EU Markets Still Insuring Sanctioned Russian Oil, Lawmakers Say

Ships illegally transporting sanctioned Russian oil are still operating with insurance ultimately backed by European financial markets, according to analysts and a lawmaker tracking the tankers.

Russia’s so-called shadow fleet uses intermediaries and, ultimately, “European and Western banking organizations” to channel money and “basically wash the insurance through these middle hands,” said Ville Niinistö, chair of the European Parliament’s Delegation to the EU-Russia Parliamentary Cooperation Committee and a leading lawmaker pushing for tougher action against the vessels.

The links expose a problem facing Brussels as EU governments prepare a 21st sanctions package aimed at the companies helping Moscow keep oil moving and fund its war on Ukraine. The infrastructure the bloc wants to shut down — including insurers, banks and maritime service providers — may still run through Europe’s own financial markets.

Russia has continued to export oil through a network of aging tankers, opaque ownership structures and alternative service providers despite successive rounds of sanctions targeting its fleet. While most Western insurers withdrew from Russia after Moscow’s full-scale invasion of Ukraine in February 2022, shadow fleet vessels have continued to obtain coverage through Russian insurers, shell companies and alternative arrangements outside traditional insurance markets.

“When you look at how Russia has developed alternative marine insurance arrangements for its shadow fleet, and the lengths it has gone to to keep oil moving through its logistics chain, it’s incredible,” said Michelle Wiese Bockmann, a senior maritime intelligence analyst at Windward. “It’s completely outside the general principles of rules-based order and maritime trade.”

Russia may not have the financial capacity to absorb the risks associated with the vast fleet it now depends on, according to an analyst at Deft9 Solutions, an intelligence firm that tracks shadow fleet activity.

“There are 1,700 ships, making voyages back and forth, and they need insurance every time,” the analyst said. The Russians “don’t have deep pockets right now.”

The liability exposure runs into the billions of dollars and some of that risk is likely finding its way back into European financial markets through reinsurance arrangements, secondary insurance structures and other financial products, said the analyst, who was granted anonymity because of the sensitivity of his work.

Tackling the circumvention of sanctions is a matter of priority, said a European Commission spokesperson who was granted anonymity in line with the institution’s rules. But it’s also "an ongoing process with new challenges, increasingly complex patterns and malicious actors emerging."

Insurance is one of the least visible but most important parts of the shadow fleet’s business model. Ships generally require protection and indemnity cover to operate and to access ports. Providing insurance for a shadow fleet vessel is generally illegal if the shipment breaches sanctions, including by transporting oil above the G7 price cap or involving sanctioned vessels.

But tracing the underlying sources of insurance and financing is difficult because ownership, management and financial arrangements are often deliberately obscured. The analysts POLITICO spoke with declined to identify the European banks that are likely underwriting the Russian insurance due to this complexity and the legal risk associated with naming them.

Targeting the enablers

The difficulty of shutting down sanctions-evasion infrastructure reflects the limits of the West’s efforts to strangle the Russian economy as its war on Ukraine enters its fifth year.

EU leaders are set to discuss the latest sanctions package at a summit in Brussels on June 18, with diplomats hoping to secure agreement this month.

“Undermining the Russian shadow fleet’s business model requires a ‘whole of route’ approach and coordination among Member States and with partners,” according to a draft summit declaration seen by POLITICO.

Officials working on the measures are “really getting into the pipes and the plumbing and the technical architecture that supports vessels involved in sanction circumvention and evasion,” said Windward’s Wiese Bockmann.

Russia has relied on what Wiese Bockmann described as “regulatory arbitrage,” seeking out jurisdictions with weaker oversight, permissive flag registries and compliant insurers to minimize scrutiny while continuing to move oil through international waters.

Some governments remain wary of the most aggressive measures. A proposal to ban certain maritime services for Russian vessels, which had been expected to feature in the 21st package, appears to have been pushed to the sidelines, according to one EU diplomat involved in the discussions, granted anonymity to discuss the sensitive deliberations.

Russia’s oil revenues

Supporters of tougher sanctions argue that targeting those arrangements is essential because oil exports remain the Kremlin’s most important source of wartime revenue.

“If we can better stop the circumvention of the sanctions and stop the extra income that Russia can get with the higher oil price currently ... we can further hamper their capabilities” on the battlefield, Niinistö said.

The Kremlin has been able to continue fighting its war on Ukraine “because unfortunately they continue to receive revenue from oil, that is the main source of Russian war chest,” said Ukrainian lawmaker Oleksiy Goncharenko. “The instrument is the shadow fleet.”

Analysts and Ukrainian officials also warn that the fleet presents growing environmental risks because many vessels are old, poorly maintained and operating with opaque insurance arrangements.