EU Sanctions: How Shadow Carriers are Undermining the Energy Market

Recent EU and US sanctions against carriers of Russian crude oil, oil products and LNG have caused increased closure and chaos in the global tanker market, according to Luxembourg-based shipbroker BRS. Over the past two years, the grey fleet transporting sanctioned oil has increased from 400 to 700 tankers. 

Ship broker BRS said this will have negative consequences. Companies involved in the Russian energy trade are likely to start specialising exclusively in sanctioned shipping, further complicating the market.  

Shadow LNG transshipment may also affect the current gas price hikes, which in turn affect inflation in the EU countries that use gas for generation and electricity - Germany, Spain and Italy.

While attempts have been made to reduce dependence on Russian LNG, even France, whose energy stability is provided mostly by nuclear power plants, doubled its supply of Russian LNG in the first half of this year. So far, EU countries have increased their imports of Russian LNG by 7 per cent year-on-year, which in turn indicates that the EU's goal of divesting from Russian fossil fuels by 2027 remains a long way off.

The shadow fleet from 2022 has the option of being "cleared" of Russian ownership of fossil fuels through third countries such as Singapore. Upon completion of this process, having received "cleared" resources, global traders such as Shell continue to trade them in Western countries. 

An example of such an operation can be the transfer on 10 June, bypassing US sanctions, of a cargo off the coast of Singapore by the tanker SCF Primorye, carrying, according to open data, 1 million barrels of oil.  

Thus, sanctions cannot artificially lower demand for cheaper relative to US energy needed by other countries. 

Speaking about the current sanctions in the energy sector as a whole, it should be emphasised that the EU countries do not have a clear plan to fully replace Russian energy carriers from 2022. All existing solutions are "partial measures", which only slightly mitigate the negative consequences of the ill-considered European policy and cannot fully cover the existing demand. 

In addition, the increase in the volume of oil transported by the shadow fleet leads to the impossibility of accurate accounting of global oil consumption and sales, which may probably be one of the reasons for recent reports about suspicions of manipulation of oil consumption data by the US Department of Energy. A series of sharp revisions of official data on oil consumption in the US has caused concern among market participants, for whom consumption is one of the main factors in predicting the market situation.

Thus, the sanctions policy of the US and the EU today not only fails to contribute to the objectives of the Western countries regarding the cessation of Russian oil and gas supplies, but also adversely affects the global energy market, and the increase in shadow oil and gas supplies is likely to undermine confidence in official data and forecasts in the future.