Illicit Trading and the Tanker Fleet Divide
The illicit trading debate in shipping sharpened this month, with the U.S. Senate introducing the SHADOW Fleets Act to impose new sanctions on Russia’s “shadow fleet.” If passed, the measure would extend penalties to vessels, operators, and possibly insurers facilitating Russian crude exports above the G7/EU price-cap threshold, and it also targets Russian Arctic LNG and new LNG project development. This builds on a wave of designations by the EU, UK, Canada, and Australia, reflecting a clear escalation in efforts to choke off Moscow’s maritime revenue streams. This week, Allied QuantumSea Research highlighted the shadow fleet’s ongoing growth, as the U.S. sanctions package remains under negotiation.
Narrowing Discounts, Shrinking Room for Policy
Since August, Urals crude has been trading between US$61 and US$65 per barrel, compared with Brent at US$65–69. China remains the largest buyer of Russian crude, while India has emerged as Moscow’s key secondary outlet. In response to India’s continued purchases, U.S. President Trump launched a pressure campaign, arguing that reducing imports would help force Moscow to end the conflict. After New Delhi refused, Washington imposed a 50% tariff on Indian crude imports effective August 27. Despite the move, India has maintained its buying. Meanwhile, Ukrainian drone attacks in September disrupted Russian exports and raised the risk of production cuts, forcing Moscow to redirect shipments through western ports. New restrictions on sanctioned tankers have further complicated flows. In July, the EU and UK introduced a floating price cap set 15% below the average market price, currently around US$47.60 per barrel, well below the G7’s US$60 ceiling established in December 2022.
India: Russia’s Lifeline and the West’s Loophole
Since 2022, Russian crude has risen from negligible levels to nearly one-fifth of India’s total imports, making India a critical outlet for Moscow’s barrels. These flows move both through direct contracts with Indian state refiners and through intermediaries operating out of trading hubs such as the UAE, Singapore, and Hong Kong.
India’s refining system provides a natural fit: its complex plants are designed to process heavy, sour grades like Urals, making Russian supply both technically suitable and cost-effective. But the impact goes beyond India’s domestic market. Refined products such as diesel, jet fuel, and gasoline made from Russian crude are reaching markets including Europe and the United States, according to trade flow data, effectively recycling sanctioned crude into Western supply chains.
This dynamic makes India both a vital lifeline for Russian crude and a workaround for Western sanctions, sustaining long-haul tanker demand into Asia while also channelling refined products back into the Atlantic Basin.
The Shadow Fleet’s Expansion
To sustain these flows, Russia has leaned heavily on a parallel tanker universe. The so-called shadow fleet now accounts for about 19% of global oil tanker capacity, a share that is not only Russia but also reflects use by Iran, Venezuela, and other opaque operators, or about 980 ships, according to S&P Global. Most are old and uninsured, often operating under opaque ownership; they turn off transponders and conduct offshore ship-to-ship transfers to obscure cargo origins. Despite stepped-up sanctions enforcement, the fleet keeps expanding, offsetting Western efforts to constrain it.
A Three-Tier Tanker Market Continues
The sanctions regime has fractured the global tanker market into three overlapping tiers, reshaping both freight dynamics and regulatory risk. The Cleared Fleet remains the benchmark segment, operating under Western insurance and classification with transparent ownership and generally younger tonnage, which keeps financing and chartering costs comparatively low. The Grey Fleet straddles a precarious middle ground. While it moves sanctioned cargoes such as Russian or Iranian crude, it still leans on Western services by providing attestations of compliance with the price cap. The Shadow Fleet, by contrast, operates entirely outside Western oversight. Comprising older vessels with opaque ownership, no access to mainstream insurance, and routine AIS manipulation, it has become the backbone of Russian flows to China and India. Yet, its expansion introduces systemic hazards: higher accident and pollution risks, greater exposure to secondary sanctions, and a parallel logistics chain increasingly embedded in the global oil trade but largely insulated from Western influence.
More Sanctions
In September 2025, the European Commission proposed its 19th sanctions package against Russia. Among the measures is a plan to ban all Russian LNG imports by January 1, 2027, accelerating the phase-out schedule previously set for the end of 2027. The package also seeks to add about 118 vessels from Russia’s “shadow fleet” to the sanctions blacklist, bringing the total number to over 560. The EU continues its existing $47.60-per-barrel oil price cap (from its 18th package) on Russian crude, while the 19th package would impose new bans on transactions with major energy firms Rosneft and Gazprom Neft, and target banks, service providers, and other networks helping Russia evade sanctions. These measures are currently at the proposal stage and require unanimous approval from EU member states before they can enter into force.
Key Takeaways
The U.S. Senate bill underscores Washington’s determination to widen the divide, extending penalties beyond Russia’s tanker fleet to the global networks that sustain it. The EU’s reduced oil price cap reinforces this pressure, though its effect is limited as Urals continues to trade above the ceiling. What emerges is a fractured tanker market. The split between clear, grey, and shadow fleets is no longer just about shipping, it reflects deeper divides that carry direct implications for freight costs, regulatory risk, and long-term fleet management.
Data Source: Allied