The new “shadow” shipping and financing infrastructure is robust. Rather than fade away, the grey market stands ready to expand when the next set of sanctions is enforced
since the war in Ukraine began, once-dominant Western firms have pulled back from trading, shipping and insuring Russian oil. In their place, mysterious newcomers have begun to help sell the country’s crude. They are based not in Geneva, but in Hong Kong or Dubai. Many have never dealt in the stuff before. TheRussia’s need for this alternative supply chain, present since the war started, became more pressing after December 5th, when a package ofcame into effect.
At the other end of the spectrum lies the “black” trade, tried and tested by producers such as Iran and Venezuela. Battered tankers as much as half a century old sail to clandestine customers with their transponders off. They are renamed and repainted, sometimes several times a journey. They often transit via busy terminals where their crude is blended with others, making it hard to detect.
As business has boomed, the new middlemen have had to find financiers to bankroll and insure their operations. The ability to hold millions of barrels without putting up capital, by drawing on near-unlimited lines of credit from the world’s biggest banks, has long been a crucial element of oil trading. In the case of Russian oil, which Western banks now shun, it is no longer possible.
Price rises would alter the picture more drastically. Today Brent, the international crude benchmark, trades at $86 a barrel, down from an average of $100 last year. Russia’s weak negotiating hand and high freight costs mean that its “Urals” grade crude was being discounted even before the price cap came into place. As a result, a barrel of Urals, which flows from Russia’s west and makes up most of its exports, sells for below the price cap of $60.
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