OVER 200 ships linked to Russian trade have been targeted so far this week and the EU has set out new measures so wide that they could, in principle, target any entity or individual even tangentially associated with the dark fleet*.

Whether they will have the opportunity to do so, however, remains unclear.

Despite a show of force from the EU, UK and Canada vowing to step up pressure on Moscow, a widening a transatlantic divide with US-led negotiations to end the war in Ukraine, has left shipping sanctions in political limbo. 

In public, European Commission President Ursula von der Leyen is “clamping down even harder on circumvention by targeting more vessels in Putin’s shadow fleet”. Similarly robust noises are emanating from the UK and Canadian governments this week as they double down on Russian sanctions, with a particular focus on shipping.

Off the record, politicians, lawyers and shipping leaders in Europe are increasingly concerned about how effective these measures will be if the US lifts sanctions as part of a negotiated peace deal. 

For shipping it raises the very real prospect of conflicting sanctions policies from the world’s major trading blocs, a situation that could make life extraordinarily difficult for the industry.

In theory, the latest EU package comes with the tools to target “those who have supported the operations of unsafe oil tankers”. 

This comes as part of a shift towards tackling the dark fleet on safety grounds rather than pursuing the previous rationale of oil price cap circumvention, a policy which has to date had limited success in terms of enforcement and is widely expected to be overhauled, if not entirely scrapped. 

With Baltic states vying to protect their coastlines from any potential uninsured environmental disaster at the hands of a dark fleet incident, the political rationale is that member state enforcement appetite will be enhanced.

The move to go after entities supporting the dark fleet goes well beyond the recent approach of specific ship designations, opening up the possibility that flag, finance and insurance targets may now be in the firing line.

The latest listing of 74 ships in the 16th package almost exclusively targets the vessels on the basis of their “irregular and high-risk shipping practices”, implying that the entities supporting those vessels are going to be under pressure. 

Over 25% of all ships now targeted by EU sanctions are flagged by the Barbados registry, which is operated from the Barbados High Commission in London. 

While the EU measures are intended to act as a far reaching deterrent, the wording of the latest additions is sufficiently vague to have already raised questions regarding their effectiveness from legal sanctions specialists.

The EU text targets: “natural or legal persons, entities or bodies that own, control, manage or operate vessels that transport crude oil or petroleum products, originating in Russia or exported from Russia, while practicing irregular and high-risk shipping practices as set out in the International Maritime Organization General Assembly resolution A.1192(33), or that otherwise provide material, technical or financial support to the operations of such vessels”.

But that wording will require a wide degree of interpretation by member states if they intend to use the new provisions. 

The owner, or indeed the manager, might not be the entity which engages in the “irregular” or “high risk” shipping practices. The vessel might be complying with oil price cap, albeit operating in a risky way that have nothing to do with sanctions circumvention. Meanwhile, the behaviours set out in IMO.1192 (33) (“not maintaining adequate liability insurance or other financial security” or “not operating under a transparent corporate governance policy”) are so general as to be almost unenforceable. 

Essentially, the EU bid to go after the supporting network behind the dark fleet amounts to a very broad bid to allow the EU to designate shadow fleet operators with specific sanctions. But there is a risk here that a designation made in error could be difficult to challenge.

It is also part of a wider trend which has seen specific sanctions designations replace enforcement as a primary tool. 

While that has proven at least partially successful with US sanctions where the threat of being locked out of the dollar-denominated financial system carries weight, it has been less effective as a tactic from the EU and UK.

It also raises questions regarding a sanctioned entity’s right to be heard and due process from governments, which have struggled to penetrate and understand the corporate structures behind these vessels and often don’t have the means to track vessels.

Waning US support

The bigger question mark, however, remains the political status of the EU’s sanctions programme in the face of waning support from the US. 

Most western sanctions imposed on Russia since 2022 have been co-ordinated by the G7 to ensure maximum impact. 

But in Brussels officials are increasingly concerned that the US will not only ease sanctions on Moscow as part of a peace deal, but they could also pile pressure on the EU to do the same.

In the event that the EU and UK continue to pursue Moscow via ever tightening sanctions, the vast majority of shipping and their supporting service companies will be expected to sustain existing policies. 

With the detail of any potential peace deal and US lifting of sanctions still hypothetical, it remains unclear whether EU/UK restrictions will be in conflict with whatever emerges from Washington.

US sanctions are by far the most effective in terms of forcing targeted companies to change their operational behaviour, a factor that is multiplied when secondary sanctions are imposed. It is also the case that US policy has to date driven the pace of sanctions policy among G7 states, but with the EU and UK ostensibly doubling down on Moscow as a target and US at best ambivalent towards Russian enforcement, the shipping industry is sailing into uncharted territory. 

From an insurance and financial services perspective, the EU and UK sanctions are far more relevant to determining company compliance policies, which will be difficult to amend quickly.

Western P&I clubs have already made clear that their continued adherence to EU and UK sanctions is not going to change, although US clubs may be tempted to amend that position. 

Equally, within the banks and financial services sector, any easing of US sanctions is unlikely to trigger an immediate reassessment of policy. Most compliance officials polled have indicated that US stakeholders would be reluctant to jump right back into business as usual.

The bigger concern, however, is the  potential for a nightmare scenario of US sanctions policy and trade conflicts escalating between both EU and China that sees shipping left in what one insurance official described as “an impossible position”. 

“If the US is ramping down on their sanctions, we can handle that, but it doesn’t mean to say we’re not going to continue to enforce everything that’s coming in from the UK and the European Union,” explained one senior sanctions specialist operating inside the P&I sector. 

“The nightmare lurking under all of this is that you get what is essentially a splitting of interest where US policy conflicts with that of the UK and the EU or China, and the trade wars start to ramp up. 

“If China is then forced to fall back on its blocking statute [legislation authorising the Chinese government to issue “Prohibition Orders” to companies to prevent them from complying with certain sanctions], well that then puts shipping in what I can only describe really as an impossible position. Essentially you get access to capital if you trade with one person, access to goods if you trade with the other… and this breaking down of the global consensus is really quite troubling”.

* 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 in 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.