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We now have two worlds of international commerce, as a result of trade wars and the Ukraine-Russia conflict. As the Western world, principally the EU, UK and related countries and the US look to tighten sanctions on Russian oil exports, some shipowners are finding creative ways to get around the rules set by the West.

One important escape hatch is to flag ships with a Flag State that doesn’t enforce any of the sanctions. While this strategy may not get access to US or EU ports, it allows substandard ships, or those that don’t want to obey rules such as those banning ship-to-ship transfers without proper environmental and safety provisions, to trade with other countries.

Two stories caught my eye this week.

The first article notes that the Cook Islands nation has become a top 30 Flag State, due to the registry of ships that trade Russian, Iranian, or Venezuelan oil, all sanctioned by the Western Powers. Cook Islands is located in Polynesia, and is self-governing, but has an external defense relation with New Zealand. It consists of 15 islands, with a total area of 91 square miles. It has an Exclusive Economic Zone surrounding it, of some 770 thousand square miles. Many of its residents also have New Zealand citizenship. The population is about 15000 as of the 2021 Census. (All figures from Wikipedia, retrieved on July 29, 2024.)

Sam Chambers July 29, 2024

Dark fleet additions see Cook Islands become a top 30 flag

Apparently tankers are the primary ships flagged there; the Russian oil trade needs ships that will carry Russian oil sold at prices exceeding the $60 per barrel cap set by the Western sanctions. Often these are substandard tankers, and since they cannot land at Western ports they may not meet safety, environmental, or ship management standards. A Flag State like Cook Islands will not be in a position to enforce any of the international standards for safe operation.

The article also points out that LNG is also starting to be traded via a shadow gas carrier fleet, largely based in Dubai. Those ships will likely also be registered in Flag States that are unable to enforce international standards.

The second article shows why the shadow fleet is arising. India’s imports of Russian crude oil are skyrocketing to 1.8 million barrels per day compared to just 88,000 bpd in 2022. Part of the reason is logistical constraints, another important part is price. India can buy sanctioned oil at the reduced sanction price from Russia. But they can also buy other Russian oil, possibly at even lower prices, using the shadow trade.

Russian ports are not located where they can conveniently trade with India. But in the dark market, oil can be swapped and traded without incurring sanction restrictions, and more favorable transport obtained. Some movement did occur from the Black Sea through the Suez Canal, but that is now limited because of the Houthi attacks on shipping in the Red Sea. Ships now need to move around the Cape of Good Hope to reach India, adding many miles and days to the voyage. It’s more profitable for a dark fleet tanker, but adds to the full cost of the oil delivered in India.

The article talks about the dangers of using the dark fleet for moving oil. We can expect more oil spills and accidents due to the substandard condition of the ships and the failure of masters to follow international rules.

Paul Bartlett | Jul 29, 2024

Indian oil importers’ thirst for Russian crude drives dark fleet demand