Hundreds of “dark” and “gray” tankers… a mysterious fleet that helps Russia ship oil around the world

(CNN) — Russian oil is still making its way to buyers around the world. But even those who spend their days tracking its movement across oceans struggle to know exactly who it is moving.

As Western sanctions mount against Russia for its invasion of Ukraine, more ships are joining an existing shadowy tanker fleet, ready to facilitate Russian oil exports.

Industry insiders estimate the size of this “shadow” fleet at around 600 ships, or about 10% of the global number of large tankers. And the numbers are on the rise.

Who owned and operated many of these ships remains a mystery. As the Russian oil trade has become more complex over the past year, many Western shippers have withdrawn their services. Unknown new players flocked, with shell companies in Dubai or Hong Kong in some cases being involved. Some bought ships from Europeans, while others made use of old ships that might have ended up in the scrapyard.

“I got into the dark arts,” a senior executive at an oil trading company told CNN, referring to this opaque network.

The fleet in sight has grown in importance as Moscow has tried to avoid working with Western shippers, and as customers in China and India replace those in Europe, they are now barred from buying Russian seaborne oil and refined products such as diesel. Delivering to far-flung buyers requires extra boats — and shipowners willing to deal with the added complexity and legal risk, especially after the Group of Seven nations imposed ceilings on Russian oil prices.

Credit: Andrey Rudakov/Bloomberg/Getty Images

The expansion of the Shadow Fleet highlights the massive changes that the Russian war has brought to the global oil market. Seeking to stay afloat, the world’s second largest exporter of crude oil has reconfigured decades-old trading patterns and split the global energy system in two.

“You have a fleet that doesn’t do any Russian business, and then there is a fleet that does Russian business almost exclusively,” said Richard Matthews, head of research at EA Gibson, an international shipbroker. He added that only a few ships do “a little bit of both”.

“gray ships” and “dark ships”

With Europe shutting itself off from Russian energy, buyers in Asia cut the deals. China boosted its imports of Russian oil to an average of 1.9 million barrels per day in 2022, up 19% from 2021, according to the International Energy Agency. India increased its purchases even more sharply, posting an 800% increase to 900,000 barrels per day on average.

Russian oil exports to China and India hit record highs in January after a European ban on Russian seaborne oil took effect, according to data and analytics firm Kpler. Exports to Turkey, another major customer, also continued apace. (The ban on refined petroleum products did not start until February.)

Carrying out these orders requires boats that are voyable. The Russian national fleet does not have a sufficient number of ships. This is where the Shadow Fleet comes in.

Matthew Wright, senior shipping analyst at Kpler, has classified the vessels carrying Russian crude into two categories: “gray ships” and “dark ships.” The gray ships have been sold since the invasion – mostly by their owners in Europe to companies in the Middle East and Asia that were not previously active in the tanker market. On the other hand, the black ships are veterans of campaigns by Iran and Venezuela to evade Western sanctions that have recently turned to transporting Russian crude.

“There is often some evidence that they were masking their activities by turning off their AIS transponder,” Wright said of the “dark” ships, referring to the technology that helps locate ships.

While Western countries have banned most Russian oil imports, there are no rules preventing Western vessels from delivering to buyers such as China and India, or from providing services such as insurance — as long as the G7 price ceilings are respected. According to Kpler, vessels with European owners accounted for 36% of Russian crude trade in January.

But the legal and reputational risks of not complying with price caps loom large. At the same time, Russia is eager to stop working with Western shippers.

“The dark fleet that has been transporting Venezuelan and Iranian oil globally is something we all expected to grow, and it has,” said Janiv Shah, senior analyst at consultancy Rystad Energy.

One reason: sending Russian oil on longer voyages to China or India is less efficient than shipping it to neighboring countries like Finland. Russia now needs four times more shipping capacity for its crude than it did before the invasion, according to E.A. Gibson.

As a result, an estimated 25 to 35 vessels per month are being sold through Shadow Fleet, according to another senior executive at an oil trading company. Global Witness, a nonprofit organization, estimates that a quarter of oil tanker sales between late February 2022 and January this year involved unknown buyers, nearly double the proportion from the previous year.

Demand may increase in the coming months if China needs more fuel to support its economic recovery.

Questions and risks

If a greater proportion of the global fleet of Russian crude and petroleum products is used, it consumes capacity and raises costs for all oil traders.

“There has been an exponential increase in inefficiencies in the way the tanker market operates,” said Wright of research firm Kpler.

There are also questions about who ultimately runs the Shadow Fleet. Some believe that part of the shell companies that have sprung up have ties to “the Russian state or some politically connected players,” according to Sergei Vakulenko, a former executive at a Russian oil company and now a non-resident scholar at the Carnegie Endowment for International Peace.

Last weekend, the European Union imposed sanctions on Sun Ship Management, a subsidiary of Sovcomflot, Russia’s largest shipping company. The EU said the Dubai-based company, which was registered a decade ago, was “acting as one of the principal companies managing and operating the sea transportation of Russian oil” and that “the Russian Federation is the ultimate beneficiary” of its business operations.

Moreover, experts said, the shadow fleet may mitigate Russia’s ability to sidestep sanctions or sell its oil above the price ceiling. It also makes it difficult to say exactly how much Russian barrels are being sold. Experts, including Vakulenko, have found evidence in customs data that the Urals, the country’s benchmark, sells much more at major ports than indicated by official rates.

Safety is also a concern. The Dark Fleet is believed to contain a large group of ships over 15 years old, the age when major wear-and-tear tankers usually retire. Now, more of these ships are making voyages around the world.

“You have all these older ships that probably haven’t been maintained to the standards they should be,” said EA Gibson’s Matthews. “The possibility of a major spill or accident is increasing day by day as this fleet grows,” he added.