Two and a half years have passed since the conflict in Ukraine began, and one of its key lessons has been the surprising resilience of the Russian economy. Despite the barrage of Western sanctions, Russia’s economic system continues to function and, at times, even shows signs of growth. This resilience is not only due to the so-called military Keynesianism—where the economy restructures around the military-industrial complex—but also due to the adaptability of the economy in navigating or circumventing various restrictions. A prime example of this adaptability is Russia’s shadow fleet, which has allowed Russian oil to continue reaching the global markets.
The operation of Russia's shadow fleet serves as a vivid illustration of how the global economy adapts when efforts are made to isolate a significant portion of it. It also underscores the enduring importance of oil as a key resource in international trade.
On the one hand, the sanctions imposed by the West encounter the reality that it is difficult to enforce compliance from all key market players. This situation reflects the transition of the global economy to a more multipolar world, where the United States, the European Union, and Russia—heir to the Soviet Union — are joined by other influential players, such as China, India, or Arab nations.
On the other hand, the situation is aptly summarized by the phrase, "It’s nothing personal, just business”. The opportunity for profit often outweighs moral judgments about the conflict or the need to take sides in the Russia-Ukraine war. Through bypassing conventional routes, Russia's shadow fleet ensures that its oil reaches the global markets, evades price caps, and continues to fill the state budget.
Analyzing why Russia developed and employed this shadow fleet offers insights into how the flexible mechanisms of the modern global economy can be used for survival and adaptation under adverse conditions even by those who stand in opposition to free market principles.
What Is the "Shadow" Tanker Fleet?
The use of a shadow fleet to deliver oil and petroleum products to global markets is not a novel Russian invention. Iran, which has been under international sanctions for decades, pioneered similar methods. Over time, Iran and other resource-dependent economies have developed various strategies to circumvent sanctions—from anonymous ship ownership and offshore registration to concealing routes and disabling tracking systems on vessels.
In 2022, the G7 countries, the European Union, and Australia imposed a price cap of $60 per barrel on Russian oil. These restrictions prevent companies from transporting or insuring Russian oil sold above this price. In response, Russia assembled a shadow fleet of old tankers to transport oil to India, China, and Turkey, circumventing Western sanctions. Given Russia's more significant resources compared to countries like Iran or Venezuela, which also rely on shadow fleets to sell oil on the global market, Russia has managed to build a fleet far larger than anything Iran and Venezuela combined ever possessed.
Analysts have divided this "shadow fleet" into the "grey fleet" and the "dark fleet”. The "grey fleet" refers to vessels where the legitimacy of their operations and their compliance with sanctions are ambiguous. These ships often change flags to obscure their affiliation with sanctioned entities. The "dark fleet", on the other hand, consists of vessels that deliberately disable their automatic identification systems, falsify identification data, and misreport their locations. This is done not just to conceal the ownership of the vessel but to obscure the origin of the oil itself. Disabling tracking systems allows these ships to hide their entry into Russian ports.
The Scale of Russia’s Shadow Tanker Fleet
According to UNCTAD, there were 12,309 registered oil tankers worldwide in 2023. Windward, a maritime analytics firm, identified more than 900 "grey" ships and around 1,100 vessels in the "dark" fleet. This means that roughly 16% of the global tanker fleet falls into these shadowy categories.
Due to the lack of a unified approach and transparent statistics on Russia’s shadow fleet, only expert estimates are available. CNN experts noted in 2023 that Russia's "shadow fleet" consisted of around 600 tankers. By 2024, Bloomberg reported that this number had grown to 800 tankers.
According to Vortexa and Windward, the top five countries under whose flags "dark fleet" vessels operated included Panama, Liberia, Russia, Malta, and the Marshall Islands. These countries are often referred to as "flags of convenience”, meaning that while the flag state is supposed to ensure the vessel's compliance with international regulations and safety standards, enforcement can be lax in these jurisdictions.
As sanctions against Russia intensify, expanding beyond oil to also target natural gas, Russia is increasingly leveraging the tactics developed with its shadow fleet for transporting liquefied natural gas (LNG). The European Union’s 14th sanctions package includes a ban on any re-export operations of Russian LNG through EU territory to third countries. Although the ban will take effect after a nine-month transition period, Russian companies are already adapting to sanctions by creating a shadow fleet for LNG. Bloomberg reported in 2024 that at least eight vessels, including four ice-class ships, had been transferred to the ownership of little-known companies in Dubai.
Why Does Russia Need a Shadow Fleet?
The scale and structure of Russia's shadow fleet underscore the critical role that oil and petroleum products play in the country’s economy. In 2023, Russia's budget revenues amounted to 29.123 trillion rubles ($344 billion), a 4.7% increase compared to 2022. Of this, 8.822 trillion rubles ($104 billion) came from oil and gas production and sales.
Despite this, Russia's oil and gas revenues in 2023 were 23.9% lower than in 2022. The Russian Ministry of Finance attributes this significant decline to a high base effect from the previous year, a drop in Urals crude prices early in the year, and a reduction in both gas prices and export volumes. The average price of Urals crude in 2023 was $62.99 per barrel, above the $60 price cap but well below the $70.1 assumed in the 2023 budget. Compared to 2022, when the average price was $76.09, Urals oil dropped by $13.1, or 17%. It also fell below the 2021 average of $69 per barrel, though it remained higher than the 2020 average of $41.73 per barrel.
Looking ahead, Russia’s budget projections for 2024–2026 assume unstable revenue streams. While an increase is expected in 2024, revenues are anticipated to dip in 2025 and only rebound in 2026. The government expects oil and gas revenues in 2025 to be only slightly higher than in 2024, with a slight decline in 2026. Nevertheless, despite these reductions, Russia’s budget will remain heavily dependent on oil and gas income.
Moreover, the likely need to increase military spending in 2025 could further strain the already tense revenue outlook for the coming years. This situation necessitates not only maintaining current levels of oil and gas revenue but also finding ways to increase them, with the efficiency of Russia's shadow fleet playing a key role in this effort.
As long as Russian oil continues to generate revenue, several conditions must be met: first, third countries must be willing to directly or indirectly transport oil to the global market; second, major players like India and China must remain open to purchasing it, ignoring price caps; and third, the sanctions must not be harsh enough to deter companies involved in shipping Russian oil globally.
Russia's continued ability to export oil, directly or indirectly, is largely due to its significant role in global oil and gas markets. Russia is the world's second-largest oil supplier and the leading exporter of gas. It ranks third in oil production, following the United States and Saudi Arabia, and is the largest oil exporter when including petroleum products.
Completely removing Russia from the global oil market would cause severe disruptions to the world economy—an outcome that many countries are unwilling to risk, especially as they recover from the Covid-19 pandemic crisis and navigate the tensions of the ongoing U.S.-China trade rivalry. Therefore, Western actions against Russia's oil and gas sector are often balanced to maintain the stability and growth of the world’s leading economies.
Countermeasures Against Russia’s Shadow Fleet
In response to sanctions targeting its oil and gas sector, Russia has resorted to utilizing a shadow fleet. To counter this, the U.S. and the EU are implementing new measures aimed at limiting Russia's ability to circumvent sanctions through this fleet and increasing pressure on third countries that facilitate these evasions. Washington has vowed to tighten enforcement of the price cap on Russian oil, recognizing that it is becoming less effective as Western companies continue to purchase Urals crude in violation of the cap.
Western countries are introducing various measures to combat this, including restrictions on the sale of older tankers to unknown buyers, scrutinizing the maritime and environmental risks posed by shadow fleet tankers, and imposing sanctions on those who violate restrictions. As part of the EU’s 14th sanctions package, restrictions were placed on 27 vessels belonging to Russia’s shadow fleet. The U.S. has also sanctioned 20 of these tankers.
These existing sanctions are generally not intended to eliminate Russian oil from the global market entirely. Instead, they aim to compel Moscow to sell most of its oil at prices below the established price cap. However, U.S. efforts to clamp down on Russia’s shadow fleet are complicated by domestic political concerns. Recently, the U.S. Treasury proposed new measures against the shadow fleet, but according to The New York Times, White House economic advisers are worried that these measures could drive up energy prices ahead of the November presidential election, potentially harming the Democrats' campaign.
The Uncertain Future of the Shadow Fleet
The experience of recent years shows that the struggle between sanctions and their circumvention resembles a game of cat and mouse. As soon as new sanctions are introduced, new methods of evasion emerge. Currently, the measures to combat Russia’s shadow fleet do not pose a significant threat to Russian business. Only a few dozen tankers have been affected by the latest sanctions, while Russia is believed to be using around a thousand vessels.
So far, the impact of oil export restrictions on Russia has been felt more due to falling global oil prices than the sanctions against its fleet. With lower oil prices, much of the shadow fleet has been transporting Russian oil below the price cap, making these shipments technically legal.
The existence of the shadow fleet indicates that Russia is facing difficulties in exporting oil and petroleum products to the global market. However, the expansion of this practice to include LNG carriers suggests that despite sanctions, declining profitability, and reduced revenue for the Russian budget, the risks and costs incurred by Russian companies and their partners in delivering energy resources to the global market through alternative routes are still deemed acceptable.
