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Banks and trading companies are increasingly engaging in “self-sanctioning” against Russian entities in the shipping and commodities sector to avoid trouble with regulators and public displeasure, industry experts say.

The US has blacklisted Sovcomflot, which owns a fleet of over 100 tankers, and several individual vessels. Sanctions against other companies and banks push the number of ships that are blacklisted due to their ownership to over 2,000, according to vessel tracking firms.

They say the rapid clip of sanctions being issued out of Washington, London and Brussels is causing a widespread de-risking of Russian trade and shipping.

“You end up in a world realistically where if you have any doubt, you stay away. And I think that’s actually what we’re starting to see,” says Simon Ring, global head of maritime trade technologies at Pole Star, a maritime intelligence provider.

A March 7 analysis by maritime AI company Windward found that the number of Russian-owned vessels looking for orders had tripled since February 28, “indicating the lack of willingness of the global maritime community to deal with Russian-owned entities, even before official sanctions hit”.

Despite Russian energy and goods exports not being subject to any sanctions or embargoes – until the US banned oil imports from the country on the night of March 8 – port calls in Russia for the first six days of March plummeted by 40% compared to the same period in 2021, according to Windward.

“The market expectation of a ban on energy exports out of Russia is already making its impact on both oil prices but also the shipping operations taking that cargo out of Russia,” the company says.

Around 80 million barrels of Russian oil loaded before the invasion are still at sea, with around half of those that were previously destined for Europe and the US now looking for orders, according to Windward chief executive Ami Daniel.

The groundswell of support in the US and European countries for Ukraine’s battle against Russia’s invasion is pushing banks to take an even stronger position than legally required under sanctions rules.

“What you’re going to find going forward is there’s a moral piece as well, where people just stop doing business with certain Russian counterparties – because they don’t think it’s correct to do,” Ring tells GTR.

Daniel says the public relations calculations that have driven the likes of Nike, Apple and McDonalds from Russia will also apply to those trading Russian oil.

“It’s because of what I call moral sanctions … you don’t want to be, in terms of brand and actions, identified with doing business in Russia.”

The commodities industry has closely watched the experience of Shell. Just hours after media reports appeared that the energy giant had purchased a cargo of Russian crude from Trafigura at a steep discount, the company said it would donate profits from the sale to an aid fund to support Ukrainian civilians.

Yesterday, Shell announced a phased withdrawal from the Russian market entirely. ExxonMobil, BP and others in the energy sector have announced similar exit plans.

Oil traders Gunvor and Trafigura have both distanced themselves from Russia and expressed outrage at the conflict, but stopped short of saying they would stop trading oil from Russia.

The cost of loading Russian oil has also soared. Greek shipbroker Intermodal says a smaller Aframax tanker loading Russian crude “is getting paid US$130k/day, up from US$5k/day last week”.

 

Sanctions evasion

If sanctions on the Russian economy continue to escalate, many predict that the Russian fleet will turn to strategies deployed widely by vessels in Iran, North Korea and Venezuela to avoid detection.

Ships involved in sanctions evasion have been documented turning off their tracking while making port visits in heavily-sanctioned countries or while conducting ship-to-ship transfers, changing their names, masquerading as other vessels, “laundering” registration numbers and conducting GPS “spoofing” to make it look like they are in another location.

“I think we’re going to see these kinds of behavioural patterns more and more often given the magnitude of Russia, its engagement and what it produces,” Ring says.

Windward’s Daniel says Russia itself pioneered some of the strategies that were later adopted by its allies such as Iran and Venezuela, making it highly likely it will use them “in the long term”.

The US Office of Foreign Assets Control (OFAC), which enforces the US sanctions regime, typically opens enforcement cases after a company self-reports a possible violation.

But Daniel says the increasingly wide access to shipping and other data means that illicit activity that previously occurred in the relative safety of the open sea can now be more easily tracked and the companies involved held accountable. He cites a recent report by a US advocacy group which alleged a vessel financed by a UK maritime firm had taken on Iranian crude through a ship-to-ship transfer.

OFAC released an advisory on how it expects banks, traders and others to detect possible sanctions evasion at sea in May 2020. Last month a trio of independent organisations published guidance that seeks to help financial institutions and others put the “high-level” OFAC advisory into practice.

In a note published last week, Blackstone Compliance Services suggested financial institutions closely watch ownership changes of vessels or terminals linked to Russia as sanctioned entities attempt to shift assets.

“This is the 11th biggest economy in the world, and you’re trying to unplug it in weeks from financial and trading communities,” Ring says. “That’s always going to come with huge complications, no matter how good your systems or technologies are.”