Rising oil prices throw Putin’s shadow fleet a lifeline

PARIS — The rising price of oil is undermining the European Union’s efforts to rein in Vladimir Putin’s shadow fleet of sanctioned oil tankers.

Russian oil is in high demand as the war in the Middle East and tensions around the Strait of Hormuz tighten global supply, sending benchmark crude prices above $100 per barrel on Monday.

That risks weakening a central plank of the EU’s efforts to cut off funding for the Russian president’s war in Ukraine: making it harder and more expensive for Moscow to export oil through a network of aging vessels operating outside the Western shipping system.

EU countries have already sanctioned hundreds of tankers and are working on new measures aimed at the insurance, crewing and other maritime services that allow those ships to operate — tools Brussels hopes will make the shadow fleet increasingly costly and difficult to run.

But a tighter oil market means buyers may still be willing to purchase discounted Russian crude. As prices rise, the financial incentive to secure cheaper Russian barrels grows, offsetting the higher risks and costs associated with sanctioned ships.

The demand is expected to be driven by Asian countries like China and India — the world’s first and third-largest importers of oil — which rely heavily on Middle Eastern supplies and are likely to turn to Russia to make up for any shortfalls.

Indian refiners have already reportedly moved to buy more Russian crude after the U.S. temporarily eased pressure on the South Asian country by allowing purchases to resume last week.

India imports, on average, 10 million metric ton of crude oil per month through the Strait of Hormuz, said Vaibhav Raghunandan, an EU-Russia analyst at the Centre for Research on Energy and Clean Air. “Even if half of this volume is replaced with Russian volumes at sea, it will translate to huge profits for the Kremlin.”

The shift comes after millions of barrels of oil were stranded at sea last week as escalating tensions blocked the Strait of Hormuz, a maritime choke point through which a fifth of the world’s oil and liquefied natural gas flows.

Meanwhile, around €1.3 billion of Russian crude is currently at sea looking for buyers, Raghunandan estimates.

Sanctions stall

The market squeeze also comes at a difficult moment for Brussels. The EU is trying to push through a new sanctions package aimed at tightening restrictions on Russia’s shadow fleet — including limits on maritime services — but the proposal is currently stalled after Hungary vetoed the plan.

The shadow fleet includes hundreds of aging tankers used to transport Russian crude outside Western oversight.

Last month, President Donald Trump announced a trade deal with Indian Prime Minister Narendra Modi that included a commitment from New Delhi to halt purchases of Russian oil in exchange for reduced trade barriers with the United States. | Andrew Harnik/Getty Images

EU foreign policy chief Kaja Kallas warned last week that rising oil prices risk boosting Moscow’s war effort. “When the oil price goes up, it actually benefits Russia to fund its war,” she said, making the case for the maritime services ban at a virtual meeting of EU foreign ministers.

Malte Humpert, founder and senior fellow at The Arctic Institute, said a prolonged Iran–U.S. conflict would likely benefit Moscow by pushing energy prices higher.

“Rising prices for sure,” he said, noting that Russian oil and gas revenues have been declining in recent months. 

“The question is how long the Hormuz situation is going to last,” he added. “If this is over in a week, the effects are probably negligible. If this continues for a few weeks … especially as we’re getting into the summer months, that’s when exports really pick up again from the Russian side.”

Humpert argued that supply disruptions “always favor the seller who can deliver on time, reliably and discounted.”

India has been a key buyer of Russian crude since the start of the war in Ukraine, though purchases had recently declined under pressure from Washington.

Last month, President Donald Trump announced a trade deal with Indian Prime Minister Narendra Modi that included a commitment from New Delhi to halt purchases of Russian oil in exchange for reduced trade barriers with the United States.

Before that, Indian ports had become a major destination for tankers carrying Russian crude that were shut out of Western markets by sanctions.

Last September, the Boracay, a ship under EU sanctions carrying approximately $100 million in Russian oil, was boarded by the French navy, which found two Russian crew members presented by her captain as “security agents” on board. 

Upon the ship’s release, it went on to the port of Vadinar in western India, home to an offshore oil terminal that supplies local refineries, maritime traffic data shows.

Elena Giordano contributed reporting to this article.