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New EU sanctions put the squeeze on Russian oil smugglers - POLITICO Europe

Hundreds of tankers could be barred from European ports as part of a new effort to crack down on illicit sales of Russian crude oil that Western nations fear are helping fund the war in Ukraine.

After weeks of tense negotiations, EU countries on Wednesday finally signed off on the 11th package of sanctions to be imposed on Moscow in just over a year. But instead of introducing new restrictions, draft documents seen by POLITICO show Brussels' focus is now on tightening loopholes in existing rules, creating powers for secondary sanctions and naming and shaming companies that fall foul of the rules.

"Attempts to circumvent Union restrictive measures have resulted in a sharp increase of deceptive practices by vessels transporting Russian crude oil and petroleum products," the text of the Council decision reads.

Officials are concerned about the so-called shadow fleet of hundreds of ageing tankers carrying Russian oil, potentially bought at prices above the $60 per barrel price cap imposed by the G7.

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Many of the vessels, which are typically owned by an opaque network of shell companies — many reportedly linked to Greece — are understood to turn off their navigation systems to hide the fact they have docked at Russian ports, or take on fuel from other tankers at sea to obscure its origins.

Measures proposed by the European Commission and agreed by member countries will prohibit vessels suspected of these shady practices from entering EU ports "irrespective of their flag of registration." Tankers will also have to notify authorities if they are planning a ship-to-ship oil transfer "at least 48 hours in advance" within specific geographical areas.

According to Byron McKinney, a director with S&P Global Market Intelligence, "The package has something of a potential challenge and some added stress for companies on the compliance side, but my feeling is it’s ultimately been rather watered down."

A "conservative" analysis from S&P estimates that a total of 167 tankers have been involved with a ship-to-ship transfers with a Russian vessel and later docked at an EU port.

Countries with large maritime industries like Greece, Cyprus and Malta had initially expressed reservations about the plans to crack down on the practices, amid speculation they were trying to protect their shipping companies.

"The new package is good, but is it radical? Probably not," said Maria Shagina, a senior sanctions researcher at the International Institute for Strategic Studies. "There’s potentially more the EU could do to inflict pain on Russia but we’re now at the point where everyone has a sort of fatigue — you have Greece and Hungary haggling over the naming and shaming list and it’s a challenge to hold this coalition together."

"You have a geographical split between the Poles and the Balts — who basically want a full embargo — and Germany, France and other states that are saying, 'Well, we have to think about sanctions not hurting us more than the target,'" she said.

Russia has stepped up exports of oil to countries like India, China and Pakistan in recent months, while figures show that the EU is importing fuel refined from crude by these Asian nations.

New Delhi, for example, has seen deliveries of Russian crude skyrocket from around 1 million barrels a month to 63 million in April alone. Meanwhile, its exports of diesel to the EU have increased tenfold and shipments of jet fuel are up by more than 250 percent.

However, the arrangement is not a breach of sanctions rules, as the G7 wanted to curtail Russia's earnings while not destabilizing global oil markets.

In May, the International Energy Agency reported that the volume of Moscow's crude shipments had risen to the highest level since its invasion of Ukraine, up 50,000 barrels per day to 8.3 million barrels, despite the price controls.

"Indeed, Russia may be boosting volumes to make up for lost revenue," its market analysis concluded.

However, according to Maximillian Hess, a fellow at the Foreign Policy Research Institute and author of a forthcoming book on Russia sanctions entitled "Economic War," the oil price cap is having an effect.

"The capacity of the Russian state and the Russian political economy are really changing for the worse. Russia is feeling the pain. It cannot invest in its future. It's running on fumes."

Despite the increased oil output, Moscow's federal budget revenues from fossil fuels were around 36 percent lower this May than they were the previous year, forcing the country to plug a growing gap if it wants to continue increasing funding to its armed forces.

Leonie Kijewski contributed reporting.

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