In response to Russia's invasion of Ukraine in February 2022, the international community swiftly imposed a range of economic sanctions aimed at restricting the Russian economy and limiting the country's ability to fund its military aggression. Among the most significant of these measures were sanctions targeting Russia's oil sector, a crucial component of the country's economy and a major source of revenue for the Russian government. In particular, the G7 group of nations, along with other EU countries, agreed on a price cap on the sale or purchase of Russian oil and petroleum products.

In an effort to avoid the price cap, and other possible sanctions, Russia has encouraged the creation of its own Shadow Fleet of limited lifecycle companies operating aging tankers, to hide the real trade in Russian oil. While some may be under direct if covert Russian control, many are owned and operated by opportunistic third-party operators, who can make large profits in trading Russian oil. To support this, an array of companies has sprung up to facilitate the trade, while also making it difficult to track activity, and therefore aid in evading sanctions.

The number of little-known trading firms relied on by Moscow to export large volumes of crude exports to Asia has mushroomed in recent months. Sanctions against Russian oil sparked major oil firms and commodity houses to withdraw from business with producers in Russia. As Western companies pulled out of Russian oil markets in the wake of the Russian invasion of Ukraine, this shadowy network of shell companies immediately stepped in to fill the gap.

The Shadow Fleet network is a shift away from the small number of well-established major oil companies that have handled Russian oil products for decades. Shipping data indicates over 40 middlemen and companies with no prior involvement in the oil business, handled Russian oil trading between March and June 2024.

These new companies have quickly become some of the world's biggest oil traders, shipping at least half of Russia's crude oil and refined oil on average in 2024, up to 6-8 million barrels per day, appearing after Russia's illegal invasion of Ukraine in February 2022.

## Bellatrix Energy

Bellatrix Energy is a prime example of a murky Shadow Fleet company. Sharing a name with an evil witch from the Harry Potter world, this company is practicing evil of a much more banal form.

Bellatrix Energy is controlled by Bilal Aliyev, an Azerbaijani who took control in the early weeks of the Russian invasion. According to the US Government, since the middle of June 2023, vessels chartered by Bellatrix have made more than 150 port calls in Russia. Since the invasion of Ukraine, Bellatrix has traded tens of millions of tons of crude oil and other products of Russian state-owned companies, and has received a loan worth hundreds of millions of dollars from a Russian state-owned bank. Bellatrix has also borrowed from the Russian Regional Development Bank, which OFAC (US Office of Foreign Assets Control) designated for sanctions on November 2 2023.

One particular example, shows the sort of methodology used to obscure the trade in Russian oil from detection by concerned authorities. In May 2023, a Liberian-flagged tanker (but actually part of the Shadow Fleet), the 'Leopard I' left Ust-Luga port in Russia, carrying 100,000 tonnes of Russian oil bound for India. The company who had ostensibly brokered the shipment was Bellatrix Energy, but not for long. Halfway on the journey, while still at sea, the oil changed hands. The new owner was now Guron Trading, another Hong Kong based company, and one which has also been identified and sanctioned for its part in obfuscating the trade in Russian oil. The exchange was clearly not a genuine business transaction, just a sleight-of-hand to confuse things. This web of transactions, with ownership changing hands in mid-voyage etc, is typical of the way Russian oil is currently being laundered through a series of shell companies and nominal owners, making it increasingly difficult to track the true origin and destination of the oil, thereby allowing Russia to continue evading sanctions while deceiving the international community about the extent of its oil exports. Bellatrix is just one such dirty company, serving the same dirty function as many others.

### Guron Trading

Guron Trading, based in Hong Kong, now operates the Liberian-flagged 'Leopard I'. The company was founded 12/20/2021, the website was removed in 2024. It is now available and displays little information, just that the company deals in the international oil trade.

## Are the Sanctions Working?

Russia's oil exports fell in 2024 but revenue rose by $3.8 billion hitting $192 billion. Thanks to the Shadow Fleet, Russian oil exports from all sea ports reached a multi-year high in April and May 2024 at nearly 4 million bpd.

In May 2024, Russian oil supplies to India, which was a rare buyer of Russian oil before the invasion of Ukraine, hit a record of 1.95 million bpd while China imported 2.29 million bpd. China and India have become Russia's biggest buyers of oil since sanctions were introduced by Europe and the United States.

Of the largest oil producers, only Lukoil continues to market oil through its trading division, which it relocated to Dubai. The other companies sell to the new trading firms, which are mostly registered in China, Singapore, Hong Kong or Dubai.

According to data, from March to June 2024 the top oil traders who purchased oil from Rosneft, Surgutneftegaz and Gazprom Neft were, Dubai-based Petroruss, Hong Kong-registered Guron Trading, Bellatrix Energy and Covart Energy, Dubai-registered Voliton, Demex Trading, Nestor Trading, Orion Energy and Singapore-headquartered Patera.

Some companies, such as Voliton, had no websites or contact numbers.

These emerging companies have been instrumental in maintaining, and increasing Russia's oil exports by facilitating the redirection of shipments from major crude producers like Rosneft, Lukoil, Surgutneftegaz, and Gazprom Neft to countries such as India and China.

## The Bottom Line

The data reveals a disturbing methodology, where companies with limited lifecycles are deliberately established to circumvent sanctions and facilitate the trade of Russian oil. These opaque entities are strategically set up in jurisdictions with lenient regulatory environments, such as the UAE's DMCC free zone. By leveraging a complex web of intermediaries and proxy companies, the true ownership and beneficiaries of these organizations remain obscured, making it exceedingly difficult to track the origin and destination of oil products. This cleverly designed system enables sanctioned entities to covertly continue trading oil, reaping substantial profits in the process.

The transient nature of these companies, which can quickly be established and dissolved, adds an extra layer of complexity to the already murky landscape. This makes it challenging for authorities to monitor the transfer of oil products and assets, as exemplified by the transfer involving the 'Leopard I' vessel, between Bellatrix Energy and Guron Trading. The use of such shell companies, with their short lifecycles, has become a key tactic in evading sanctions, allowing Russia to maintain a steady flow of revenue from its oil exports.

Ultimately this methodology has significant implications for the ongoing conflict in Ukraine, as it enables Russia to continue funding its aggressive military campaign. The imposition of sanctions was intended to restrict Russia's ability to generate revenue from its oil sales, thereby limiting its capacity to finance its illegal war. However, by exploiting loopholes and using clandestine networks, Russia has been able to evade these sanctions, ensuring a continued influx of funds to support its illegal invasion of Ukraine. As a result, the international community must adapt its strategies to counter these evasion tactics, in order to effectively curb Russia's ability to profit from its oil exports and ultimately bring an end to the conflict in Ukraine.

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How Russia is using limited lifecycle companies to minimize the risk of oil sanctions.

Russia's Secret Strategy for Oil Sanctions Evasion

Despite Western sanctions Russia's illicit oil trade continues to thrive with the Shadow Fleet playing a crucial role in evading the price cap. Sanctions imposed in December 2022 by G7 countries on Russia's oil trade intend to prevent Russia from earning money to fund its illegal war in Ukraine however Western governments report that Russia is operating a dark fleet made up of hundreds of old tankers whose ownership is deliberately obfuscated.

The Kyiv School of Economics estimated that the Shadow Fleet comprises over 400 ships capable of transporting oil allowing Russia to evade the sanctions which cap the price of a barrel at $60, limiting Russia's ability to generate money. The aging tankers are bought by non-transparent entities in countries outside the G7 such as the Marshall Islands or the United Arab Emirates and sail under the flag of countries like the Cook Islands or Gabon. Despite being named 'Shadow Fleet' the ships overtly stop at Russian oil terminals, clearly displaying their activity. Some of the vessels can be linked to Russia as with the ships owned by Sovcomflot. The Shadow Fleet's ability to operate with relative impunity has significant implications for the effectiveness of Western sanctions.

## Sanctions
The cap on oil prices means that companies cannot buy oil priced above the threshold and insurers cannot provide cover for ships involved in these practices. By capping the price of oil, it can still be provided to countries but Russia cannot make large profits on it, avoiding a gasoline crisis that would increase prices globally. The UN International Maritime Organization requires ships to have insurance and audits to ensure their safety. The Kyiv School of Economics reports that before the sanctions most ships were insured by International Group but since the sanctions the number of ships transporting Russian oil and insured by IG has decreased by 60%. To evade this, non-transparent entities in countries that don't adhere to sanctions such as UAE, India, the Seychelles, buy old tankers and insure them through non-Western or Russian insurance companies.

Western countries have sanctioned 270 ships operating in the Shadow Fleet and 183 more vessels have been added to the sanctions list in the last month. It is reported that approximately two-thirds of the ships have become idle, unable to operate which is costing large amounts of money for the entity that owns it ultimately meaning less money for Russia to fund its illegal war.

## Environmental Damage
A tanker carrying over 300,000 barrels of oil from the port of Vysotsk nearly ran aground in the Danish Straits in 2023. Aged 18 years the vessel posed a significant environmental risk as its advanced age made it more susceptible to accidents, potentially leading to severe ecological damage had it run aground. The clean-up would be costly, and due to the sanctions surrounding insurance of these vessels, it is unknown whether the ship's cover would be able to finance the cost. Many European countries now request insurance details from suspected Shadow Fleet ships which can be added to sanctions lists if they do not have correct insurance.

The recent disaster involving Volgoneft 212 and Volgoneft 239 on December 16 2024 further highlights the danger of these aging ships. During a heavy storm Volgoneft 212 split in half and Volgoneft 239 ran aground causing oil to spill in the Kerch Strait, which could be one of the worst ecological disasters the region has seen in years. The ships are over 50 years old and it is clear that they are not maintained to safety standards. As a result, dead birds were filmed on the beaches nearby. Russia's continued operation of aging and damaged ships highlights the country's disregard for environmental protection. Russia's prioritization of oil profits to fund its ongoing conflict, is coming at the expense of both human well-being and the well-being of the environment. This raises questions about the long-term consequences of Russia's actions and the potential for devastating ecological damage.

By operating these aging, damaged ships, Russia continues to carelessly destroy the environment, thinking only about its oil profits to fund its illegal war and not about the well-being of people or the environment.

## Sabotage
On December 25 2024 an undersea power cable and 4 data cables were severed, disrupting the supply of electricity from Estonia to Finland. Finnish police seized an oil tanker registered in the Cook Islands suspected of being part of the Shadow Fleet. It is reported that Eagle S dragged its anchor along the seabed to damage the Estlink 2 cable that supplies electricity to Estonia from Finland. It was only just stopped by Finnish defense forces before it would have hit further critical connections.

The damage to the Estlink 2 cable is the second time vital undersea cables between NATO allies have been damaged in 2 months. In November China-flagged bulk carrier Yi Peng 3 dragged anchor to damage the C-Lion 1 communication cable connecting Finland and Germany. The ship spent over 4 weeks in international waters in the Danish Straits as officials investigated.

This has triggered the Joint Expeditionary Force (JEF), a group of 10 European countries to launch an operation dubbed 'Northern Warden', to begin real-time monitoring and warning dissemination to JEF and NATO countries and allies about possible threats to ensure the safety of undersea infrastructure.

The Shadow Fleet's involvement in such activities underscores the need for increased vigilance and cooperation among Western countries to counter Russia's illicit activities. The Shadow Fleet's sabotage incidents have significant implications for the security of undersea infrastructure and highlights the need for a coordinated response to address these threats.

## Russia's Invasion of Ukraine
Despite the price cap, Kyiv School of Economics estimates that Russia earned an extra $9.4B throughout 2024. Sanctions experts say that the price Russia gets for its oil has increased, and the reduction it sees overall is now less than $10 per barrel, which has allowed Russia's oil profits to steadily increase.

In light of the political distractions and uncertainty in Western states' commitment to Ukraine, Russia will continue its campaign to bomb Ukrainian cities and critical infrastructure into submission. Despite Russia's overall poor economic performance since the beginning of the invasion, the $9.4B generated illicitly over the course of one year significantly reduces the severity of its economic problems. Russia's ability to resource its illegal war in Ukraine, through grain theft, sanctions evasion and obfuscated oil transactions, will continue unabated unless further pressure is applied to the Shadow Fleet.


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Exposing Russia's tactics to evade oil sanctions and fund its illegal war in Ukraine.

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