The Oil War

January 29, 2024

“Shadow fleets” of tankers smuggle oil out of Russia and Iran and provide the cash flow to finance their wars and terrorist attacks. These ships are also environmental time bombs. Several have sunk with their toxic cargos because they were in disrepair, operated by scoundrels, or unable to call for help because they were hiding from authorities. Despite dangers, illicit oil shipments and sanctions-busting activities have exploded. In 2023, China and India imported $600-billion in fossil fuels from Russia, essentially bankrolling Putin’s war in Ukraine and billions from Iran despite draconian sanctions. Estimates are that one in five ships on the high seas are now involved in illicit oil or weapons trade. And these operators also work with accomplices in countries that are so-called allies, such as India, Greece, Spain, Turkey, Saudi Arabia, and the UAE. Cargos are carried by ships without identities, owned by shell companies, and hired by shadowy traders who defy detection and interdiction. Choking this flow should be a top priority because it fuels warmongering, but instead a global industry has mushroomed, enriching many along the way. The New York Times commented that Russia has “turned a Western boycott into a bonanza”.

Growth of Russian crude shipments by sea up to January 7, 2024. NDTV.

China and India are Putin’s biggest financial backers. They both have remained “neutral” concerning the Ukrainian war, but they indirectly finance it. Others also cash in, such as Saudi Arabia and the UAE, where intermediaries scoop up Russian energy products at discount prices, due to sanctions, then resell them for huge profits. India is also a big winner too. It has doubled its oil imports from Russia this year, and hosts a network of oil trading ships that trade fossil fuels via UAE’s Dubai. It’s also spawned a profitable side business: India’s Russian oil imports have grown from 2 percent of its total consumption, before the Ukrainian invasion, to 40.4 percent, at a saving of $7 billion per year in cost. Then India refines this discounted crude and re-exports it to Europe as diesel or gasoline, enabling Europeans to circumvent their own ban against buying Russian oil. India’s traders and fleets cash in by being, essentially, middle men for Putin.

The G7’s price cap on Russian oil has failed to stop the flow. It was designed to reduce Moscow’s income from oil, but the opposite has happened. The ban and price cap have sparked price hikes, making criminal activity more profitable. For Russians, who run a criminal enterprise that pretends to be a sovereign nation, circumventing these obstacles has been, frankly, business as usual. The existing business model of illicit trade didn’t have to be tweaked all that much and the only challenge was scaling. And in no time, hundreds of oil tankers came out of dry dock or storage to cash in on the action.

The scam is simple: Pick up cargo in Russia then switch off AIS transponders to conceal the ship’s position. Some ships transmit false information. Recently, an Israeli technology company estimated that 75 percent of ships departing Russia “ghost” themselves in this way. They then chart circuitous and devious routes to their destination; they often pick up smaller loads along the way, by stopping mid-ocean or at storage hubs in Greece and Spain; and they change their names and switch flags. Most importantly, they follow instructions from commodity traders in Dubai, a dirty money haven full of oligarchs and Russian money.

The margins are spectacular. One trader told a newspaper that “let’s say you're a trader in Dubai and you buy Russian oil. You hire an old tanker to transport toward Malaysia, then you store it there for a month in an offshore tanker for a million dollars, then you transfer the oil to a second, then a third ship, falsify the documents for $100,000 and resell the whole thing in the West at a huge profit."

Russian oil tanks on June 12, 2023.

There’s no question that China is Russia’s – and Iran’s – lifeline. And India’s role, as well as Saudi and UAE involvement, helps prop up Putin. But Beijing imports 5 million barrels a day plus LNG and coal from Russia at discounted prices. Its President Xi Jinping abstained from condemning the invasion, nor has he endorsed it, but he promised the West that China would not to sell weapons to Russia. However, this is questionable and there are growing suspicions of cheating. But Chinese exports of consumer goods have soared to Russia, hitting a record a high in December, and this represents indirect aid to Russia’s war effort. Chinese imports allow Putin’s factories to shift from making fridges or cars to churning out weapons production.

Iran is another problem. There is reportedly a fleet of up to 1,000 Chinese ships off Singapore that is dedicated to circumventing international sanctions on Iranian oil and transporting it to Chinese ports. In essence, China is also bankrolling Iran’s war against Israel and Tehran’s Axis of Resistance which includes proxies such as Hamas, Hizbollah, and others. In addition, North Korea also employs “shadow ships” to transport thousands of shipping containers full of missiles, weapons, and ammunition to Russian ports in the Far East for use in Ukraine. This was recently noted by the White House in October. “We condemn the DPRK [Democratic Peoples’ Republic of Korea] for providing Russia with this military equipment, which will be used to attack Ukrainian cities, kill Ukrainian civilians and further Russia’s illegitimate war,” Michael Kirby said, adding that Russia is, in turn, providing military assistance to North Korea.

“Shadow fleet” near Singapore

The question is why hasn’t the West, and international community, clamped down on all this seaborne criminality, given the seriousness of violations and number of players involved. It’s not that difficult to do so, given satellite surveillance, and the global network of navies, coast guards, and port police. The spread of this secret trade is not just a military matter, but is also an environmental one. These “shadow ships” are often derelict and their existence, and lack of policing, threatens the world’s oceans.

The United Nations and international shipping authorities should require inspections and demand switched-on transponders. They should also prevent the dangerous practice of transferring oil from one old boat to another on the high seas — a common practice designed to erase the trail of ownership. But in the absence of any regulations or enforcement, Russia and Iran wage vicious wars and a global, maritime criminal conspiracy grows. These wartime logistical supply chains must be disrupted. Ships must be regulated and those guilty of sanctions-busting must be pursued. Most importantly, China and India should be held to account, perhaps taxed or sanctioned, for trading with the world’s two most vicious enemies.