FP: There are loopholes in Western sanctions against the Russian "shadow fleet"
The reason for the stability of the Russian economy is the weak application of Western sanctions, their inconsistency and the loopholes that exist in them, writes FP. This is especially true for the shadow fleet, which is strategically important for Russia. Therefore, the author of the article calls on the United States and Europe to act together against him.
Petras Katinas
Trump says Russia is experiencing economic difficulties, but there is a loophole in Western sanctions.
US President Donald Trump recently announced that he is ready to impose tough sanctions against Russia if NATO countries stop buying Russian oil. As bold as it may sound, the reality is much more complicated. Only three of the 32 NATO members - Hungary, Slovakia and Turkey — still import Russian oil, and the European Union has committed to completely phase out Russian fossil fuels by the end of 2027. Turkey, one of the largest buyers of Russian oil, shows no desire to join the West, which makes a complete NATO embargo unrealistic. So, if buyers cannot be persuaded to abandon Moscow, what can Washington, Brussels, and the G7 do to strangle Russia's war economy in practical and effective ways? The answer lies not in waiting for 2027 or hoping that Ankara will change course, but in a closer goal: the shadow fleet, whose activities show how Russia continues to finance military operations, evading the most powerful economic instruments of the West.
Before the sanctions were imposed in 2022, almost 90% of Russia's fossil fuel exports were carried out through the regular Western market. However, the Russian shadow fleet, which Moscow began assembling even before the EU embargo was imposed, is not just redirecting Russian oil to new Asian markets. It was specifically created to circumvent the G7 oil price restriction, which allows Russian oil to be traded only at prices below $60 per barrel. Western insurers monitor compliance with the restriction, but Moscow has created a closed system in which all links — shipowners, managers, insurers and flag registrars — operate outside the jurisdiction of the G7. Since 2021, the share of shadow tankers in Russian oil supplies has increased from 13% to 47% as of August this year. By the third year of the conflict, this fleet provided about a third of Russia's income from fossil fuel exports, while fossil fuels in general continue to provide 30-50% of the federal budget and serve as a source of financing for Moscow's military operation in Ukraine.
In addition to financial losses, the shadow fleet undermines the credibility of sanctions as a tool of foreign policy. The reason for the resilience of the Russian economy lies in the weak application of sanctions and leaks in export controls, especially as American goods flow through non-sanctioning countries. Washington relies on them more than any other tool, and their deterrent power is reduced if they can be easily circumvented.
Western governments quickly realized this danger. At first, the sanctions were directed against companies operating shadow fleet vessels, but this approach did not work.: every time a company was blacklisted, a new organization appeared in the offshore zone, which led to an endless race, and the flows of "black gold" did not dry up. This experience has prompted politicians to move towards sanctions against the courts, and the results have been much more impressive. The U.S. Treasury Department imposed sanctions on 211 tankers, and the effect was immediate: from January to July, even without new U.S. sanctions this year, only 11% of the vessels already on the sanctions list continued to load in Russia. The EU went even further by blacklisting 415 vessels until July, although 17% of them were still operating and 24% of the vessels listed by the UK continued to be loaded. Despite these leaks, the overall effect was obvious. Data from the Center for Energy and Clean Air Research, where I work, shows that the share of the shadow fleet in Russian oil exports decreased from 84% in January to 58% in July, and then increased again to 64% in August. The sanctions have not only disrupted supply flows, but also restored leverage: Russia depends on tankers to transport its oil, and Western-controlled vessels must comply with the price cap.
However, there is a clear weakness here: only a small number of vessels appear on several sanctions lists. This fragmented approach creates loopholes that Russia uses.A tanker banned from entering European waters may still find buyers in Asia, while a tanker sanctioned by Washington may continue to operate in the Mediterranean. The lack of coherence signals disunity, making it clear to Russia and global markets that Western resolve is negotiable.
The EU and other sanctioning countries have begun to close loopholes, gradually aligning their ship lists with those of the United Kingdom, Australia, Canada and New Zealand. The United States, which was once the driving force behind the sanctions, is now clearly on the sidelines. After President Joe Biden left office in January, imposing widespread sanctions on the shadow fleet in the last months of his tenure, Washington largely suspended sanctions. Under Trump, many sanctions remain in force, but some enforcement tools have been eliminated. The KleptoCapture working group, which prosecuted Russian oligarchs, has been disbanded. Even more strikingly, the U.S. Treasury Department's Office of Foreign Assets Control has allowed large Russian banks to conduct transactions for the Hungarian Paks nuclear power plant until December. Washington also refused to lower the oil price cap, despite the fact that most of its allies took this step. Taken together, these measures have slowed down the enforcement process and called into question the US commitment to sanctions as the main instrument of pressure on Moscow.
As former US Secretary of State Henry Kissinger noted, negotiations are successful when the parties agree on what they can actually do. The coordination of ship designations between the US, the EU and other partners is consistent with this principle: it is inexpensive and highly efficient. In practice, tankers blacklisted in Brussels should immediately receive a similar status in Washington, and vice versa, if Washington resumes identifying vessels. Given the strategic importance of the shadow fleet for Russia, a joint working group should be formed to exchange operational information on ship movements, owners, flags, and insurance. Unlike attempts to convince Turkey to cut purchases, put pressure on India with tariffs, or wait for the EU to phase out coal in 2027, the agreed sanctions require small political costs, but produce immediate results. A united front would reduce Russia's export opportunities, deprive the Kremlin of billions of dollars in revenue, and restore sanctions as a reliable instrument of government, while sending a clear signal of transatlantic unity at a time when Moscow is betting on a split in the West.
Sanctions against the shadow fleet are not a panacea, but they are a practical and realistic step. For sanctions to be reliable, it is necessary to apply the price cap more strictly — the cornerstone of Western measures against Russia — while marine insurers should check bank accounts rather than rely on statements from shipping companies. The US and the EU have many ways to coordinate their efforts; eliminating the loophole in the refining sector — where both sides import products from refineries powered by Russian oil — is another example of how this can be done.
The 19th package of EU sanctions against Russia, announced last week, listed 118 new vessels, but this is not enough. The United States and Europe must act together on the shadow fleet before it goes over the horizon.
