THERE are significant details yet to be ironed out, but the strong likelihood is that an EU and UK maritime services ban will be agreed before the end of this month.

In broad brush terms that means companies with a European nexus will not be lifting cargoes out of Russia.

That trade will be left to the shadow fleet, which is increasingly hardening into a sustained parallel system.

First-hand accounts from market participants describe the emergence of alternative vetting programmes for tankers being run from India, with a very capable market of middlemen insulated from western sanctions able to offer an increasingly agile market.

Meanwhile new equivalents of class and maritime services are appearing daily. The Russian flag continues to take in the previously fraudulent shadow operators and form a significantly more robust fleet, easily able to not just to skirt restrictions, but operate on its own terms.

So, has the shadow fleet now become a fully-fledged parallel system bifurcating trade down geopolitical lines?

Not yet.

The reality is that the systems are not comparable and credible alternatives to the likes of western insurance have not emerged despite the obvious demand.

Underwriters may well lose hundreds of millions of dollars as a result of the services ban (and do so gratefully because the ban cuts compliance cost and simplifies everything), but that doesn’t mean a parallel system will rise in its place.

The infrastructure that is being developed to support vessels that are trading outside the reach of Western economic sanctions don’t have the same quality drivers, and that is still ultimately a problem long-term.

The reason that vetting programmes like SIRE were developed was to manage risk in a dangerous market. The shadow fleet is the most dangerous place you can be right now.

Oil majors and insurers demand quality for sensible commercial reasons. But the driving commercial priority of the parallel system is to move product from A to B, and standards don’t tend to feature.

In short — there is no commercial driver for a quality insurer to step in, and therein lies the problem hampering a parallel system from taking shape.

Shadow fleet insurance, as it stands, is not entirely illusory.

A handful of Russian insurers have stepped into the gap, providing hull and liability cover, P&I style services, or at least the documentation that allows ports and brokers to process voyages.

These domestic carriers, often reinsuring through a state-controlled vehicle, operate outside the international P&I framework that traditionally guarantees claims payments, pollution clean-up, and long-tail liabilities.

But even the largest established International Group P&I only carries around $10m before it relies on reinsurance and then the market.

Even the best of Russia’s options are heavily sanctioned.

A large, capable insurance provider with a long history of experienced third-party marine liability insurance would struggle to put meaningful cover together while isolated from the traditional western market.

Even once the Russian central bank has underwritten it, payments in the event of a spill would be impossible due to sanctions.

The shadow fleet system is hugely adaptable, innovative and effective, but it is some way off from becoming a long-term viable parallel system.

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