ATTENDEES at last Friday’s Lloyd’s List Intelligence China Day seminar came seeking clarity on how shifting Western sanctions regimes on energy trade and shipping will reshape their business, and how to respond.

Ensuring compliance was the undisputed priority.

“We are an international business, and our goal is to stay compliant and profitable for the long term,” said Yuan Chao, a leasing expert from China State Shipbuilding Corp.

But Yuan and his peers appreciate not every company operates like CSSC. And it is especially true in China, where facilitating oil imports from Russia and Iran neither violates domestic laws nor prevents it becoming a highly lucrative business.

“As a ship lessor, we also need to guard against lessees engaging in high-risk activity without our knowledge,” Yuan added.

Beijing rejects unilateral foreign sanctions and frames these imports as part of its sovereign right to free trade and energy security.

But established Chinese importers with global footprints can’t simply ignore long-arm jurisdictions, especially those from the US. The solution? Offload risk on to a web of intermediaries — including a shadow fleet of tankers — so they can access discounted sanctioned oil while sidestepping direct penalties.

The question: is this system sustainable amid escalating US and EU enforcement?

For now, it thrives. As Vortexa analyst Emma Li said, Chinese and Indian buyers easily circumvent Russian oil price caps through delivered ex-ship (DES) deals, largely indifferent to EU and UK blacklists.

Even if the price cap drops, driving out the “swing fleet” of mainly Greek-owned tankers, rising freight rates will lure new tonnage into shadow operations. Brussels and London, notably, lack Washington’s full backing for their latest measures.

According to Li, only US sanctions have real teeth — but even these just force supply chain adaptations rather than halting flows. Case in point: Shandong Port Group’s ban on US-blocked vessels earlier this year only briefly slashed Chinese sanctioned oil imports, but the gap was quickly filled by spinning off shares to private local terminals.

And despite a wave of shadow fleet* tankers landing on the US SDN list in recent months, new “clean vessels” have entered the fray, masking their activities with dark operations, such as Automatic Identification System blackouts and ship-to-ship transfers.

“Freight rates for ‘clean vessels’ from Singapore to Shandong have at least doubled since late last year, drawing even relatively young ships — under 15 years old — into the shadow fleet,” Li told attendees.

Industry rumour holds that a couple of runs suffice to recoup a vessel’s purchase price.

In this sense, Western sanctions have worked — cutting Iranian and Russian state oil revenues but transferring profits to risk-hungry shipowners.

Yuan noted that digital tools — vessel tracking, satellite imagery — help reduce inadvertent sanctions exposure. But ever more sophisticated deception techniques, from stolen IMO numbers to flag forgery, are proliferating.

Some guests privately admitted that certain Chinese ports now schedule sanctioned tanker arrivals for cloudy days to avoid satellite detection — turning “dark calls” into “cloudy calls”.

Vortexa data shows Iranian crude shipments to China jumped 15% in the first half of 2025. “What does that tell you?” Li asked. “It’s still a big, lucrative market.”

But big profits mean big risks — not only for unwitting counterparties and shadow fleet owners, but also for navigational and environmental safety, warned Reed Smith partner Li Lianjun.

He cited a recent incident reported by a client, where a VLCC carrying DES cargo lost power near Chengshantou, known as China’s “Cape of Good Hope” and a busy chokepoint at the eastern tip of the Shandong Peninsula.

“Losing power there is especially dangerous, a collision or oil spill is a real risk,” he said, adding that if the vessel was engaged in sanctioned trade, it likely lacked proper insurance, leaving losses uncompensated.

Similar risks have led Baltic states to crack down on Russian shadow tankers, but with limited success so far.

Now, attention is shifting to the prospect of Trump-era “secondary tariffs” — pending US legislation would authorise duties of up to 500% on countries buying sanctioned Russian oil.

And after another round of Sino-US trade talks in Stockholm, US Treasury Secretary Scott Bessent hinted that China’s ongoing Iranian imports could hinder a potential extension of the current tariff freeze between the two sides.

If existing sanctions have been targeting the supply side, tariffs on buyers strike at demand. In theory, this could be more effective — but the backlash could be severe.

After all, it was the spectre of triple-digit tariffs that drove the world’s two largest economies back to the negotiating table. Are they really in any position to endure another escalation?