The volume of Russian oil being transported through 'dark fleet' vessels is increasing.

• According to Lloyd's List, volumes of Russian oil were transported on "dark fleet" and sanctioned tankers without known insurance during September.
• The G7 price cap on Russian oil exports has become increasingly loose, causing the discount at which Russian crude trades to narrow.

Despite the G-7 price cap on Russian petroleum exports and U.S. sanctions, recent data indicates that the discount on Russian oil is narrowing and exports are increasing.

Russian crude prices have been trading at a discount of approximately 34 cents per barrel over the past four weeks, which is significantly lower than the 30% discount that was in place when the cap was fully phased in in February 2023. In comparison, a year ago, the discount was only about 16%.

The U.S., along with its allies in Ukraine, has prohibited the import of Russian crude. Additionally, the G7 countries, the European Union, and Australia have imposed a price cap on Russian oil, which bans the use of Western maritime services such as insurance, flagging, and transportation when tankers carry Russian oil priced at or above $60 a barrel to nations where a ban is not enforced.

The G-7 price cap on Russian petroleum exports to third countries is becoming increasingly loose, according to a recent report by Clearview Energy Partners.

According to Kevin Book, managing director of research at Clearview Energy Partners, the G-7's calls for improving the price cap and recent guidance urging parties to Russian petroleum transactions to better scrutinize cargoes do not suggest a U.S. pinch on Russian petroleum is likely until after the election.

"The enforcement of a cap on crude prices could lead to an increase in prices and drive reputable insurers out of the Russian crude market, leaving the market vulnerable to insolvent stand-ins."

The discount on the book was narrowed due to Russian oil gaining additional buyers, such as India and China.

According to a recent report from Lloyd's List, the "dark fleet" and known sanctioned tankers carried volumes of sanctioned Russian oil over September, despite not having known insurance.

In September 2022, according to the Lloyd's List Intelligence unit analysis of data from Vortexa, 69% of all crude shipped was carried on dark fleet tankers and 18% was carried on tankers owned by Russian government-controlled Sovcomflot. This represents the most volume moved since tracking of the monthly dark fleet data began in mid-2022, measured by the deadweight capacity of vessels. In May, 54% was recorded, the previous high.

Port authorities, refiners, and Chinese and Indian oil traders were the catalysts for this expansion.

Based on various factors such as age, ownership structure, sanctioned oil trade, and deceptive shipping practices, Lloyd's List determines if a tanker is part of the dark fleet. The analysis revealed a pattern of flag-hopping among the vessels in the dark fleet, with frequent changes in country registration, ownership, and management to evade detection.

Russia's Sovcomflot and Iran's National Iranian Tanker Co. are not included in the dark fleet data.

In September, 5% of all Russian oil was transported by 11 tankers, nine of which were sanctioned by the UK or EU between July and September and owned by the Russian government-controlled tanker company Sovcomflot. The remaining two vessels were sanctioned by the U.S. Office of Foreign Assets Control for breaching sanctions on Syrian and Iranian oil. The vessels in question are the Eternal Peace and Nebulax.

Some of the Sovcomflot tankers identified in Lloyd's List's report were sanctioned by the UK or EU between July and September. In response, some tankers changed their vessel names, reflagged the vessel's origin to Barbados, redomiciled registered ownership to Seychelles, and changed their ship management to a newly incorporated UAE-based ship manager, Avebury Shipmanagement.

In September, tankers owned by Greece shipped 23% of oil from Russia, which has been consistent over the past three months, as reported by Lloyd's List. Most of the UK- and EU-sanctioned tankers have already discharged their oil in China.

Despite the price cap, some ship owners have opted to join the dark fleet and risk sanctions from the United States and EU.

According to Lipow, Russian oil is still being bought by Chinese and Indian refiners with minimal consequences from the U.S. or EU.

Since the price cap was introduced two years ago, Putin has continued to invest in maintaining a secret fleet to evade the Coalition's sanctions, which has resulted in significant costs for the Kremlin and diverted funds that could have been used for the battlefield. The Price Cap Coalition is working with industry to ensure compliance with the price cap and increase Putin's expenses for going outside it.

The number of uninsured vessels carrying sanctioned oil increased, according to Lloyd's List, with 68% of the vessels tracked not having insurance with the 12 clubs that form the International Group of P&I Clubs. This is the lowest number of tankers tracked with IG club insurance, surpassing 67% uninsured recorded in July and August.

According to Lipow, the oil market is reflecting a higher likelihood of a conflict between Iran and Israel, which could affect production.

While unlikely, the closure of the Straits of Hormuz poses the greatest threat to the oil market, and if it were to occur, oil prices would increase by $30 per barrel, according to him. However, despite the ongoing hostilities, oil prices continue to be under pressure due to increased production from the U.S., Canada, and Guyana, as well as OPEC+'s delay in restoring its production cuts.

The use of dark fleet vessels increases both maritime safety and environmental risks.

Economic sanctions have resulted in a decline in shipping safety, as efforts to strengthen sanctions policies have led to an increase in the number of tankers attempting to avoid them.

More than 50 accidents have been linked to dark fleet tankers, according to insurance giant Allianz, who made this statement in May.

If an accident involving these vessels resulted in an oil spill, the owners, assuming they could be identified and found, would abandon the cleanup and leave it to someone else to handle.