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TheAcademy . 22/10/2024 4:25 PM
Understanding the ‘Shadow Fleet’ and India’s Role in the Russia-Ukraine Conflict
The term "shadow fleet" has gained traction in discussions surrounding the ongoing Russia-Ukraine conflict, referring to tanker ships engaged in transporting Russian crude oil to various countries, often in defiance of international sanctions. Western media has pointed fingers at India as a significant hub for this shadow fleet, suggesting that the country is facilitating the laundering of Russian oil.
Sanctions are economic measures imposed by countries to restrict trade and financial transactions with targeted nations. In the case of Russia, the United States has enacted stringent sanctions, particularly affecting its oil exports. These sanctions include a price cap that allows Russia to sell oil only at $60 per barrel. However, with market prices frequently exceeding this limit, Russia has been able to generate revenue beyond what was intended by these sanctions.
The global shipping industry is characterized by its complexity and diversity. Greek ship owners dominate around 20% of the global fleet, while China has recently surpassed Japan in terms of ownership. Most vessels are constructed in China, Japan, and South Korea, with marine insurance and regulatory frameworks primarily centered in the United Kingdom and Europe. This intricate structure complicates the enforcement of sanctions against Russian oil.
Ships are registered under flag states, which indicate their country of origin. To evade sanctions, however, vessels often switch flags to those of convenience (FoCs), such as Panama or Liberia. This practice allows ship owners to obscure their identities and avoid stringent scrutiny, making it challenging to trace the true ownership of vessels.
Marine insurance is a critical component for ship operations. Protection and Indemnity (P&I) insurance provides coverage for loss and damage at sea. P&I clubs, mainly based in London, pool risks among their members. Ships found to be in violation of sanctions risk losing their P&I coverage, significantly affecting their operational viability. In some cases, ship owners may change the management of their vessels to retain insurance coverage. For instance, a Turkish ship transporting Russian oil could switch to a European manager, allowing the owner to operate under a different management structure while effectively bypassing sanctions.
Many corporations utilize shell companies to mask the ownership of vessels, often owning only one or two ships. This makes it difficult to identify the actual owner. Furthermore, some ships are registered in jurisdictions that do not adhere to international regulations, such as Eswatini, which has emerged as a new flag of convenience.
Following the implementation of sanctions, several Russian ships formed partnerships with Indian firms, with many shifting operations to Dubai, where there is a significant Indian shipping presence. The Indian Register of Shipping (IRS) has reported an increase in vessel certifications, raising suspicions about India’s role in facilitating the shadow fleet.
Experts point out that enforcing sanctions on Russian oil is a complex endeavor. The intricate nature of the shipping industry, coupled with opaque ownership structures, complicates compliance tracking. Additionally, there are concerns regarding the potential economic repercussions of strict enforcement on global markets.
The United Kingdom has taken limited action against companies that violate the price cap on Russian oil. Reports indicate that only mild measures were implemented against 35 companies. Industry voices argue that stringent actions could adversely affect U.K. businesses, highlighting the tension between regulatory compliance and economic interests.
As discussions continue around the Russia-Ukraine conflict and the role of the shadow fleet, it is essential to understand the intricate dynamics of the global shipping industry and the implications of sanctions. While the situation remains fluid, India’s involvement raises important questions about compliance, accountability, and the broader consequences of international economic measures. The complexities surrounding ownership, insurance, and regulatory compliance illustrate the challenges faced in addressing the shadow fleet and its impact on global trade.
