The energy world is
completely turned upside down by Russia's invasion of Ukraine. We see the rise of what's
called the shadow fleet. New ship owners, new shipping companies that we've never encountered before. The sanctions that have been
taken are effectively being dodged by those that are
willing to actually participate. Russia has dethroned Saudi Arabia as among the biggest suppliers. So that is how significant
Russia has become. This is a trade that's made
billionaires in the process. Even the most conservative
estimates we have would suggest that at least $5 billion a year
are going into this shadowy trade to people. We don't know who, but we think
much of it is funneling back to Russian interests. It's an incredibly difficult problem for politicians in the
West who are terrified that electorates are going
to be pushed over the edge by higher energy prices. To actually see clandestine behavior was really surprising. That makes you think, well
what else is going on? This is a story that
starts in the corridors of power in Brussels, in
Washington, in the Kremlin, goes through the trading floors of Singapore and Dubai, where we are
seeing these shadowy middlemen emerge, and ultimately out to the very opaque world
of global shipping. Europe has relied for
decades on Russian gas and Russian oil to keep its economy going, and all of a sudden people are saying, we can't allow this to continue given that Russia has launched
an unprovoked, illegal attack on a European country. The European position quickly becomes, we should stop buying Russian oil and gas. But people also always realize that that's gonna force up the price. So this is the genesis of the
whole idea of the price cap. The price cap is a
mechanism that is supposed to ensure that the price of Russian oil doesn't get too high. It is supposed to deprive Russia
of revenue at the same time as allowing Russia's crude to flow. If you pay $60 a barrel, you
can use Western services. That means Greek oil tankers. That means insurance from
London, Bermuda, New York, and if you pay $60 and 1 cent, you can't. They wanted to keep oil flowing, but they wanted to
reduce Putin's revenues and that's a really
difficult balancing act. That's why it's such a
interesting, bizarre idea and why so many people
thought it would fail. In the first four months of the year Russia's budget deficit was
bigger than it was supposed to be for all of 2023. So at least for the first
six months of the year the price cap was working as intended. Then as the summer wore on you saw the price cap being breached. Russia's oil exports
stretch into the many, many billions of dollars a year. What you have are two main prices. You have a price at the point of export, and you have a price
at the point of import. Since the war, the export
price has been much, much lower than the import price. And what that has done is created a huge slug of money that is going we don't know exactly where. You have to remember that the price of Russian oil all over the
world is above the price cap. So how can any ship be truly legitimate? So you've got a policy
which is doing very little to constrain the flow of
money into the Kremlin, but has created this shadowy world which is funneling billions
of dollars to a network of ship owners and traders
who we know very little about. Yeah, of course there are rules and you're supposed to follow them, but the reality is people
are turning a blind eye. Once this policy came into place, the energy world was quickly reorientated. We see the rise of what's
called the shadow fleet. Russian shipping companies
were buying old rusty tankers that really should have been retired and and buying them up at a rapid clip. The shadow fleet is
essentially several hundred ships that have been acquired
by, we don't know who, for the purpose of
transporting Russian oil. A very large part, probably
most of the fleet, has some kind of shadowy component, whether
that's insurance, whether that's who owns the ship, whether that's who operates the ship. Very often there will be something
about it that is unclear. What's happening is that Russia
will get its oil from its ports and take it to a bay
in southern Greece from where it gets transferred
onto other tankers which then transport
the same oil all the way to the buyer countries,
often China and India. So we know from tracking
this shadow fleet of tankers that a lot of them are heading to this bay in southern Greece. We don't know exactly what they're doing, but we know there's some
transfer of Russian oil, and what we wanna do is head down there and find out exactly what they're doing. The shipping industry has been around for a long time, right? It's one of the oldest trades out there and these guys are very, very resourceful. Russia still needs to get
its oil to China and India, and that's why we are leaning very heavily on this shadow fleet to bring
that oil to the customers. So what actually happens
is that like say China and India, they buy the
cargo on a delivered basis. You can kind of give
different valuations as to how much the freight would've cost. There are many miscellaneous
expenses in between that can be inflated or
deflated, whichever way you want. And you can then get under the price cap because we all know that
there are many ways to slice and dice a price. Chinese refiners are taking
in as much oil as they can, and right now we are looking
at an average increase of about 25%. And for India this increase is even more significant, right? Because India used to take
almost no Russian crude before the war, and right
now it is taking between 1.5 to 2 million barrels a day. So you take your Russian oil and you send it to a refinery in India, you turn it into gasoline. Now, according to all
the rules and sanctions and the way the industry works, the moment it's gasoline, it's not Russian. Now a lot of that will be used in India, but India has also emerged as
a place where it exports a lot of that fuel back to Europe. So in that sense, there's
another way in which Russian oil is flowing freely
into the global economy. People, traders are making
money on it from it. Indian refiners are making money for it, and Russia's making money for it. It's extremely difficult
for anybody seeing the amounts of money being lavished on
people who undertake these trades to encourage them to become involved. We are self-regulated industry.
This is half the problem. You know, when you
don't know the source of the interest you have
for chartering, buying, or doing a ship. You know if there's a
premium being paid, you need to be on guard,
and people are not on guard. They're actually actively
undertaking those businesses. It's gotta stop. There are new brokers, there are new traders appearing. There are an awful lot of the big houses, the ship broking houses,
who have offices in Dubai who we know are actually
creating cells to operate from. So they try to distance
themselves further. No, I'm not gonna point fingers. You go into a restaurant,
you go into an elevator, and Russian is oftentimes
the main language you'll hear. Dubai has always been a place of wealth and where people like to splash their wealth
in an extravagant spot, but it's certainly picked
up to another level in the past couple years. Dubai has won over a lot of
the entities that perhaps, their ultimate beneficial owners, previously had companies in
Geneva or London or Singapore. And those same...
some of those same individuals have since shifted their operations to Dubai. They're moving teams, they're
creating new companies, and Dubai has been the main base. They're also masking
the ownership structure of their companies to try
to minimize the likelihood that their ultimate beneficial
owner could be under sanctions or could face
legal repercussions. The oil industry has always
been full of middlemen. It's easier for a refiner,
for example, in China to go to a trader they know and say, ‘I need a
cargo Russian oil’ than it is to pick up the phone and phone Rosneft. And so those middlemen
have always existed, and they work for some
very, very big companies. Now, those traders in the
aftermath of the invasion they didn't really want to
be a part of Russian oil. There's a new group of brokers,
a new group of middlemen which has emerged very quickly,
many of them based on Dubai. Dubai being a jurisdiction
which has been pretty happy to host Russians, keep
doing business with Russia. And we've looked at many
of these traders, whether or not they are... The people
on paper are the legitimate owners and ultimate beneficial owners of these companies or not. But there's a lot of
people who’ve figured out how to make money out of this. So for a single cargo,
the trader in theory, is making 10 or $15 million. This is a trade that's made
billionaires in the process. The chief concern from Washington,
for instance, is how much of the windfall is actually
going back to Moscow? How much of it is ultimately
is going to the Kremlin to fuel Russia's war efforts? So we are here in the Gulf of Lakonikos. We've spent over two
hours coming here by boat, and we are here to check out a hub of Russian oil trade. Can we get a view of those ships there? So over there we've got two oil tankers. They're transferring oil
between, from one to the other. A ship-to-ship
transfer works where these ships will come with cargoes
from Russia, millions of barrels of oil each
month are getting transferred. Another ship will come alongside and then spend a couple of days just transferring the
cargo from one to the other. This right here is the shadow fleet. You've got two tankers that
the owners aren't clear. The insurance isn't clear in terms of the depth of the insurance. The flag is as bad as it gets. These are shadow fleet tankers. When we came around that bay, I was expecting to see some tankers. We've seen them on
satellite tracking systems. What I really wasn't
expecting to see was one of the most notorious
vessels in the global fleet sitting alongside another
tanker when we couldn't see it on global tracking systems. You can see that there
are two tankers there, black one called the Simba,
and a red one called the Turba. Now, if you look on here, this
is a global tracking system and it shows you its
automatic identification system signal, and you can only see one ship. That ship is the Simba, not the Turba. If you look further you will find that the Turba is about
seven kilometers away, and it has been giving a signal. There's a name for this kind of behavior, it's called spoofing.
And what that means is that you alter the AIS system
so that the signal appears to be somewhere that it isn't. Somebody is doing something to make
that ship appear somewhere else. Honestly, we don't fully
know why they're doing it but what it does mean is that there's a degree of separation. A trader may not be completely comfortable with taking delivery of oil
that has originated in Russia and may just want to hide
that so that they can kind of just get it imported
without too many questions being asked. To see that and to see that against
the tracking that we have, was really shocking and it made me wonder about everything else. The dark fleet's growing and growing, and of course the price
of oil is now above $90. So it's a bigger and bigger gap from where the price cap was. So actually what's happening is the amount of illegal trading is creating
a better result for those that actually are utilizing what they're actually creating
in terms of all sales. Do sanctions work? Well,
they don't work frankly, unless the culprits are being apprehended. So I'm afraid to say the
sanctions that have been created are largely ineffective as a consequence of that. Or put it like this, people
are, as I said earlier, dodging those sanctions. They're finding a way around them. China and India have pretty much set up an entirely different
supply chain to ensure that Russian crude continues
to flow, whether it's below the price cap or
above the price cap. So these two countries have
created their own kind of a separate ecosystem that's outside of EU or Western services. So therefore, the price cap doesn't
really affect crude flows as much anymore because the two biggest customers
of Russian crude have kind of found a very viable
way around the system. The oil is flowing. We've got a very willing seller in Russia. We've got very willing
buyers in India and China. And we've got the middlemen, the middle people, who can make it happen. When I look at that
hull, it's very, very rusty. It isn’t looking in great condition. You've gotta keep in mind
that tanker is supposed to carry a million barrels of oil. You know, that's a risky ship, and the the red one is even older. Now, what you need to know
about the Turba is that it's one of the worst tankers in the fleet. It should have been decommissioned by now. It's coming to the end of
its useful trading life. It's come, it's gone beyond the end of its useful trade in life. If you look behind me, you
see a beautiful village, which is clearly dependent on
tourism, lots of restaurants, hotels, there's fishing in the area. Now those industries don't need
to see an oil spill, right? The last thing they need
to see is an oil tanker, a rusting old oil tanker,
leaking its cargo into this gulf and at a huge environmental cost. And you have to remember,
it's not completely clear that any insurance company
is truly going to be able to pay out to cover the compensation that these people would need
if something were to go wrong. Actually, my concerns are
that there's gonna be accidents, and they're gonna be
big and nasty accidents and innocent people are gonna get hurt. You know, we have 600, 700 ships, over 10% in certain size
categories of tankers, which is now in the dark fleet. That's a huge percentage. And I think that that's
a major concern, frankly, to other seafarers and to other people who are bumping up against this, this fleet. This architecture of the shadow fleet that we've described, this
community of shadowy oil traders that we've described, it's working, but what are people paying? They're paying more than they were because as people get more comfortable with this new architecture, there are less reasons not to do it. And there is a lot of evidence that a lot more oil is
trading above the price cap. It's a much more difficult challenge to control this shadow fleet. These are not businesses that
are subject to Western rules. What can the US do to tell
somebody in a foreign country with no links to the US that it... they can't transport oil? It's a very difficult situation. What I do know is that
nobody does anything about it, and that is, I'm afraid to say,
my biggest bug bear with this. And I do point finger at the authorities to be frank with you. What's the point in having sanctions unless they're going to
be properly implemented? The US did sanction a
couple of very small entities, but it's pretty small in scale compared to the scope of the problem. I think a lot of people will
be looking for them to do more, and the suspicion will
remain that the thing that they really care about
is keeping the oil flowing. When they agreed the
price cap, they agreed to review it regularly,
and it has been reviewed, but as it's been described to me, EU member states get in their
room, they're shown a bunch of graphs, and they say,
yes, the price cap is working and it has not been lowered. I think there's nervousness
about rocking the boat and you know, I don't think
anyone wants to do anything that might feed into
inflation across the world. Everybody globally understands that Russia is a very big producer of oil, is a very big exporter,
and we need its oil. I think the last thing that
any consumer across the world would want is for Russia's oil supply to be cut off. This was, in a sense, an
attempt to have your cake and eat it. To have a sanctions
regime that punished Russia but didn't harm the global economy. Now it's succeeded in one sense,
that the global economy has its problems, but oil prices aren't a huge part of that right now. But on the other hand,
it's not punishing Russia. But it shows that sanctions
have unintended consequences, and those unintended
consequences can be unpalatable. There is every incentive to cheat. The penalties are tiny, so
they clearly want this to flow. They clearly want the oil to flow. There is clearly a real
desire from the G7 to prioritize the flow of petroleum. That's just reality. There's no doubt if the
oil price continues to rise and the oil continues to flow and more that oil trades
above the price cap, then that means more money for the Kremlin, and the Kremlin will use a
lot of that money to buy arms and to pay soldiers.
