Marine and shipping

Written by Iain Anderson, John Paul Koh & Victoria Lawman

Key developments in 2024

Two words are dominating the shipping sector in 2024 – "shadow fleet".

The shadow (or "dark" or "grey") fleet is a reference to vessels which transport oil and petrochemical cargoes on behalf of sanctioned countries. Western economies finance, operate and insure the vast majority of the world's merchant fleet. Expansion of US, EU and UK sanctions means that, in general, vessels carrying cargoes from sanctioned countries cannot operate within the usual international shipping infrastructure. They are forced to go "dark" in a far more opaque part of the shipping sector. Until 2022 the shadow fleet was relatively small – restricted mainly to the carriage of Venezuelan and Iranian oil/petrochemical cargoes. The Russian invasion of Ukraine in 2022 – and the expansion of international sanctions against Russia – has vastly increased the shadow fleet.

The Increase in the Shadow Fleet

Under a G7/EU price cap implemented between December 2022 and February 2023, western marine service providers are prohibited from shipping Russian oil to third countries unless they can demonstrate it has been sold under a price cap (USD100 per barrel for refined products, USD60 per barrel for crude and USD45 per barrel for fuel oil). In 2021 Russian accounted for around 13% of global oil exports which in turn generated 60% of Russian export earnings and approximately 40% of Russian budget revenues. With maintained demand for Russian oil at attractive prices (China, India and Turkey now account for around 90% of Russian crude oil exports), Russia depends upon on a growing fleet of shadow vessels to deliver its oil and to maintain its oil export revenues.  In March 2024 it was estimated that the shadow fleet stands at up to 1,600 tanker vessels, out of a global tanker fleet of around 7,500 vessels. If correct, we now have over 20% of the world's oil tankers trading in the shadow fleet.

Shadow fleet incidents:

In March 2024, the 15-year-old tanker ANDROMEDA STAR collided with a small freighter off Denmark. The vessel was in ballast condition and headed to a Russian port to load oil. Had the collision occurred on the way out of the Baltic (fully laden with Russian oil) it would likely have caused a very significant international pollution incident. The vessel's insurance documents presented to Danish investigators were found to have expired.

In July 2024, a collision occurred near the eastern entrance of the Singapore Strait involving the Singapore-flagged HAFNIA NILE and the Chinese-owned shadow vessel CERES I. Both vessels were heavily laden with oil products - the HAFNIA NILE carrying 300,000 barrels of naphtha and the CERES I reportedly transporting two million barrels of Iranian crude. Salvage operations were promptly initiated with the assistance of the Singaporean and Malaysian authorities. Fortunately, despite the scale of the collision and the hazardous cargo involved, no pollution resulted from the incident.

In October 2024, an explosion occurred off the coast of Chattogram, Bangladesh, involving two LPG carriers, the CAPTAIN NIKOLAS and the B-LPG SOPHIA. A fire broke out during ship-to-ship transfer operations. Investigations revealed that the 32-year-old CAPTAIN NIKOLAS had a history of safety violations and had reportedly mis-declared its cargo. There are strong indications that its LNG cargo originated from Iran.

In December 2024 two aging (50+ yrs) Russian tankers, the VOLGONEFT 212 and VOLGONEFT 239, encountered severe weather while carrying a combined total of around 9,200 metric tons of oil products. The VOLGONEFT 212 broke up and the VOLGONEFT 239 ran aground, causing an oil spill that has reached the Russian Black Sea coast.

What to expect in 2025

We anticipate that the 'shadow fleet' will continue to take centre stage in 2025 as regulators look at ways to address the issues.

International regulations make it hard for coastal states to ban shadow vessels from their waters. The United Nations Convention on the Law of the Seas grants all vessels the right of innocent passage and to freely navigate through territorial seas (the first twelve nautical miles adjacent to its coast). Within a country's Exclusive Economic Zone (200 nautical miles beyond territorial waters), legal powers to police or restrict shadow vessel operations are also limited.

At present, international sanctions are the primary tool to try to restrict shadow fleet operations. Both the US and the EU/UK continue to add shadow vessels, their owners/operators and their domestic insurers to their lists of sanctioned/designated entities. Once any vessel or entity is on the US/OFAC Special Designated National (SDN) List, it is becomes international persona non grata. Any company or person anywhere in the world will itself be at risk of designation by OFAC as an SDN if it engages with the sanctioned vessel or entity. However, vessel ownership and management structures adapt quickly and there are other shadow vessels to replace them. Also, whilst US and EU/UK authorities have been willing to add Russian insurance companies to their sanction lists, they are less keen to sanction other non-Russian domestic insurers.

Coastal states at the primary choke points on Russia's western export routes – the Strait of Finland, the Danish Strait and the English Channel – have implemented inspections of vessels within their territorial waters to verify insurance credentials. However, for many vessels the obligation to produce insurance documents is voluntary only. Vessels which ignore the request or the inspection may find themselves on a sanctions list. However, there are replacement owners and vessels ready to take their place. Also, many coastal states are reluctant to detain shadow vessels for fear of retaliations from Russia.

The International Maritime Organisation has sought to implement regulations to restrict, and to improved operational procedures for, ship-to-ship transfers. However, the enforcement of those procedures is debatable.

While the international measures in 2024 represent progress, it remains to be seen what further steps will be taken to enforce maritime safety and environmental standards. The effectiveness of these initiatives will depend on continued international collaboration and robust enforcement against the growing threat of the shadow fleet.

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