Crude oil tanker RN Polaris and bulk carrier sail in Nakhodka Bay near the port city of Nakhodka, Russia in 2022 | Photo: REUTERS
The story so far: While covering the Russia-Ukraine conflictmany Western media use the term “shadow fleet” to describe tankers that carry Russian crude oil or petroleum products to other countries. The term conjures up images of pirate ships and phantom owners dealing in illegal, contraband substances. India has been painted as host to a shadowy navy that ‘launders’ Russian crude oil.
How are sanctions applied?
When the US sanctions a country, as is the case with Russia, it initiates investigations against organizations, companies and individuals that violate the sanctions. Their US assets are seized, bank accounts accessible to the Western banking system are frozen, and sometimes criminal prosecutions are launched against them. US sanctions against Russian oil oblige Russia to sell its crude oil at only $60 a barrel. Current market prices are at least $15 more. This is to ensure that Russia does not make much profit from oil sales and use this to finance its military efforts in Ukraine.
Read also: Shadow Navy tankers carrying dirty fuel hinder cleanup efforts
What is the structure of global shipping?
The global shipping industry is highly diversified. The Greeks own 20% of the global merchant fleet, with China now overtaking Japan to become the second leading nation in terms of merchant fleet ownership. Most ships are built and repaired in China, Japan and South Korea. Yet marine insurance, ship finance and global shipping regulations all revolve around the UK and the rest of Europe. US sanctions are trying to be imposed through these levers.
Each ship is associated with different stakeholders in different nations and locations. Although tracking systems allow authorities to access previous ports, some companies manage to hide the original source of their cargo. Ships are registered with certain nations, called flag states, because they fly that country’s flag. Flag states had to show the origin of the vessel.
To avoid sanctions, ships often jump between flags. There are Flags of Convenience (FoCs), such as Panama and Liberia, which started out as tax avoidance organizations and to avoid overly strict control or inspection of a vessel. FoCs conceal ownership of ships. Then there are classification societies (class, in shipping parlance) that certify ship structures and machinery for safety of life at sea and marine pollution, facilitating insurance cover for them. A type of insurance called Protection and Indemnity (P&I) covers loss of life and property damage. These P&I insurance firms form “clubs” to pool risk.
How do ships keep their insurance?
It has been established that Turkey, which is a member of NATO, is actively trading Russian oil. A Turkish ship found to be trading Russian oil for more than $60 a barrel could lose its P&I club because the clubs are controlled by London and the US has influence there. However, the owner may opt out of managing the vessel and contract with a European manager who has P&I coverage. And the ship will be back in service with the same owner but with a new European manager. Corporations with large fleets often create shell companies that only own one or two ships. Such complex ownership structures hide the true identity of the ship and its owner. Yet another phenomenon is the registration of ships within jurisdictions that are not compliant with regulatory agencies such as the International Maritime Organization (IMO). Eswatini, a country in southern Africa, has not signed the IMO charter. Hence it appeared as FoC.
What is the charge against India?
Soon after the imposition of sanctions, many Russian ships entered into alliances with Indian firms. Many have shifted their base to Dubai, where Indians have a presence in shipping. The Indian Register of Shipping (IRS), a classification body, has seen an increase in the ships it certifies, fueling allegations of Indian involvement in shadow navies. Noting that it was linked to Russian shipping companies, the IRS said its primary responsibility was for the safety of the vessel and that it would not be compromised. The IRS reported that it was indeed requested to provide safety-related classification services to a number of vessels by Dubai-based entities. Those vessels were registered under the flag administrations of Liberia and Cyprus, and none sailed under the Russian flag, the IRS said.
In 2015, when Iran was sanctioned, about 160 ships, many of which had commercial ties to Iranian oil, changed their classification organization to the Korean Shipping Register – Korea is an ally of the US. Sometimes renaming a ship can help erase the sanctions link.
Can US sanctions be enforced?
Many shipping agencies and experts acknowledge that sanctions against Russian oil cannot be strictly enforced because of its potential impact on the global economy, the complex ways in which the shipping industry is structured, and because the ownership and origins of the parties involved are unclear and often based on of voluntary disclosure.
Most recently, The BBC reported that the UK had taken only mild action against around 35 UK companies found to have breached the price ceiling imposed by the sanctions. Industry voices there say taking decisive action would be bad for UK business.
Published – 22 Oct 2024, 08:30 AM IST
