Despite Western sanctions imposed following the invasion of Ukraine, Russia is continuing to sell its oil almost undisturbed. And it is doing so thanks to a ‘ghost fleet’, a fleet that escapes the radar of international authorities, thus allowing it to circumvent the blockades set up after the invasion of Ukraine.
The sanctions
Before Vladimir Putin’s invasion of Ukraine in February 2022, Moscow’s oil exports relied mostly on Western tankers, which dominate the world’s shipping fleet. In an effort to limit the Kremlin’s revenue, the United States, European Union, United Kingdom and other G7 countries have banned their companies from providing ships, insurance or financing for Russian exports after December 5, 2022, unless the oil was sold at a discount to market prices.
Russia deploys “ghost fleet” to circumvent oil embargo and cap
It was at that point that Russia began to create its own fleet of ships registered in non-G7 countries. In the last months of 2022 the tanker market experienced a boom, as Russian companies and their intermediaries took action to purchase second-hand vessels and Western shipowners seized the opportunity to make golden deals .
The Ghost Fleet
As a long investigation by the Financial Times reveals, these fleets were built thanks to the complicity of Western entrepreneurs who purchased the ships and registered them in companies based in remote places such as the Marshall Islands, but using money from the Russian Lukoil. According to the reconstructions of the British newspaper, since the first Western restrictions on Russian oil exports were introduced in December 2022, Moscow has created a fleet of over 400 ‘ghost’ ships which currently move around 4 million barrels of oil per day outside the reach of sanctions, generating billions of dollars a year in additional revenue for Vladimir Putin’s war.
Western governments have so far managed to discover and sanction individual vessels, but the trick of offshore corporate structures has reportedly meant Western officials struggle to identify who owns the tankers, how they were purchased or who oversees their operations.
Western accomplices
The FT investigation shows how Russia’s Lukoil used its shipping arm to finance a 74-year-old British accountant called John Ormerod to buy Canis Power, one of the ships later sanctioned by the West, and at least 24 other second-hand oil tankers hand between December 2022 and August 2023, for a total cost of more than $700 million. As the newspaper reports, each vessel was purchased by a different special purpose vehicle set up by Ormerod in the Marshall Islands, but Lukoil’s Dubai-based Eiger Shipping DMCC provided the funds by pre-paying the charter of the vessels.
This is how Putin’s “ghost fleet” circumvents oil sanctions
At the same time, Dubai-based companies linked to a Pakistan-born British shipping magnate, Muhammad Tahir Lakhani, have been contracted to manage the ships, the FT said, citing sources familiar with the facilities. The complex series of deals shows how Lukoil, Russia’s second largest oil producer, was able to finance the purchase of a fleet of ships while hiding its involvement from the public. Together, the 25 ships have reportedly transported around 120 million barrels of oil from Russia since they were purchased by Ormerod. If we assume a cost of just $60 per barrel, the total would still be equivalent to $7.2 billion in exports.
The loopholes
The trick also works because these transactions do not actually violate any laws. This is because although Lukoil has been under US sanctions since 2014, neither Eiger Shipping DMCC, nor its owner Litasco Middle East DMCC, based in Dubai, are sanctioned entities.
And so it’s all perfectly legal, as Dubai-based companies don’t have to comply with Western restrictions if they don’t use G7 financing or services. These rules were designed to reduce the Kremlin’s revenue, while at the same time allowing Russian exports to continue at least partially, so as not to send global oil prices soaring.