil products in the Mediterranean between April 202-February 2024, an increase that occurred immediately after the carrying vessel called a port in Russia
• There was a 108% increase in ship meetings in Southeast Asia, also conducted after port calls in Russia
• There was a 556%(!) rise in commodity ship-to-ship meetings between April 2023 and February 2024 in the Mediterranean, conducted after dark activity in Russia or the Black Sea. There was also a 127% increase in commodity STS meetings conducted after dark activity in Russia or the Black Sea.

Here are the new ship-to-ship (STS) hubs since 2022. New hubs formed in areas close to Russia, to be able to move cargo (especially oil) further than just Europe, who would not accept it anymore:*  

• Malacca Straits – an increase of 108%
• Mersin, Turkey – an increase of 122%
• Kalamata, Greece – an increase of 56%
• Catania, Italy – an increase of 616% (with the major increase in Q4 of 2023)
• Lome, Togo)/Lagos, Nigeria – an increase of 646% 

*All percentages relate to the quarterly averages comparing 2022 to 2023.

As noted, there has been a dramatic rise in ship-to-ship (STS) operations to continue transporting and distributing Russian oil. There is not just one STS, but STS chains. Multiple, back-to-back STSs, where Russian cargo is passed. 

The 11th package stipulated that bunker suppliers were expected to go far beyond mere sanctions list screening. They were required to have a comprehensive, risk-based due diligence process in place and to monitor deceptive shipping practices and any suspicious, uneconomic behavior. Failure to keep up could lead to major sanctions breaches, reputational harm, and other penalties. 

Adding to the difficulty, bunkering deals can be concluded in fifteen minutes, so organizations cannot reasonably stretch the sales process to an hour to conduct due diligence, without risking a lost opportunity.

Both large and small organizations are impacted by this changing landscape, but in different ways. Large companies can be majorly impacted by huge fines and settlements…but the blockage of even a single small payment could devastate the cash flow of a lean organization. 

Organizations need to carefully consider their risk appetite and the risk-reward around sanctions, specifically on the transactional level. These include credit risk and potential blockage of payments. Is this a six-figure problem? Potentially a seven-figure issue?

Bunkering involves a high level of risk, particularly concerning credit. Bunkering organizations need to know who they are providing services to, understand where they came from, and who they met with before, to ensure the bunkering organization is not unintentionally enabling smuggling. 

Many times risks also open up opportunities. As trade flows shifted, so did operational hubs for bunkering services (and then the Houthi disruptions reshuffled bunkering flows again). Bunkering organizations can leverage business intelligence to quickly respond to the changing map and take advantage of the new opportunities.

Due to the Houthis, many vessels are now taking the long detour around The Cape of Good Hope, adding weeks to their journeys. The disruptions have spiked insurance costs, transit times, and shipping prices. 

To give just one example, the price of shipping containers from East Asia to North Europe increased 243% to $5,456 from December 2023 to January 2024. 

But The Cape of Good Hope is a known smuggling route for Russian oil. Unlike the Suez Canal, the Cape does not have checkpoints. Diverting a large number of ships there, rather than through the regulated Red Sea, may make illicit activities – such as oil and commodities smuggling – easier and more common. 

Additionally, Chinese-owned (beneficial owner) tanker vessels were exhibiting lost AIS transmissions/dark activity at the beginning of the Houthi conflict (October 2023), but far fewer in January. The opposite trend was noticed for vessels owned by European or Middle Eastern companies – as the conflict and the attacks progressed, these vessels engaged in more lost AIS/dark activities than at the beginning of the conflict.

These trends confirm the political alliances that have clearly formed. The Houthi disruptions and retaliatory attacks from the U.S. and UK are further dividing “the East” – China, Iran, and Russia –  from “the West” – the U.S., Europe, and select Asian and Middle Eastern countries – even further. 

On a geopolitical level, the Red Sea crisis has provided important insights into power dynamics and strategic alliances. While American and British ships have been targeted, China and Russia emerged considerably less disrupted, mostly maintaining their ability to sail through the Suez Canal and even increasing their trade and oil sales.

Since the start of 2024, which is still in its infancy, more than 200 companies have been sanctioned for price cap violations, with a flurry of activity coming on the second anniversary of the war.

How successful have sanctions been overall for the past two years? 

Bloomberg notes that Russia posted GDP growth of 3.6% in 2023 after contracting 1.2% in 2022. The International Monetary Fund expects the economy to continue growing and rise 2.6% in 2024, despite inflation remaining extremely high. The Western powers were more successful with their secondary sanctions goal of not causing too much damage to the global economy, while making life more difficult for the Kremlin. Part of the problem has been the East vs. West alliances that have formed. 

“Russia is entering its third year of war in Ukraine with an unprecedented amount of cash in government coffers, bolstered by a record $37 billion of crude oil sales to India last year,” according to a CNN article featuring Windward’s insights. 

Still, Western governments have made substantial efforts and significantly altered their previous trade habits. 

For instance, a recent UK sanctions strategy position paper explains: “We have sanctioned over £20 billion (96%) of the goods that the UK traded with Russia in 2021. Goods imports plummeted by 94% in the year following the invasion, and goods exports fell by 74%, with a large proportion of the remaining exports being food, pharmaceuticals, and other humanitarian items. As of October 2023, over £22 billion of Russian assets were reported frozen as a result of UK financial sanctions. We have sanctioned 29 banks, accounting for over 90% of the Russian banking sector, and we have restricted the provision of UK and other G7 services that Russia relies on, impacting on revenues and taxes.” 

Two years of Russia’s war, plus the Houthi disruptions, have proven that data analysis and AI insights play a critical role in understanding and responding to dynamic global trade conditions, especially when there is a critical need for all stakeholders to be well-informed and adaptable in the face of uncertainty. Businesses must leverage technology – such as AI STS models, data analytics and AI-powered monitoring tools – to significantly enhance risk-based due diligence efforts and detect potential red flags with greater accuracy and efficiency.

As the timeline section above illustrates, Windward has been collaborating closely with our customers and we are working diligently to alleviate pain points, tasking our top experts and AI models with the challenge of producing new tools and technology. 

We launched our Russia Sanctions solution at the beginning of the war, enabling stakeholders to understand the full scope of Russian-related trade, including cargo destinations and sources. Windward has been updating our model and algorithms since, in line with events and evolving regulations. 

Our Maritime AI™ platform offers actionable visibility, so users can better understand how trade flows are changing, detect deceptive shipping practices and stay on top of what is happening with the gray and dark fleets. Business intelligence can also mitigate risk for bunkering organizations and quickly spotlight new opportunities. 

Windward’s new Sequence Search capability helps by enabling users to search for a suspicious sequence of events involving specific vessels.