The Daily View: The ripple effect

SOME sanctions actions make a big splash. Others create ripple effects through the market over time.

Cumulatively they force market adaptations, but not always in the direction that was intended.

Nobody within Western governments, as far as we know, has ever convened a meeting to discuss a coordinated plan to make shipping less efficient, less safe and more systemically opaque.

And yet here we are, discussing theoretical saturation point of a shadow fleet that has developed as a direct consequence of sanctions that have weaponised shipping to political ends.

The market’s appetite for vintage tonnage capable of operating within, or adjacent to sanctioned trades, correlates directly to the growing list of designated tankers.

While last month’s coordinated US-EU hits on Rosneft and Lukoil certainly made a splash, they won’t stop sanctioned barrels moving. The ripples of that action, however, continue to make Moscow’s supply chain more inefficient by adding logistical hurdles in the form of longer voyages, costlier insurance and more cargoes idling at sea.

Because of the threat of secondary sanctions on any vessel and buyer that handles cargo from sanctioned Russian producers, Russian oil trades will increasingly rely more on the deceptive shipping tactics commonly seen in the Iranian trade.

The more pressure there is, the more Russia will likely be forced into a race to the bottom to discount its cargoes against Iranian and Venezuelan barrels, which are reaching record oil-on-the-water volumes as flows slow and deals take longer to clear.

The increase in ship-to-ship transfer, dark discharges and generally dangerous practices comes with some fairly obviously safety considerations, but it also reinforces the shift towards secrecy as normal.

The requirement to feed the ever-growing shadow fleet with new non-sanctioned candidates requires a level of opacity that is unusual, even by shipping’s traditionally vague approach to ownership transparency details.

Brokers have been recording a growing share of “unidentified buyers” flooding the market during the past few years and their share of the market is growing.

According to BRS’ latest assessment 11% of the total purchases so far this year have been unidentified, up from 9% last year. Pre-2024 that figure was around the 1% mark.

A more thorough investigation of the identified entities is likely to reveal that opacity is growing significantly faster than those numbers suggest.

The question of whether sanctions are “working” can only really be answered in the political terms by which they were set. But shipping has to deal with the very tangible consequences they create that will continue to ripple through the market.

Richard Meade
Editor-in-chief, Lloyd’s List

Click here to view the latest Lloyd’s List Daily Briefing