Russia uses ‘ghost’ ships to continue selling oil despite sanctions

Russia is the world’s largest oil exporter. Last year alone, it brought in nearly €105 billion from crude oil exports to Europe and the UK. A domain that has been truncated by the invasion of Ukraine. Since the beginning of hostilities, many Western oil companies, traders, shippers and bankers have chosen to stay away from russian crude. At least in theory.

The demand for Russian oil would be resurgent, but in absolute silence. Russian tankers are deliberately turning off automatic identification systems for a couple of hours to avoid the sanctions on the import of oil and derivative products imposed by the US, the UK and other countries. According to the maritime risk management company Windward, blackouts have increased by 600% compared to before the war.

The blackouts go against international regulations, which require ships to always keep their monitoring systems on. In a note published in May 2020, the US Treasury Department made it clear that any manipulation and interruption of these devices can lead to sanctions.

In the five weeks since February 24, they have mysteriously disappeared between 1.2 and 1.5 million barrels per day of Russian crude exportsaccording to estimates from the energy research company Rystad Energy.

Although the exact fate of these missing millions of barrels is unknown, analysts at the CNN they assure that the refineries of China and India would be buying part of the Russian oil products. One theory supported by CNBC, which has reported a significant increase in Russian oil deliveries to New Delhi. In addition, they would be buying it at a significant discount, given that the current trading price of Russian crude is $30 less than the European reference barrel, Brent.

Possible methods to buy Russian oil include the use of open credit schemes, advance payments and trading in yuan, rupees or rubles. As reported Bloomberg A few weeks ago, some companies would also be acquiring Russian crude in exchange for investments in regions where they operate in order to have the physical capital necessary to refine oil.

An unparalleled oil shock

The oil market is going through turbulent times. In mid-2020, it had to deal with the lack of space to store surplus oil caused by the drop in consumption due to the pandemic. Two years later, it has become a rare commodity and the world is facing a shock without comparable precedents by its nature. A problem that can lead to shortage or rationing of some oil derivatives such as dieselseveral market traders have recently warned.

The truce that the price of a barrel of Brent is currently experiencing may not last. According to the Commerzbank research team, a resurgence of the war in Ukraine could force Western countries to impose new sanctions that include the total seizure of this mattera double-edged sword that would also affect the European economy and push up the prices of Brent and West Texas.

What distinguishes this supply shock from previous ones is that Russian exporters face the refusal of financial institutions to support their transactions. Added to this is the closure of a key oil export terminal in Kazakhstan, a major producer, as a result of damage caused by recent storms.

Alternatives are few. On the one hand, OPEC has been reluctant to even try to replace Russian crude with its own production (particularly from Saudi Arabia and the United Arab Emirates) if they could do so. There are also Iran and Venezuela, whose oil is also under sanctions. Even in a scenario of rapid lifting of these sanctions, these countries cannot multiply their oil production overnight. Not even using their full potential can they supply the more than 3-4 million barrels per day of Russian crude and derivatives that the International Energy Agency calculates will disappear.

Given this scenario, the only quick and real solution seems to be the release of strategic reserves, although its impact will also be limited. President Joe Biden has made public his intention to market 180 million barrels of US strategic oil reserves in the next six monthsas reported Bloomberg.