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Sovcomflot Renames Sanctioned Tankers, Defies G7 Cap

Sovcomflot adapts to US sanctions by renaming tankers, highlighting challenges in enforcing G-7's $60 oil price cap.

By Barry Stearns

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4/30, 04:43 EDT
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Key Takeaway

  • Sovcomflot PJSC, under US sanctions, renamed 4 oil tankers after Russian cities and reflagged them from Gabon to Russia, enhancing operational certainty.
  • The move makes the vessels' associations with Russia more explicit amidst efforts to bypass Western sanctions.
  • Sovcomflot remains the largest owner of Aframax-class tankers, crucial for transporting Russian oil under sanctions.

Challenges in Enforcing Russian Oil Sanctions

The recent sanctions imposed by the US on Sovcomflot PJSC, Russia's state-owned oil tanker company, and the subsequent renaming and reflagging of its vessels underscore the complexities and challenges in enforcing economic measures against Russia. In response to sanctions, Sovcomflot renamed at least four of its tankers, switching their flags from Gabon to Russia, a move that not only signifies defiance but also aims to ensure operational certainty under the sanctions regime. This action highlights the adaptability of entities targeted by sanctions and raises questions about the effectiveness of such measures in isolating Russia economically.

Shadow Fleet Expansion and G7's Dilemma

The Group of Seven's (G-7) attempt to cap the price of Russian oil at $60 a barrel is increasingly proving to be unenforceable, as evidenced by the migration of approximately 800 oil tankers into a shadow fleet. This development, as reported by the International Group of P&I Clubs, indicates a significant evasion of the coverage by member organizations, thereby undermining the G-7's strategy to limit Russia's oil revenue. The shift to a shadow fleet not only challenges the enforcement of the price cap but also diminishes the influence of G-7 measures on Russian oil trade. With only 16% of Russian oil cargoes covered by International Group members as of April, the effectiveness of the price cap is in jeopardy, highlighting the need for a reassessment of the strategy.

Enforcement and Compliance Issues

The International Group of P&I Clubs has voiced concerns over the practical challenges in enforcing the G-7's oil price cap. The lack of a reliable mechanism to verify the authenticity of oil transactions at or below the $60 threshold complicates compliance efforts. This situation is exacerbated by the reported movement of Russian oil priced above the cap, casting doubt on the efficacy of the attestations required from firms transporting Russian oil. Furthermore, the criticism directed at the UK's sanctions enforcement approach by the International Group underscores the broader issue of expecting the insurance industry to act as an extended arm of sanctions enforcement. This critique calls for a more collaborative and effective international approach to sanction enforcement, involving dialogue with major buyers of Russian oil, such as China and India.