When tankers carrying Iranian oil take steps to obscure where that commodity originated or where it is headed, Claire Jungman and her team are watching.
The chief of staff at United Against Nuclear Iran (UANI), who also runs the organisation’s programme using satellite imagery to track tankers that carry sanctioned Iranian oil and petrochemicals, said the group sees ship-to-ship (STS) transfers practically on a daily basis.
In those operations, one vessel usually has on its AIS transponder.
“But the other one will have it off, or it’s tampering to make it appear like it’s somewhere else, and that makes it so they’re not going to pop up on different ship tracking platforms as engaged in a ship-to-ship transfer,” she told TradeWinds’ Green Seas podcast.
“We see this often — almost daily off Singapore and Malaysia and pretty much weekly in the Persian Gulf. And this is a way that they’re trying to evade the sanctions.”
After Moscow’s invasion of Ukraine more than a year ago, much attention has been paid to the risks associated with the shadow market of older vessels registered with lax shipping flags, and with unclear ownership and insurance, while carrying Russian energy exports in response to mounting sanctions.
But regulators are also grappling with the special risks of oil transfers at sea while carrying out “dark operations” like turning off AIS transponders or tampering with data to falsify a ship’s location.
And these manoeuvres are not new. STS transfers have been happening for years to get around sanctions against Iran and Venezuela, although more followed the February 2022 start of the war in Ukraine.
The Ukraine effect
Russia’s invasion of Ukraine was followed by multiple rounds of sanctions by the US, UK and the European Union, including the recent price cap that allows shipping to get involved with Russian energy exports, as long as the crude and oil products are purchased under the price cap.
And that has fuelled a boom in what some call “dark operations” that include STS transfers while shutting off AIS, as well as more sophisticated methods of hiding the location of tankers. That is in addition to the growth of a fleet of vessels operating in a world of lower safety and regulatory norms, as well as questionable insurance.
Those factors have compounded to raise the spectre of major oil spills, threatening the return of environmental catastrophes that had generally become a considerable rarity.
TradeWinds reported last week that the governments of several countries, including the US, the UK and Australia, have called on the International Maritime Organization to crack down on furtive STS transfers.
Increased risk
Those nations said moving oil from one vessel to another at sea while engaged in dark operations, such as turning off AIS transponders and location tampering, not only increases the risk of oil spills but also threatens global efforts to hold shipping companies liable for pollution incidents.
Mike Salthouse, head of external affairs for protection and indemnity club NorthStandard, said there is pollution risk in any STS transfer.
But he said they are carried out routinely in shipping, and there is a lot of experience in the industry on how to do them properly and in a safe location.
However, he said carrying out those transfers in remote locations while disguising them does enhance the risk of a spill.
Cargo laundering
“Why they might be happening in unsuitable locations away from the reach of coastal states might be because they are taking cargoes which are unlawful under Western sanctions, moving them across a number of vessels,” he said.
When the operations are carried out in unsafe locations, it is with the intention of eventually the oil winding up, after a chain of transfers, on a vessel whose operator may not be aware of the cargo’s real origin as crude that ostensibly did not come from Russia or Iran.
“You’re, therefore, laundering that cargo. All of a sudden it is moved from being unlawful cargo, as per Western sanctions, to a lawful cargo misdescribed on a respectable vessel everybody’s happy dealing with,” Salthouse said.
Then there is a risk that if there is a pollution incident during one of these transfers, the shipping companies involved in a covert operation will not want to own up to it.
Ami Daniel, chief executive of technology firm Windward, said his Israeli company is increasingly seeing what he describes as a “daisy chain” of STS transfers.
He said Russian oil might spend three months in storage on one vessel off Malaysia, then it will be transferred to another vessel off Indonesia, where it sits for a month before another transfer off the United Arab Emirates.
And if the oil gains $20 more per barrel in value, that could mean $15m to $17m in profit.
‘Very strong incentive’
“Fifteen million bucks of profit in these markets?” said Daniel, whose London-listed company provides its customers with tools to help them avoid inadvertently running afoul of sanctions. “Once you break it down like that, you understand that there is a very strong incentive to do these big daisy chains of ship-to-ship transfers.”
Meanwhile, masking the locations of vessels involved in oil transfers at sea has grown increasingly sophisticated.
Jungman said that after the Trump Administration put out an advisory in 2020 about deceptive shipping practices, including disabling AIS transponders, Iran upped its game, because ships could lose their flag state or insurance if they turned off their signals.
“There’s definitely been an evolution from disabling to now this manipulation, spoofing or tampering,” she said.
Spoofed loadings
And it is not just happening with STS transfers. She said 80% to 90% of vessels that load from ports in Iran are also spoofing or tampering with their AIS transponders.
“We also see it come out of Venezuela. A vessel will look like it’s anchored in Chinese waters but will really be at a port in Venezuela loading,” she said.
In addition to raising concerns over the dangers of furtive ship-to-ship transfers, a coalition of Australia, Canada, Denmark, Spain, Ukraine, the UK and US warned the IMO over the risk that “dark” practices could circumvent liability for an oil spill.
“Furtive ship-to-ship transfers at sea also undermine the fundamental principle of the ‘polluter-pays’ principle if the ships and shipowners involved cannot be identified and held liable for damage caused by the oil carried on board its ship,” they wrote.
That could created an increased risk that coastal states and the International Oil Pollution Compensation Funds (IOPC Funds) would have to foot the bill.
And as covert STS transfers have proliferated, the fleet of tankers involved in sanctioned trades has grown.
Much has been made of what is alternatively known as the “dark fleet”, “shadow fleet” or “ghost fleet” of ships that operate outside of global regulatory norms to carry sanctioned cargoes.
The recent explosion of the 96,800-dwt aframax tanker Pablo (built 1997) off Malaysia highlights the risk of such vessels. Its insurance coverage was unclear, and its beneficial owner is unknown. It had jumped from shipping to shipping flag.
Although some oil turned up on the shore of nearby Indonesia, a major spill was averted because it was not carrying cargo. The oil may have been its bunker fuel.
But there is also what is called the “grey fleet”, a term to describe the variety of circumstances in which ships get involved in Russian oil trades, since the price cap allows ships to carry such crude and oil products if they follow the rules.
Windward’s Daniel said the dark fleet is carrying 20% more barrels since the war started, and the grey fleet has seen 70% more.
“More work means more risk,” he said. “I think the longer this goes, the bigger the risk.”
NorthStandard’s Salthouse warned against terms like “dark fleet” or “dark operations” to describe the vessels and tactics that have proliferated following the Russian invasion of Ukraine. He said “dark fleet” is apejorative term that he says is used to sell sanctions compliance software or newspapers, but it is not necessarily unlawful to carry Russian crude, and some countries do not recognise the price cap.
What he sees instead is the emergence of a parallel fleet designed for a specific trade, and it has lower standards for safety and the environment.
Tough ask
Asked whether he sees a way to incentivise operators in this parallel fleet to improve those standards, the insurance executive said that would be difficult.
“They’ve deliberately put themselves beyond the reach of Western financial services, businesses and Western governments because they don’t actually want to improve the standards,” he said.
Sanctions are policed by punishing shipowners, banks and insurers who engage in that type of shipping, but he said even good companies can be tripped up.
“And the risk that we all run, whether you’re the good shipowner, the good P&I club or the good bank, is that there are simply occasions now where you get caught out — no matter how good your compliance processes are,” Salthouse said.
After all, he said, most shipowners and insurers want to do the right thing.
For Windward’s Daniel, the vetting that mainstream oil companies use to ensure tankers’ environmental standards is conservative and does not move as quickly as compliance risk.
His message to shipping executives?
“I think you should probably think above and beyond the vetting mechanisms,” he told the podcast.
Vetting plus sanctions risk
Sanctions compliance risk should be part of the vetting that is done for safety purposes, Daniel said.
UANI’s Jungman believes flag states need to do their due diligence. The group estimates that Panama, which has the world’s largest registry of ships, makes up 43% of ships suspected of carrying Iranian oil.
“There’s clearly some type of due diligence gap happening there, where they’re continuing to flag vessels transporting Iranian oil, and at the same time, of those 43%, numerous vessels are manipulating those transponders or disabling the transponders,” she said.
“We would like to see the flag states be held accountable or to take action on these vessels, which in turn will make it harder for the regime to transport this oil and sell its oil.”
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