How does Russia get ships for its shadow fleet? Russia has assembled a fleet of some 400 so-called dark vessels and counting — and is currently moving around 4 mn barrels of oil per day — partly through a special purpose company set up in the Marshall Islands, the Financial Times reported last week, citing corporate records and correspondence it has obtained. Since Western sanctions on Russian oil exports were first imposed in December 2022, Russia has relied on offshore corporate structures to evade Western officials and make it difficult to determine the ownership of the tankers, the manner in which they were obtained, or who manages their operations.

The details: Russia’s Lukoil financed a 74-year-old British accountant, John Ormerod, through its shipping division to purchase the Canis Power and at least 24 other second-hand tankers from December 2022 to August 2023, totaling over USD 700 million. Each tanker was acquired by a distinct special purpose company that Ormerod established in the Marshall Islands, while Lukoil’s Dubai-based Eiger Shipping DMCC provided the funding by making advance payments to charter the ships.

Breamer took a hit: Shares of London-listed shipbroker Braemar have declined 11% in the past two days in response to the report, the Financial Times reported on Friday. Braemar was fully aware the vessels were being acquired for — and financed — by Eiger, the accountant lawyer and source familiar with the matter told the FT. Braemer confirmed it has served as the broker for at least nine of the purchases, but declined to comment on its knowledge of Eiger’s involvement. “For every transaction that Braemar considers undertaking, it conducts all appropriate due diligence with know-your-customer checks, legal, compliance and regulatory adherence,” it said in a statement.

Russia boosted the capacity of its shadow fleet by some 70% y-o-y despite Western sanctions, according to a report from the Kyiv School of Economics seen by the Financial Times. The volume of Russian oil transported via dark vessels jumped to 4.1 mn bpd in June 2024, up from 2.4 mn bpd the year prior. “Sanctions on tankers have been quite effective but the designation campaign has been too limited to actually rein in Russia’s shadow fleet,” said Benjamin Hilgenstock, one of the report’s authors.

The vessels have transported some 120 mn barrels of Russian crude, amounting to an estimated USD 7.2 bn in exports. Ormerod sought legal advice and undertook “extensive due diligence” to make sure the aforementioned purchases did not violate any sanctions, lawyers representing Ormerod told FT. Lukoil Litasco Middle East also told the news outlet that it has operated in “strict compliance with all relevant laws.”

Russia’s using subterfuge: Russian oil companies and trades have purposefully sought out non-Russia owners and operators to “create as much distance between Moscow and the shadow fleet as they could,” Harvard University expert on the subject Craig Kennedy told FT. Russian firms have spent over USD 10 bn on purchasing second-hand vessels since 2022, Kennedy believes.

The response: Western governments have begun applying restrictions on individual vessels believed to be a part of the shadow fleet, with seven of the 25 vessels acquired by Ormerod being sanctioned by the UK or EU.

UK cracks down: The UK placed sanctions last month on 10 additional Russian ships as part of an effort to crack down on Russia’s use of its shadow fleet to circumvent sanctions. All 10 vessels were previously overseen by UAE firm Oil Tankers SCF MGMT FZCO, which was used by Russia shipping company Sovcomflot.

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