Over 600 ships? Russia's 'shadow fleet' disrupts the global oil tanker market

Since the outbreak of the Russo-Ukrainian War, the scale of Russia's "shadow fleet" has continued to expand. This massive fleet has completely disrupted the global oil trade market, and high oil tanker freight rates are likely to continue.

According to foreign media reports, many old ships were sold at high prices to anonymous buyers last year, gradually forming a "shadow fleet." Now, this "underground fleet" accounts for a significant portion of the traditional oil tanker fleet. VesselsValue estimates that Russia invested US$1.4 billion in acquiring crude oil tankers last year, in addition to US$850 million for refined oil tankers.

Although the exact size of the "shadow fleet" is difficult to determine, the commodity trading company Trafigura previously stated that about 400 crude oil tankers have "shifted" to Russian business, accounting for about 20% of the global fleet; in the refined oil tanker sector, about 200 refined oil tankers are engaged in Russian trade, accounting for about 7% of the global fleet. Some ship owners believe that the actual number may be lower than Trafigura's estimate, accounting for about 10-12% of the global fleet.

According to data from the data intelligence company Kpler, as many as 311 MR-type vessels have recently been sailing without cargo or destination, a record high, while the average before this year was only 14. At the same time, only 33 empty vessels have signaled to Russia, the lowest level on record, far below the 103 at the beginning of the year. Some analysts believe that the surge in the number of empty vessels may also reflect shipowners trying to identify the areas with the highest demand after the reshuffling of Russian oil products.

Whether these "shadow fleets" permanently exit the international market or simply avoid exposure, the result is that Russian competitors must pay higher transportation costs. Since the sanctions on Russian refined oil by Western countries came into effect in early February, the daily revenue of vessels transporting petroleum products across the Atlantic has increased fivefold, soaring from US$10,000 at the beginning of the month to US$55,000 today.

Gernot Ruppelt, Chief Commercial Officer of oil tanker owner Ardmore Shipping, said: "These tankers will focus on underground transactions and will, in fact, be excluded from the market we are in. From a ton-mile perspective, it's still very important, and the 'shadow fleet' is very inefficient."

EA Gibson Shipbrokers, a British shipbroking company, estimates that at least 38 refined oil tankers belong to Russian-registered companies, but the actual number of "shadow fleets" will be much higher, as more vessels are registered under offshore companies. Since the Russo-Ukrainian War, at least 100 oil tankers have been sold to countries outside the G7 or the European Union.

Richard Matthews, head of research at Gibson, pointed out: "Although Russia does not explicitly control so many refined oil tankers, considering the large number of second-hand oil tankers that have changed hands since the outbreak of the war, Russia may still obtain enough vessels to meet its needs."

More importantly, the EU now restricts almost all seaborne oil imports from Russia, meaning that tankers have to travel longer distances, thus greatly reducing fleet efficiency and increasing ship demand and transportation costs.

Shipbrokers estimate that Russia's formation of a "shadow fleet" has affected the supply of ships in other parts of the world. Oil tanker company Torm A/S said that the market for clean petroleum products (such as diesel and jet fuel) is currently very strong, with increased demand from the Middle East for goods to Europe, and a large number of goods being loaded at East Asian refineries.

In the long term, due to the relatively limited orders for oil tankers in recent years, with the backlog of orders accounting for a 40-year low proportion of the existing fleet, this means that high freight rates are expected to continue.

However, for the global oil and fuel transportation market, what is more important is how many ships Russia has used. If this "shadow fleet" continues to disrupt trade, and the pro-Russian fleet does not return to the Western market, the transportation costs of gasoline and diesel may remain high for a longer period.

Svein Moxnes Harfjeld, CEO of oil tanker company DHT Holdings, said: "We do feel that many companies that buy old ships are funded in some form by Russian capital. We find it hard to believe that they will continue to operate or return to the compliant market over time."