The Shadow Fleet And Russian/Iran Sanctions

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Over the last few days I have been down a rabbit hole researching the Russian and Iranian tanker fleets which are commonly known as the shadow fleet. The shadow fleet name comes from how they operate as these countries are both sanctioned so any exports are done outside of legitimate trade networks often involving clandestine type operations. These types of research posts I do enjoy as you get to find out what is really going on and this should be in the news.

The chart above highlights vessels that were sold for scrap, but were actually never sent to the scrap yard and were added to the shadow fleet. There were some vessels not fit for purpose so the 6309 is not an exact figure with estimates having the shadow fleet at around 2000 vessels strong.

The reason behind Russia and Iran buying these forgotten ships is firstly they are less valuable for insurance purposes and registering these vessels under various country flags is far easier. The insurers never paid too much attention to this due to the low values, but that has all changed with the US and UK now using the insurance companies data to enforce and monitor the trade sanctions.

The sellers of these oil tankers are just as complicit as those countries buying the sanctioned oil so this is slightly more complicated than just oil. The sellers knew exactly where their tankers were heading and must have received over the top values instead of just the scrap metal value.

Insurance companies have been shoved into the spotlight especially if they are found to be offering insurance to any of these tankers. The insurance companies face financial penalties and worse damage to their reputation and why this is now a priority. The insurance companies have inadvertently become the police behind the sanctions.

There is a price ceiling of $47.60 per barrel and if the cargo is less than this price they know the cargo is sanctioned oil. Every document is now being scrutinized like never before and the need of proof of ownership tying the vessel to a name or company. The problem is these vessels often belong to shell companies that change their country of origin which is commonly known as "flag hopping" and is often hard to trace. What the insurance companies have done recently is look to see who the beneficials are behind the shell company and to follow the money trail.

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Draco Buren Shipping PTE LTD is a good known example as they managed a fleet of 21 vessels for Mohammad Hossein Shamkhani who is the son of an Iranian Admiral and political figure. The 21 ships were known as the Disney fleet with names like Pinocchio and Simba and once sanctioned the names and ownership changed immediately. The problem lies when Chinese State Owned Enterprises are now the new owners even though everyone knows they are not. At one point Maersk Shipping was showing Draco Buren was one of their managed fleets.

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Shipping logs are checked against the AIS readings and whether they have been turned off at certain times in their voyages. The cargo of the vessel is often different to what has been insured and insurers are having to check and double check every transaction against a data base of black listed users which is growing monthly. There is no longer instant swift cover available for shipping as these steps are time consuming making sure you follow the procedures.

In July of this year 135 tankers were sanctioned due to their evasive behavior tactics that a normal compliant ship would not do. Having a cheap tanker that is over 21 years old with low insurance is no longer sailing under the radar and all documentation is being questioned. The ship owners would change country ownership and renaming the vessel regularly in order to try and avoid detection which is only raising more and more red flags today.

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The tactics these vessels use is where things become interesting and why this is not so easy to detect. Every vessel has an AIS (Automatic Identification System) which is a transponder letting everyone know where you are though your live coordinates. Many vessels have been known to turn these off in certain regions sending out false coordinates placing them on the other side of the world. This going dark is a strategy used for loading and off loading in areas that have been sanctioned for trade. The vessels will often turn off the AIS when entering a foreign port in order to protect their clients and only turn them on when they have left the port of call.

The other problem which is hard to detect is ship to ship transfers at sea when again the ships go dark turning off their AIS systems and transfer their cargo. The insurers have no proof an illicit transaction has taken place because by the time the transponders are turned on again the two ships involved are nowhere near each other.

Posted Using INLEO