Russian crude drives dark fleet demand

Dark fleet tankers and risky Suez transits are having little impact on India’s soaring imports of Russian crude, now running at 20 times the volume shipped prior to the invasion of Ukraine.

Analysis by New York broker, Poten & Partners, has revealed that Indian imports of heavily sanctioned Russian crude have increased to almost 1.8 million barrels a day (bpd), up from just 88,000 bpd prior to the invasion in February 2022.

At that time, Russia ranked ninth on India’s list of oil suppliers, with Iraq, Saudi Arabia and the UAE supplying about 60% of the country’s crude. The three Middle East nations were followed by the US and Nigeria.

Prior to the invasion, Russian crude had not been attractive to Indian refiners because of logistical constraints. None of Russia’s main export ports in the Baltic, the Black Sea or the Far East can load VLCCs, Poten pointed out, so Russian cargoes were shipped aboard Aframax and Suezmax tankers.  

However, the picture changed dramatically following the 2022 invasion when western nations imposed sanctions on Russian crude. This was largely driven by price. Until the invasion, ‘Dated Brent’ and Urals crude had traded broadly in parity but, following sanctions, ‘official’ Urals prices were an average of US$10-20 lower. Since deals involving Russian crude are shrouded in secrecy, Poten’s analysis has revealed that actual discounts could be much higher, possibly as much as US$40 a barrel.  

Much of the new Soviet crude was bought based on spot prices and arranged by Russian oil traders, many of them in Dubai, who charge ‘significant commissions’ for their services. But over recent months, the discount of Urals to Brent crude has narrowed, making the crude less attractive.

Meanwhile, the tanker trade from Russia to India has become more challenging, Poten said. Sanctions now restrict the use of Western shipping services including owners, brokers, and insurers when the Soviet crude price exceeds the ‘price cap’ of US$60 per barrel. This has forced Indian importers to rely on tankers in the so-called dark fleet – ships that may be old, poorly maintained, with dodgy crews and questionable insurance cover.

The dangers of the dark fleet have been highlighted by the recent collision between the Sao Tome and Principe VLCC Ceres I and the Singapore-registered product tanker Hafnia Nile, where the VLCC later attempted to flee the scene of the accident.

The US and EU are trying to ‘tighten the noose’ around these sanctions-busting shipowners. The availability of suitable ships could soon become a problem, possibly even limiting Russia’s export possibilities. At the same time, conflict in the Middle East is making this worse.

The dark fleet tankers on the route from Russia to India often take the shortcut through Suez, Poten said, even though the Houthis are increasing their strikes against ships in the Red Sea and Bab Al-Mandeb Straits. But the voyage round the Cape takes far longer and is much more expensive.

Despite these setbacks, Poten reports that Indian refiners are now in dialogue with Soviet suppliers on term deals, rather than spot contracts. This could reduce transaction costs by cutting out the middlemen.

“It would also suggest that the boost in ton-mile demand that has helped trigger the sustained increase in tanker rates may be here to stay,” Poten concluded.  

Courtesy: Seatrade Maritime News