Ukraine’s President Volodymyr Zelenskyy last week <a href="https://www.thenationalnews.com/news/uk/2024/07/18/ukraines-zelenskyy-to-address-uk-cabinet-as-it-approves-defence-finance-deal/" target="_blank">became the first foreign leader</a> to address the British Cabinet since Bill Clinton in 1997. Two oil tankers collided off Singapore and caught fire. <a href="https://www.thenationalnews.com/news/uk/2024/07/17/border-security-at-heart-of-uks-reset-with-europe-starmer-to-tell-world-leaders/" target="_blank">European leaders</a> gathered at Blenheim Palace in Oxfordshire, its name recalling a past era of continental conflict and coalition. These events signal new pressure against <a href="https://www.thenationalnews.com/tags/russia/" target="_blank">Russian</a> oil. Following the invasion of Ukraine in February 2022, western countries and their allies had the contradictory goals of cutting <a href="https://www.thenationalnews.com/business/economy/2024/07/04/russias-oil-and-gas-proceeds-jump-41-in-first-half/" target="_blank">Russia’s oil and gas revenue</a>, and stabilising the energy market and prices. Their policy was two-pronged: a ban on nearly all Russian oil imports into the EU and G7 countries, combined with a price cap of $60 per barrel of crude using western ships, insurance or services. The idea was to allow Russian oil to keep flowing but impose a substantial haircut on earnings. It was much more successful in the first half of that aim than the second. Russia exports have hardly fallen and any drops are attributable to compliance with Opec+ policy. Oil prices have fallen back from the vertiginous levels of mid-2022 and have been virtually flat in the low 80s per barrel since late 2022. The EU ban forced Russian oil to make lengthy journeys from its western ports to India and China. The logistical costs are responsible for most of the discount on its sales. But as Russian traders adapted during 2023, the discount on Moscow’s oil exports to India dropped from 20 per cent to about 5 per cent. The $60 price cap has been a dead letter from the start. When first introduced, assessed prices in the murky market for Russian oil were below the cap. Enforcement has been via self-declaration by shippers, with few checks. Evidence suggests that most cargoes are now actually traded above the limit. A lot of the apparent discount between assessed prices at Russian export ports and the entry point to India or China was captured by Russian-linked groups, even if this money found its way into oligarchs’ pockets rather than the Kremlin’s treasury. And Russia turned its attention to amassing ships that could carry its oil without restrictions, spending an estimated $7 billion to buy old tankers that would usually have been scrapped. It is now believed to have a “shadow fleet” of about 600 vessels capable of carrying 1.7 million barrels per day. These are often insured by Moscow-based Ingosstrakh, once a Soviet government agency, now part-owned by Italy’s Generali. But sanctions exclusions in this coverage make it unlikely it would ever pay out. That is a particular concern with elderly ships plying the tight and tricky Bosphorus from the Black Sea, and the shallow, narrow Danish Straits out of the Baltic. In May 2023, a ship carrying Russian oil lost power and nearly ran aground in Denmark. The Baltic is Russia’s most important seaborne crude export route, carrying about 1.5 million bpd, followed by about 500,000 bpd from the Black Sea. The US has been gradually tightening sanctions on shipping: it has designated individual vessels and in February widened the sanctions' net on Sovcomflot, the state-owned maritime company. In June, the UK imposed sanctions on Ingosstrakh. On Thursday, new UK Prime Minister Keir Starmer announced further measures against tankers used to transport Russian oil. The UK also added 11 ships to its sanctions list, which, including those targeted by the US and EU, now numbers more than 60. Most of the sanctioned ships have stopped carrying cargo. This is more effective than acting against companies, which continually change or pop up under new fronts. Last month, Denmark’s Foreign Minister, Lars Lokke Rasmussen, said “we are continuously looking at opportunities for further action targeting the shadow fleet”. Yet, with a right of free passage of the Danish Straits established by the Copenhagen Treaty of 1857, it’s unclear what authorities Denmark might use to inspect Russian vessels or block them entirely. Stricter enforcement and more scrutiny of insurance won’t necessarily affect only Russian oil exports. Venezuela and Iran also make use of a kaleidoscope of vessels, changing names, ownership and registration, turning off or spoofing automatic tracking systems and transferring oil at sea to hide its origin. Most “Malaysian”-labelled oil bought by China is alleged to originate from these two countries. One of the vessels involved in the Singapore collision, the Ceres I, is a 23-year-old crude oil tanker, flagged unusually to Sao Tome and Principe. Its insurer is unknown and it carried oil from Iran and Venezuela this year and last. This is all typical of ships in the “shadow fleet”. The Ceres I was empty at the time of collision but a major oil spill in the crowded waters of the Baltic, Bosphorus or Malacca Strait could be disastrous. The Exxon Valdez spill in Alaska of 1989 cost an inflation-adjusted $17 billion in damages and clean-up. Even a relatively small spill off South Korea, from the Hebei Spirit in 2007, led to its insurer paying out $230 million. With no real insurance and murky ownership, there’s little chance of enforcing any liability in the case of an accident to the shadow fleet. The US, UK and EU face a tricky balancing act. They need sanctions with real teeth to wage their economic campaign against Moscow more effectively. But they don’t want to tighten the oil market too much, or to alienate India, which has benefited handsomely from cheaper Russian crude. The White House does not want oil prices to soar ahead of November’s vote. But there might also be only a limited window for action, as Donald Trump and his new vice presidential nominee, JD Vance, are less inclined to help Ukraine. Elections in Iran, which just passed, those in Venezuela – up next week, and later this year in the US are further complications. There might be room for diplomacy with Tehran, Caracas and Washington – or there may be an escalation of hostilities, taking more oil off the market. The western allies have repeatedly pulled their punches in the contest with Moscow. Most likely, they will calibrate the shipping and insurance sanctions, mildly cut Russian revenue and have little impact on oil prices. But targeting the shadow fleet aggressively is a powerful weapon, if they choose to wield it. <i>Robin M. Mills is chief executive of Qamar Energy, and author of 'The Myth of the Oil Crisis'</i>