The Shadow Fleet: How Russia's Oil Exports Continue Despite Western Price Caps

Russia’s Maritime Sanctions Evasion Strategy

When Western nations imposed a $60-per-barrel price cap on Russian oil as part of their international sanctions package, the goal was clear: maintain global oil supply while restricting Moscow’s war revenue. Yet more than a few years later, evidence suggests that Russia has successfully developed sophisticated systems to bypass these restrictions through what experts call a “shadow fleet.”

According to Al Jazeera, this shadow fleet consists of at least 187 tankers operating outside Western control. The Kyiv School of Economics (KSE) estimates that Russia will make $178 billion from oil sales in 2023, rising to potentially $200 billion in 2024. These figures remain substantial despite Western efforts to curtail this critical revenue stream.

The Mechanics of Sanction Circumvention

Western restrictions on Russian oil exports created a complex challenge for Moscow, prompting a multi-faceted response that has largely neutralized the intended impact. The Russian sanctions evasion strategy involves three key components.

First, Russian entities purchased aging tankers from Western companies at prices significantly above scrap value. According to Lloyd’s List, these vessels operate without Western insurance or registration, effectively creating a “sanction-proof tanker” fleet outside the reach of Western regulatory frameworks.

Second, Russia redirected exports to countries willing to continue trade relationships, primarily China and India. Reuters reports that Russia has become a major supplier to these nations, often at discounted rates but still generating substantial income. This pivot eastward demonstrates the limitations of sanctions without global buy-in.

Third, creative payment methods have enabled continued trade. According to Business Insider, India’s top oil refiners have used Indian rupees to settle oil trades with the UAE’s state-owned Abu Dhabi National Oil Company, creating pathways that avoid dollar-denominated transactions.

The Price Cap’s Failure to Restrict Revenue

The price cap mechanism established by the G7 and EU has fallen short of expectations. According to a CREA analysis published by Politico, Russia’s benchmark Urals crude traded at $84 per barrel in October 2023, significantly above the $60 cap. Western-insured tankers dropped two-thirds of their trade in Russian crude between April and October 2023, but the shadow fleet tripled its operations to 2.6 million barrels per day over the same period.

The evasion is so successful that Russian President Vladimir Putin could sign off on a 70% increase in defense and security spending for 2024, according to Al Jazeera. This highlights a crucial truth about the current sanctions regime: the measures of sanctions are not working as intended, at least not to the extent of restricting Russia’s ability to fund its military operations.

Broader Economic Implications

Beyond the direct impact on Russia, the oil sanctions have accelerated global shifts away from dollar dependency. VICE reports that sanctions have made it difficult for Russians to travel or conduct basic financial transactions abroad. Meanwhile, according to The Spectator, unintended consequences include the freezing of assets belonging to Ukrainians and ordinary Russian citizens with no connection to the Kremlin.

The impact of sanctions on Russia extends to redirecting global trade flows. Politico reports that Chinese airlines have gained significant advantages over European carriers because they can still fly through Russian airspace, reducing fuel costs and flight times. European flights to Asia now must take longer routes, burning more fuel and increasing costs for Western carriers.

The Path Forward: Enforcement vs. Alternative Approaches

Western policymakers face difficult choices. The KSE suggests that more rigorous enforcement could reduce Russia’s oil revenue by a quarter, and lowering the price cap to $50 could cut it by more than half. However, according to Responsible Statecraft, economic self-interest often trumps the moral case for Ukraine, as Western countries worry about energy prices and inflation at home.

Additionally, The New Yorker notes that sanctions generate meaningful change only about 40% of the time. Their effectiveness depends on factors including the target country’s economic structure, alternative trading partners, and ability to adapt—all areas where Russia has demonstrated considerable strength.

Rethinking Sanction Strategy for Greater Impact

The oil price cap exemplifies a broader pattern where limited enforcement, carve-outs for special interests, and global economic realities undermine Western sanctions. As the conflict continues, policymakers must reconsider their approach, potentially focusing more on targeting specific military-industrial components rather than broad economic measures.

Future strategies might include narrower, more enforceable restrictions with fewer exemptions, combined with stronger diplomatic efforts to limit third-party cooperation with Russia. Without these adjustments, the world risks establishing a dangerous precedent: that determined states with sufficient resources and partners can successfully weather even the most comprehensive economic restrictions.