European traders are under pressure to improve scrutiny of vessel behaviour and review contractual arrangements with shippers, following a fresh wave of EU sanctions targeting ship-to-ship transfers and dark activity linked to Russian oil. 

GTR revealed last month that EU authorities were pushing for reforms that would require ports to deny access to vessels that have loaded crude oil or petroleum at sea, or have switched off location transmission signals. 

The measures apply if there is a suspicion that Russian products are being traded above the G7 coalition’s US$60 price cap or are being imported directly to the EU. Following intense negotiations, the sanctions package was adopted by the EU on June 23. 

“We want to counter the increase of deceptive practices by vessels transporting Russian crude oil and petroleum products which aim to hide the origin of the oil and circumvent our import ban and price cap on the transport and services to third countries,” the European Commission said at the time. 

“These practices, which include ship-to-ship transfers of oil and petroleum products, also create environmental risks near our coasts.” 

The measures follow growing concerns that western companies are unwittingly facilitating trade in sanctioned Russian goods. 

The number of vessels expected to be captured by the fresh wave of sanctions is likely “in the very low hundreds”, says Byron McKinney, product management director for trade finance and compliance solutions at S&P Global Market Intelligence. 

McKinney tells GTR that a snapshot of data from mid-May shows a conservative estimate of 167 tankers on the water that were destined for EU ports and had previously been involved in a ship-to-ship transfer with a Russian vessel. 

“There will be extra pressure on compliance teams to understand and manage this new regulatory request, as emphasis is placed increasingly on automated identification systems (AIS) and ship-to-ship transfers,” he says. 

“Therefore, teams need to understand whether a vessel has been in Russia’s exclusive economic zone prior to a European one, detect ship-to-ship cargo transfers and determine the origin of oil or refined products.” 

Maritime analytics firm Windward says the frequency of ship-to-ship transfers between vessels leaving Russia and travelling to Europe has dipped since the introduction of the price cap, falling to an average of seven per month compared to 15 beforehand. 

However, it has detected more than 7,500 examples of dark activity linked to the Russian regime in the last two years. Around a quarter of crude and petroleum tankers that switched off AIS systems were Russian-affiliated, it says. 

Windward has also uncovered more than 1,200 examples of vessels spoofing or tampering with their location signals, a practice that is “becoming increasingly and alarmingly common”, it says. 


Business risk 

The obligations around ship-to-ship transfers are primarily focused on port authorities, notes Eva Monard, an expert in EU sanctions and trade controls and Brussels-based partner at law firm Steptoe. 

“But if a company is relying on shipping and those vessels cannot access EU ports, they have a big issue there,” she tells GTR. “The business risk is quite significant, certainly if you have no information about the previous activity of vessels you are relying on.” 

Monard says clients are currently reviewing contractual arrangements with shippers to understand who would bear the responsibility and cost if a port call is blocked under the new measures. 

“Beyond that, though, even if you can get some compensation, there is still a significant business risk around delays and disruptions, so clients are looking at what they can do to avoid running into issues,” she says. 

Another area of uncertainty is whether the measures will be enforced differently across EU member states, notes S&P’s McKinney. He points out that ship-to-ship transfers off Greece’s Peloponnese region have increased recently, but “doubt[s] the new sanctions package will affect this activity much”. 

“A working document on suspicious shipping practices would be beneficial for trade and supply chain firms,” he suggests, citing a May 2020 advisory issued by US regulators as an example. “Without such a document I believe implementation of the new measures could be patchy.” 


Wider reforms 

Other reforms introduced by the EU target countries suspected of helping Russia evade import restrictions on dual-use goods, a ban on allowing certain goods to transit through Russian territory, and tighter controls on imports of iron and steel that may be of Russian origin. 

Although the sanctions targeting other countries have proven diplomatically sensitive, the EU has emphasised they will only be as “an exceptional and last resort measure” when other efforts have failed. 

The move follows concerns that goods worth billions of dollars have failed to arrive at their stated destinations, including Kazakhstan, Kyrgyzstan and Armenia, since the introduction of sanctions against the Kremlin. 

The controls “will affect the internal compliance program and risk analysis of EU companies”, according to a note from law firm Baker McKenzie. “Transactions with third countries will require increased scrutiny and diligence of the risks of onward-sale and end-use in Russia.” 

Restrictions targeting goods transiting through Russia is mainly a logistics issue, but could also impact EU exporters, Steptoe’s Monard notes. 

“They don’t necessarily have control over the entire trajectory of a shipment, and now they need to decide what level of comfort they want, to make sure these goods will not be transiting through Russia,” she says. 

The European Commission says the primary aim “is to ensure that no sensitive goods ‘fall off a truck’ while crossing Russia”. 

The sanctions targeting iron and steel will require importers to prove that inputs are not of Russian origin, even when products are being bought from other countries. However, those measures do not take effect until September 30 and so have little immediate impact on traders.