NEW transparency rules agreed by EU states this week will add a further series of administrative burdens on the shipping sector and likely force more ships into the dark fleet*, but they will likely not prevent circumvention, according to senior industry insurers and officials. 

The European Union Council adopted its 12th package of sanctions against Russia on Monday, promising to tighten compliance rules for those buying Russian oil via the G7 price cap mechanism and stop old tankers from being sold into the so-called dark fleet.

While many of the rules come with a transition period and require a process of clarification between lawyers and the European Commission, an initial reading by industry experts suggests neither aim will be achieved.

Proposals to ban the sale of old oil tankers to Russia or Russia-linked firms were ultimately watered down in the final text to a “notification” procedure. However, in doing so, the new rules require a level of transparency that has already caused some concerns among shipowners, notably in Greece.

The requirement to disclose the “incorporation documents of the seller and the purchaser including the shareholding and management” will require the Greek state to enforce the rules — a process that has yet to be discussed between owners and sceptical government officials.

The more controversial detail of the 12th package, however, relates to the tightened compliance rules for those buying Russian oil via the G7 price cap mechanism.

The price cap mechanism relies on an attestation process that enables operators in the supply chain to get assurance that the oil has been purchased at or below the price cap of $60 a barrel. But widespread manipulation of shipping and ancillary costs, including shipping, freight, customs and insurance costs, all bundled to hide the actual price of the oil, had rendered the rules largely unenforceable.

In a move since replicated across all G7 coalition partners, the new EU sanctions have therefore introduced a requirement to include an itemised breakdown of costs in order to verify compliance with the price cap.

Those requirements will not enter into force until February 20, 2024, but in the current text there are no details regarding what documents will be required, the verification process, or how the process will be enforced.

But lack of detail is only one part of the current ineffectiveness of the price cap.

Around half of all Russian oil cargoes are carried on tankers owned or insured in G7 and EU countries, and while the majority assumed to be price cap compliant, some traders are simply ignoring the price ceiling in many cases.

Shipping industry and insurance executives are concerned that the EU approach appears to be targeting an already over-burdened group of EU operators trying to make the price cap work, rather than going after the traders and operators in the dark fleet operating outside of the rules.

Unworkable red tape 

According to one senior insurance official, the new EU rules looked “horrendous” and unworkable. Given that those same requirements have now been extended across all G7 partners who want P&I clubs, shipowners and flag registries to check itemised attestation documents on a voyage by voyage basis, that concern regarding the increasing burdens being placed on the shipping industry is likely to be felt keenly across the sector.

While the new rules are being clarified, most industry officials were unprepared to publicly denounce the requirements. However, several informed sources are concerned that the attempt to target shipping as the link in the chain to crack down on sanctions circumvention will be counter-productive. 

“It will make it more an awful lot more difficult for people who are trying to make the actual system work and push more ships into the [dark] fleet,” said one insurance executive.

“The latest developments on the oil price cap highlight the tension in this measure,” explained Daniel Martin, a partner who advises traders, shipowners, insurers and brokers on sanctions at law-firm HFW.

“They show the extent to which the EU (and others) are concerned about cargoes being carried in reliance on false attestations (with other costs being artificially inflated to offset lower cargo prices).

“However, they also show how difficult it is devise an effective price cap mechanism. Requiring a more specific price breakdown will increase the burden on carriers, insurers and other EU service providers, but it is unclear how this will actually prevent those non-EU operators that are currently providing the false attestations. Likewise it is unclear how and when EU competent authorities will request this information and how it will assist with enforcement.”

The effectiveness of the new package will largely depend on the willingness of individual member states to enforce the new measures, but the EU rules do not exist in isolation and could yet be affected by coalition partners.

The latest EU rules have landed just as the appetite for a more robust enforcement approach is building in the US.

Two US Treasury Department officials, Elizabeth Rosenberg, the assistant secretary for terrorist financing and financial crimes, and Eric Van Nostrand, assistant secretary for economic policy, were both in Europe this week to discuss enforcing the price cap on Russian oil with government officials and private business leaders.

In addition to issuing recent industry-focused advisories, Washington has recently been ramping up the rhetoric when it comes to price cap enforcement.

US assistant secretary of state for energy resources Geoffrey Pyatt told the Financial Times earlier this month that the US is aiming to halve Russia’s oil and gas revenues by the end of this decade, arguing Western sanctions against Moscow will need to be maintained “for years to come”.

Pyatt said the US was looking “for ways to make that shadow fleet less effective”.

Asked whether Washington would support measures to force Western insurers to demand more information from shippers and conduct more due diligence on vessels carrying Russian oil, Pyatt said: “Watch this space.”

* Lloyd’s List defines a tanker as part of the dark fleet if it is aged 15 years or over, anonymously owned and/or has a corporate structure designed to obfuscate beneficial ownership discovery, solely deployed in sanctioned oil trades, and engaged in one or more of the deceptive shipping practices outlined by US State Department guidance issued in May 2020. The figures exclude tankers tracked to government-controlled shipping entities such as Russia’s Sovcomflot, or Iran’s National Iranian Tanker Co, and those already sanctioned. Download our explainer on the different risk profiles of the dark fleet here.

Lloyd’s List Intelligence Seasearcher subscribers can add the Lloyd’s List dark fleet to their watchlists here.