Non-G7 crude tankers’ share hits fresh high in Russia on Seychelles shadow firms

The share of Russian crude exports on tankers operating outside of the G7’s price cap hit a new high in September, as shadow operators in the Seychelles stepped up to support a recovery of the country’s shipments to overseas customers.

Data from S&P Global Commodities at Sea and Maritime Intelligence Risk Suite suggested 83.8% of Russia’s seaborne exports last month were lifted by tankers not flagged, owned or operated by companies based in the G7, the EU, Australia, Switzerland and Norway, and not insured by Western protection and indemnity clubs.

The proportion, up from 81.5% in August, was the highest since December 2022 -- when G7 members and their allies banned maritime services firms subject to their jurisdictions from Russian crude exports unless the oil was sold for no more than $60/b to undermine Russia’s war chest against Ukraine.

Overall, Russia’s seaborne crude exports rose around 4% from the August level to almost 3.5 million b/d in September as seasonal refinery maintenance freed up more barrels for exports.

Assisting the up-pick in volumes were tanker operators registered in the Seychelles, whose shipments more than doubled to 14.7 million barrels from 7.3 million barrels. All but one of their 19 liftings did not use G7 maritime services last month.

Those operators are little known firms and their ownership unknown, meeting the general definition of shadow players established to facilities oil trades potentially sanctioned by Western authorities.

The Seychelles is a popular jurisdiction for shell companies that exist on paper only. Past media investigations have found some Russians operate opaque businesses via front companies in the East African country.

Sanctioned oil

Russia has accumulated a sizable shadow fleet in recent quarters via opaque companies, which diminishes the effectiveness of the G7’s price cap regime, many industry participants said.

As of the end of the third quarter, risk analytics firm Windward estimated the number of ships that could be used to transport sanctioned cargoes exceeded 2,430.

EU, UK and US officials in late September met to discuss how to strengthen the price cap enforcement and target shadow tankers to squeeze “Russian oil revenues used to finance its illegal war,” according to a statement from the European Commission, but new measures are yet to be announced.

Analysts said any clampdown on the evasion of the price cap is unlikely to work unless India and China, which have emerged as the top Russian crude importers since the Ukraine war broke out in 2022, are willing to comply with the Western regime rigorously.

Looking forward, Russia could even find a rare buyer in Indonesia, with Pertamina having purchased at least one cargo of Russia's Sokol crude for loading in November. The state-owned firm has said the transaction must stay within the price cap, which is based on free-on-board prices.

Sokol crude mostly traded between $60/b and $70/b in September based on Platts (London) assessment published by S&P Global Commodity Insights, on a cost-and-freight Japan/Korea basis, inclusive of freight costs for delivery into Northeast Asia.

Price-capped players

The opening of the Arctic shipping route has also allowed Russia to use fewer ships to transport oil to Chinese buyers, reducing the business opportunities for tanker operators.

A total of 3.86 million barrels of Russian crude was shipped from Europe via the Northern Sea Route in August, up from 1.46 million barrels in the same month last year, according to CAS figures.

While the trade lane is only navigable from July to October due to ice levels, Gibson Shipbrokers suggested Arctic shipments have a “disproportionately high impact” on ton-mile demand due to considerably shorter distances travelled compared to normal Suez Canal routing.

“Faced with reduced demand from Russia, it is perhaps not surprising that some mainstream players who have been able to engage in Russian trade under price cap conditions were forced to seek trading opportunities elsewhere,” the broker said in a note.

September’s Russian crude shipments from Europe through the Barents Sea east via the Bering Straits was likely to have matched August’s volumes at 125,000 b/d, according to Gibson.