DOSSIER

 

'Dark fleet' of oil tankers risk more maritime disasters in Asia


The West needs to bring Russian oil shipping out of the shadows


By : Vandana Hari
A collision between two oil tankers off Singapore on July 19 has put a fresh spotlight on the dangers posed by a recently enlarged fleet of vessels that engage in illicit practices to avoid detection while transporting barrels from sanctioned countries on long and sometimes circuitous voyages.Asia, which uses oil sanctioned by the U.S. or European nations, is the most vulnerable region to such accidents, especially in the busy shipping lanes around Singapore and Malaysia.The onus of dealing with the ecological and economic fallout of such maritime mishaps will inevitably fall on the region's governments, which have no realistic means of preventing them.The July accident, in which the Singapore-flagged Hafnia Nile, a tanker that was on its way to Japan with a naphtha cargo, crashed into the CERES I, a very large crude carrier, led to an oil spill but no casualties.

          

The CERES I, bearing the flag of Sao Tome and Principe, was fortunately empty at the time of collision. However, experts noted that the CERES I was engaging in something called "AIS spoofing" -- deliberate manipulation of its transponder data to disguise its actual location -- at the time of the incident. Having hauled sanctioned Venezuelan and Iranian crude to China over the past few years, the CERES I is unmistakably a member of the so-called dark fleet or shadow fleet of vessels. The genesis and proliferation of this group of vessels, which routinely turn off their automatic identification system so their voyages cannot be tracked, lies in the sanctions imposed by the U.S. and other Western governments against the key oil exporters of Iran, Venezuela and Russia. The dark fleet burgeoned after the 2022 invasion of Ukraine, as Russia was forced to rewire its crude and refined product exports of nearly 6 million barrels per day away from Western countries. The size is now estimated at 1,300 vessels, or about 15% of the total global fleet, according to research by maritime company Windward and global oil and gas flow analytics provider Vortexa. Besides intentional disabling of the AIS, vessels in this category are typically known for flag-hopping, opaque and irregular ownership structures and other deceptive shipping practices such as tampering with identification and location. Nearly half of such ships are worn-out "rust buckets" older than 20 years, with dubious insurance and inspection records. Though the majority of Asian countries did not join in the West's sanctions against Russian oil, they are expected to abide by them. Ironically, the West wants importers in Asia -- and in countries in Africa and South America -- to make home for Russian oil so that there are no shortages and price spikes in the global market.

There's more to the convoluted and paradoxical nature of the West's sanctions that needs redressal, and it's not too late. The European Union has not actually prohibited its shipping companies, insurers and protection and indemnity clubs, which dominate global oil trade, from participating in Russian exports.

These companies have voluntarily withdrawn, for fear of inviting sanctions if found to have knowingly or unknowingly violated the "price cap" set by the Western coalition. This refers to an upper limit of $60 per barrel that Russia may charge overseas buyers for its crude, $100 per barrel for gasoline and diesel, and $45 per barrel for naphtha and fuel oil.

The ill-conceived and unprecedented price cap regime has failed since its introduction in December 2022, with independent data showing Russian crude and product export prices exceeding the ceiling levels for considerable periods of time, in tandem with prices of comparable oil in the international markets.
The price caps have also proved notoriously difficult to administer, all the more so as a growing proportion of Russian oil exports began to be routed through newly sprung and obscure trading companies located in the United Arab Emirates and Hong Kong, and transported by the dark fleet. While the retreat of European shippers made way for the growth of the dark fleet, the withdrawal of major protection and indemnity clubs -- nongovernmental mutual or cooperative associations of marine insurance -- concentrated in the West left Russian export shipments with subpar marine liability coverage. Russia's state-owned shipping giant Sovcomflot has a relatively modern and well-managed fleet, but its activity has been crimped by U.S., U.K. and EU sanctions against the company and nearly 40 of its oil tankers. These are now in a group of 62 vessels sanctioned by the Western coalition over the past 10 months alone.
The U.K. and 44 European nations in July endorsed a plan to crack down on the shadow fleet serving Russian exports, citing the "often old and unsafe" vessels that increase "the likelihood of catastrophic accidents." Presumably, the crackdown is also aimed at driving up freight costs to crimp Moscow's net income from oil exports. The premise is that buyers of Russian oil would not accept delivery on board a sanctioned vessel.
But the tactic could backfire. Apart from potentially jacking up the oil price for Asian buyers if Russia decides to push some of its higher freight costs onto them, there is a likelihood of more older vessels joining the dark fleet while the sanctioned vessels sit idle. The vessels in the dark fleet may also become more inclined to engage in more deceptive shipping practices in a bid to minimize their chances of being identified and blacklisted for busting Russia sanctions.
The West should indeed "crack down" on the dark fleet to avert the next maritime disaster waiting to happen, but do so by retiring the price cap regime and allowing its shipping and insurance industries back into the Russian trade.
As long as Moscow's crude buyers remain limited to China and India, it will be forced to sell at a discount. That's the fundamental rule of the global market and trumps any contrived regulations that do more harm than good with unintended consequences.
Source : asia.nikkeiVandana Hari is founder of Vanda Insights, a Singapore-based global energy market intelligence provider.

 

 

 

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