A single ship nets $10 million! Oil price cap 'fattens' tanker owners

A single shipment of Russian crude oil can earn \$10 million, and Western sanctions have caused a sharp drop in Russia's national oil revenue, but this has also "fattened" shipping companies.

Russia's oil export revenue has fallen by 40%, with huge profits flowing to shipping companies.

According to Reuters, data from the Russian Ministry of Finance shows that after the G7 imposed a price cap on Russian crude oil in December last year, Russia's oil export revenue fell by 40% year-on-year in January. In January, Russian companies' Ural crude oil revenue at Russian ports was only \$49.48, only 60% of the European Brent crude oil benchmark price.

Considering that Russia's 2022 production was 10.7 million barrels per day, and crude oil and refined product exports were 7 million barrels per day, this means that Russian producers' revenue will fall by tens of billions of dollars in 2023. Fatih Birol, head of the International Energy Agency (IEA), said that the price cap alone led to an \$8 billion reduction in Russian revenue in January.

Tens of billions of dollars in profits have flowed to shipping and refining companies, and China and India have also obtained cheaper oil. Sergey Vakulenko, a non-resident fellow at the Carnegie Endowment for International Peace, said: "From customs statistics, Chinese and Indian refiners have benefited, but the main beneficiaries are still tanker companies, intermediaries, and Russian oil companies."

Western sanctions include a complete ban on Russian energy imports into the US and EU markets, and a ban on traders transporting Russian crude oil anywhere in the world unless it is sold at \$60 per barrel or less.

To this end, Russia has to offer huge discounts to Chinese and Indian buyers, thus exporting most of its crude oil and refined products to Asia. Due to sanctions, buyers are also more cautious and force Russia to pay for crude oil transportation costs.

Transportation costs have increased tenfold, and Russian oil has brought huge profits to tanker companies.

Ship brokers and analysts say Russia is attracting tanker companies at a premium to protect its main export revenue source from Western sanctions. At least 10 traders revealed that as of late January, Russian oil companies offered discounts of \$15 to \$20 per barrel to buyers in India and China, and Russian sellers also paid tanker companies an additional \$15 to \$20 per barrel in transportation costs to ship crude oil from Russia to China or India.

Industry insiders say that in January, a shipping company used an Aframax tanker to load 700,000 barrels of crude oil from a Baltic port to an Indian refinery, and the single voyage alone collected nearly \$10.5 million in transportation fees from Russian oil sellers. A year ago, the cost of a similar voyage was only \$500,000 to \$1 million.

For shipping companies, the cost of such voyages in the current market is about \$500,000 to \$1 million, which means that shipping companies can make a net profit of up to \$10 million from a single voyage.

After decades of low profits or even losses, tanker companies are enjoying the huge profits from transporting Russian oil. Shipping companies that have benefited include the Russian state-owned enterprise Sovcomflot, as well as Greek shipowners TMS Tankers Management, Stealth Maritime, Kyklades Maritime, Dynacom, Delta Tankers, NGM Energy, and New Shipping.

Some Greek and Norwegian tanker owners have also sold old ships to shipping companies such as Dubai shipowner Fractal Shipping at record prices. Saudi Arabia and the UAE have not participated in Western sanctions against Russia, but have instead expanded cooperation with Russia.

At least 50% premium, Iranian "ghost fleet" turns to Russian oil transportation.

Meanwhile, the huge profits from Russian oil transportation have also attracted the Iranian "ghost fleet." In the past two months, at least 16 ships in the Iranian "ghost fleet" have begun transporting Russian oil. Western sanctions on Russia are not as severe as US sanctions on Iran, and the G7 price cap is partly intended to limit Russian revenue while keeping enough Russian oil production on the market to avoid supply shortages.
 
A shipbroker said that although a small number of large tanker companies, such as Western oil giants and US ship operators, are still avoiding oil trade with Russia, many other tanker companies are willing to participate, considering the prices offered and the leeway in the rules. These companies are willing to use methods such as ship-to-ship transfers and opaque operations to reduce the risk of being discovered.

Svetlana Lobaciova, tanker analyst at shipbroking firm EA Gibson, said: "We see many tankers involved in Russian trade that were previously used to transport Iranian crude oil. These ships trade with Russia at a premium of at least 50% above normal market prices, and in some cases may exceed 100%, which is more attractive than transporting Iranian oil."

"It turns out that Russian oil transportation is more profitable because they do not face major delays, unlike Iranian oil, which often needs to spend more time at sea to conceal its origin. As far as we know, this has not happened to Russian tankers, which is obviously more favorable to tanker companies, especially given the high returns on Russian routes."