Why is it in the news?

• Western media frequently use the term “shadow fleet” to refer to tanker ships transporting Russian crude oil or oil products during the Russia-Ukraine conflict.
• This label suggests secretive, pirate-like operations and has led to accusations that India is involved in running a “shadow fleet” that launders Russian crude oil.

How Are Sanctions Implemented?

• When the U.S. sanctions a country, such as Russia, it investigates entities, companies, and individuals violating these sanctions. Their U.S. assets can be seized, their bank accounts frozen, and criminal charges may be filed.
• S. sanctions require Russian oil to be sold at $60 per barrel or less, despite market prices being at least $15 higher. This policy aims to reduce Russia’s oil profits and limit its ability to fund the Ukraine war.

Global Shipping Industry Structure

• The global shipping industry is diverse, with Greek companies owning 20% of the global merchant fleet, and China recently overtaking Japan as the second-largest fleet owner.
• Ships are primarily built and repaired in China, Japan, and South Korea, but marine insurance, ship financing, and global shipping regulations are managed by the U.K. and Europe. Further, the U.S. sanctions leverage these regulatory frameworks.
• Ships are registered in flag states, which indicate their origin. However, some vessels use “Flags of Convenience” (FoCs) like those of Panama and Liberia, originally created for tax avoidance, but now used to evade stricter inspections. FoCs obscure the actual ownership of ships.
• Classification societies certify ships for safety and environmental compliance, which is essential for obtaining insurance. Protection and Indemnity (P&I) insurance covers losses related to life and property, and P&I clubs pool the risks for these ships.

How Ships Retain Insurance

• Countries like Turkey, though a NATO member, have traded Russian oil. Turkish-owned ships trading Russian oil above $60 per barrel risk losing their P&I insurance, as many of these clubs are managed in London, where the U.S. has influence.
• However, shipowners can sidestep this by transferring vessel management to European firms with P&I cover, allowing operations to continue with a new management structure.
• Large fleets often create shell companies to hide ship ownership. Some ships are registered in jurisdictions like Eswatini, which do not comply with International Maritime Organization (IMO) regulations, making them harder to track.

India’s Alleged Involvement in Shadow Fleets

• India has been accused of hosting a shadow fleet since the imposition of sanctions. Many Russian ships partnered with Indian firms, with some moving their base to Dubai, where Indian shipping interests are prominent.
• The Indian Register of Shipping (IRS) saw an increase in ship certifications, fuelling accusations of Indian involvement in shadow fleets. However, the IRS stated that its primary responsibility is vessel safety and clarified that the ships it certified were registered under Liberia and Cyprus, and none of these vessels flew the Russian flag.
• During the 2015 sanctions on Iran, around 160 ships with links to Iranian oil switched their classification to the Korean Register of Shipping, a U.S. ally. Renaming ships is another tactic used to avoid connections to sanctions.

Challenges in Enforcing U.S. Sanctions

• Enforcing sanctions on Russian oil is complex due to the global economic implications, the shipping industry’s structure, and the often hidden ownership of ships and their cargo.
• A recent report noted that the U.K. took only mild action against 35 companies that violated the price cap. Industry experts warn that stricter enforcement could harm U.K. businesses.