KSE Institute’s public lecture, ‘Unveiling the Shadows: Russian Oil Export Dynamics,’ was held on December 7, 2023, featuring experts Natalia Shapoval, Borys Dodonov, and Anatoliy Kravtsev. KSE Institute experts presented the latest research data on Russia’s exports and revenues, emphasizing the violations of price limits, reduced dependence on Western services, and the growth of the shadow fleet. The priority was given to addressing how Russia circumvents existing restrictions and the necessary steps to strengthen sanctions.

Natalia Shapoval, Chairman of the KSE Institute, highlighted the concerning trends in October as Russian oil export earnings hit $18.3 billion, mainly driven by increased use of the shadow fleet and reduced reliance on Western maritime services. “Russia’s significant oil revenues are fueling record military expenditures for the upcoming year. To prevent further escalation, there is a pressing need to enhance sanctions and establish effective monitoring,” said Natalia. 

To address these issues, Natalia listed recommendations for policy strategies. These included the necessity of implementing measures such as performing attestations, bolstering certification processes, creating a list of authorized brokers/traders, imposing fines for price cap breaches, and sanctioning third-party entities aiding in violations. Importantly, there’s a focus on mandating insurance for tankers in G7/EU waters and prohibiting G7/EU entities from vessel sale or financing.

Borys Dodonov, Head of the Center for Energy and Climate Research at KSE Institute, pointed out that only 26% of crude oil was shipped by tankers with P&I Club insurance in October, a notable decrease from 32% in September. At the same time, Russia is increasingly utilizing the shadow fleet. In October 2023, 185 loaded shadow fleet tankers left Russian ports, with 72% over 15 years old, posing significant environmental risks to the EU. Interestingly, India imports the most Russian seaborne crude oil, and Turkey is the primary buyer of Russian oil products. Meanwhile, the top flags for Russian shadow fleet vessels are Panama, Liberia, Gabon, Cook, and Marshall Islands. 

Nonetheless, Borys pointed to the positive aspect, including improvements in price cap enforcement for Russian oil exports. The first OFAC sanctions on two tankers and two owners for carrying Russian crude at prices above the cap but using Western services increased freight costs and widened the discount of Urals FOB Primorsk to Dated Brent by around $3/bbl over two weeks in October. 

Anatoliy Kravtsev, Researcher at KSE Institute, disclosed how Russia hides shadow fleet ties by dispersing ship managers and concealing tanker ownership. In October, KSE Institute found Sun Ship Management and Scf Mgmt Fzco, top players in seaborne oil exports, operating a tanker fleet with similar features as owner possesses only one tanker, but all these owners have the same registration address.

During the discussion, KSE Institute projected Russian oil revenues to reach $178 billion in 2023, up from the July estimate of $153 billion. In the base case with current oil price caps and status quo of sanctions but their stronger enforcement, revenues will decline to $155bn and $152bn in 2024 and 2025. If the price cap is lowered to US$ 50/bbl discount to forecast Brent prices, revenues would drop to $77bn and $70bn in 2024 and 2025. Weak sanctions enforcement might lead to increased Russian oil revenues, reaching $200bn and $197bn in 2024 and 2025.