Shipping companies have snapped up dozens of secondhand oil tankers this year, paying record prices for ice-class ships that can navigate frozen seas around Russia’s Baltic ports in winter.
A driving force behind the purchases, say people familiar with the deals: To get Russian oil to market after the harshest sanctions to date strike Russia’s energy industry next week.
The frenzy in a quiet corner of the shipping market is splitting the tanker industry in two. One part deals with Western oil companies, banks and insurers. The other, known informally in the industry as the “shadow fleet,” doesn’t, allowing it to trade with Iran, Venezuela, and increasingly with Russia, the world’s biggest exporter of crude and refined fuels.
“You’re starting a new kind of shipping market, in parallel to the normal compliant market that most of us are operating within,” said Lars Barstad, chief executive of tanker owner Frontline Ltd.
That’s right the US and the suicidal EU are going to make life harder for all of us on the planet.
Unless Moscow accepts a price cap set by the U.S. and its allies, the sanctions will cut Russian producers off from Western shipping and insurance markets they have long relied on to export oil.
The size and agility of the shadow fleet will help determine whether President Vladimir Putin succeeds in keeping Russia’s oil revenue flowing. Oil remains Russia’s economic lifeblood and key to funding the war in Ukraine now that Moscow has all but cut off natural gas sales to Europe.
It could also have a big impact on whether oil and gas prices soar in the months ahead. If Russian oil sales drop because there aren’t enough tankers in the shadow fleet, crude and gasoline prices could jump globally.
Dmitry Peskov, the Kremlin’s press secretary, said shipping sanctions would hurt both Russia and the countries imposing them. “Shipment of Russian oil will be organized in accordance with the new conditions,” he said. “Destabilization of oil markets is inevitable, but the demand is still large.”
The shadow fleet grew a decade ago to ship Iranian oil after the U.S. tightened sanctions on Tehran in 2012, said John Smith, a partner at Morrison & Foerster LLP and former director of the U.S. Treasury’s Office of Foreign Assets Control. It expanded again after then-President Donald Trump
Shipping executives including Mr. Barstad say they have been inundated with bids for old tankers this year. Often, they say, inquiries come from new shipbrokers inquiring on behalf of low-profile companies in Dubai and China.
Prices for aging vessels normally destined for the scrap heap are vaulting higher. The average price of 15-year-old, large crude carriers has risen 37% to $52 million over the past six months, said Stephen Gordon, head of research at Clarkson PLC, a shipbroker.
Late this summer, a Greek tanker owner sold a 22-year-old ice-class ship for $32 million. Last year, it was valued at $17 million, according to company executives who said they had never seen such a large premium being offered to a ship’s valuation. Another owner who sold an 18-year-old smaller Suezmax to a Dubai entity in September said the ship was now moving Russian oil from Novorossiysk to Turkey and then on to China.
Unlike Iran, whose oil sales are banned worldwide by U.S. sanctions, Russian crude will still be legal to buy and sell once the new restrictions come into effect.But traders will either have to take the risks of moving Russian oil without the safety net of Western insurance or to buy it at or below the price cap. India, China and Turkey have already picked up some of the Russian oil that previously was sold to Europe.
