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Nearly a quarter of Russian crude oil exports in the first four months of the year used vessels owned or insured by G7 or EU entities, yet were priced above the US$60 cap, researchers say. 

Russia shipped just over 103 million barrels of crude between January and April, of which just under half used services provided by companies in countries that enforce the oil price cap, according to a paper published this month by the Peterson Institute for International Economics (PIIE). 

Providing shipping and insurance services is permitted as long as the price remains below US$60 per barrel, but the paper finds that nearly 77 millions barrels were sold above that level. 

“This means that at least 24 million barrels with prices above US$60/barrel appear to have been transported on vessels that fall under the cap’s regulations,” says the report, produced in collaboration with the Kyiv School of Economics and the German Council on Foreign Relations. 

“These violations are likely the result of straightforward falsification of the records oil buyers are required to provide to G7/EU shipping and insurance companies with regard to price cap compliance.” 

It adds that price information is unavailable for a further 23 million barrels, meaning just 3% of Russian crude exports can be confirmed as compliant with the regime. 

The report says the “significant” involvement of G7 and EU companies in these transactions “indicat[es] that the cap is not enforced properly”.  

The findings echo an alert issued by US sanctions authorities in April saying American companies appeared to be “providing covered services involving Russian oil purchased above the price cap”, and warning that non-western parties involved were likely providing incomplete or false documentation. 

It said commodity traders should ensure shipping, freight, customs and insurance costs are invoiced separately from the purchase price of Russian oil, as bundling information could “obfuscate the fact that Russian oil was purchased above the price cap”. 

Traders were instructed to keep all documentation associated with Russian oil purchases, which could be used as protection against enforcement if the price cap is inadvertently breached, authorities added. 

Further research by the KSE Institute, part of the Kyiv School of Economics, finds that P&I Club insurance is still widely used in the Russian oil trade. 

In a report published earlier this month, it says around half of crude oil and two-thirds of petroleum products shipped in April were on board tankers with P&I Club insurance cover. 

However, for exports from Russia’s Pacific ports – believed by authorities to carry a greater risk of price cap circumvention – those figures fall to 27% and 41% respectively for crude and petroleum. 

 

Shadow fleet larger than thought 

The KSE Institute report also raises concerns about Russia’s use of a ‘shadow fleet’ of tankers to reduce reliance on G7 or EU-based companies. 

It estimates that as of April this year the fleet consisted of 143 tankers, of which 105 were at least 15 years old.  

Not only does this pose a greater risk of oil spills than with younger vessels, but a lack of P&I insurance means it is unclear who would foot the bill for a clean-up operation. 

A research paper by S&P Global Market Intelligence, seen by GTR, suggests the size of the shadow fleet could be far larger than previously thought. 

The paper identifies 443 tankers it says are operating within the fleet, as well as a further 1,900 vessels that carry potential sanctions risk. 

The former category covers vessels that have been Russian-registered or owned, or that made their first port call or ship-to-ship transfer with Russia, since the introduction of the price cap. The latter includes any vessel that has made port calls or ship-to-ship transfers linked to Russia. 

Ship-to-ship transfers of Russian oil have emerged as a growing area of focus for authorities in recent months. 

In the EU, a fresh round of sanctions introduced last month require ports to deny access to vessels that have loaded crude oil or petroleum at sea, or have switched off location transmission signals, if there is a suspicion Russian products are being traded above the price cap. 

S&P says the number of ship-to-ship transfers involving a vessel switching off its location transmissions increased from 161 in the first three months of last year to 524 during the same period this year. Just under half of those tankers have P&I Club cover, it adds. 

The effectiveness of the price cap itself is also being questioned by experts. The PIIE report suggests that so far, a cap of US$60 has proven “irrelevant” because Russia was unable to sell Urals crude above that price anyway. 

But rising oil prices mean Russia is now able to sell Urals crude at significantly less of a discount than when restrictions were introduced.  

Speaking to the Wall Street Journal this week, Carnegie Russia Eurasia Center analyst Sergey Vakulenko says the Kremlin’s efforts to build an oil export network independent of western shipping and insurance are starting to show results. 

“Russian oil companies…put quite a lot of effort into staying in business and earning money. They have proven themselves to be capable operators,” he says.