The United States has imposed sanctions on the shipping company Hennesia Holdings and declared it part of Vladimir Putin's “shadow fleet.” A total of 18 tankers, all registered in the United Arab Emirates and bearing colorful names such as “Atlantis”, “Glory” and “Legend”, are now blacklisted by the US government.
Since the beginning of the war in Ukraine, a parallel maritime transport system has been created. Tankers financed through dubious channels and sailing without insurance violate international sanctions against Russia.
Experts currently estimate the size of the “shadow fleet” at approximately 1,500 ships, which is almost 20 percent. All large merchant ships. This percentage is even higher in case of tankers. Analysts believe that by 2022, more than 1,000 ships will be used only to transport Russian crude oil.
– The Russians are buying more ships and relying more on their “shadow fleet,” says Wally Adeyemo, the U.S. deputy secretary of the Treasury who is hunting Putin's illegal oil armada.
Our goal is to increase the cost of selling oil to Russia. The idea, he explains, is that the money Putin spends on tankers will prevent the tanks from being built.
A miscalculation by the West
Adeyemo travels the world looking for complicit countries that fly their flags to suspicious ships or look the other way when a shadowy entity operates in their country. One such example is Hennessia, a shipping company based in the United Arab Emirates. A country that wants to be neutralIt does business with all parties, and its financial center in Dubai has become a target for Russian businessmen since the start of the war in Ukraine.
However, the fact that the gray zone flourishes is related to the poor strategy of the West. Following the outbreak of Russia's full-scale aggression against Ukraine, the West imposed severe economic sanctions on Russia, including an oil embargo. However, this sent oil prices skyrocketing. Only at the end of 2022, the United States and its allies decided to call the oil price cap.
Since then, seven major Western economies (G7) and Australia have banned their shipping companies, banks and insurance companies from transporting Russian oil if it sells above $60. (approx. PLN 240) per barrel.
Putin's parallel system
In this way, Russia can still sell oil, but cheaper. However, the Kremlin did not want to budge, so it decided to rely on the “shadow navy”. Tankers bought with Russian money reach investors through complex channels. Then they ship oil from Russia to India, China or Turkey at prices higher than the $60 imposed by the West. (approximately PLN 240).
– For Russia, avoiding the oil price ceiling is a matter of policy. They did not want to submit under any circumstances to a system controlled by the West, which is why they created a parallel system, says Sergey Vakulenko, an oil and gas expert at the Carnegie Russia Eurasia Center.
Sebastien Berger / AFP / AFP
A tanker with Russian oil heads towards India on August 5, 2023.
As the Kremlin has predicted, the West could otherwise lower the oil price ceiling at its discretion, gradually eroding Russia's revenues. The price cap pushed Moscow into the background, but that didn't stop Putin from continuing to export oil on his own terms.That's why American “sanctions hunter” Adiemo wants to attack there now.
America's New Strategy Towards Russia
The war with Ukraine has significantly increased Russia's spending. As revenues from exports of Russia's most valuable raw materials dwindle, the Kremlin will have to tap its cash reserves, bringing the country closer to bankruptcy.
—Russia is already withdrawing more money from its sovereign wealth fund. This allows them to afford massive military expenditures, but at the same time lack the funds to maintain economic status, Adeyemo explains.
At the same time, America's view on the issue has changed. Initially, it was believed that lowering oil prices would be enough to severely affect the Russian budget. A support fleet was expected, but not on such a large scale. Now the US goal is to increase the costs of the Russian auxiliary fleet.
However, Sergei Vakulenko is skeptical that this will actually become a financial threat to the Kremlin. A fleet of 200 old tankers would cost about $4 billion. (approximately PLN 16 billion).
— That's a lot of money, but pales in comparison to the roughly 100 billion US dollars. (approx. PLN 402 billion) Russia earned from its oil last year. – Vakulenko argues.
The Russian budget continues to shrink
The U.S. has already seen how difficult it is to enforce oil sanctions on Iran, “and Putin is copying the Iranian playbook,” Vakulenko explains. Although the “shadow fleet” has grown significantly since the outbreak of war in Ukraine, it has already crossed the oceans and served Iran and Venezuela.
– Right now, Russia still has enough money to continue the war and keep its people happy, Vakulenko says.
OLGA MALTSEVA / POOL / AFP / AFP
Russian President Vladimir Putin delivers a speech in Leningrad, Russia, on January 27, 2024.
Despite this, Russia has certainly eased sanctions and lowered oil prices, and the Russian budget is at least gradually being eroded.
“This may continue for a few more years, but at some point the calculation will no longer be true, and then the standard of living of Russians will decrease,” notes Vakulenko.
“In order to finance the war, Putin is already borrowing against the future of his country,” Adiemo says, referring to increasingly small Russian reserves.
