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  1. The Weekend Report
20 January 2024

Revealed: how the City of London keeps Putin’s oil flowing

The Russian war machine is being helped by British companies.

By Will Dunn

Take a pair of binoculars to the white Dover cliffs this weekend and you’ll see the tankers as they enter the English Channel. Myra, which entered the Dover Strait on Friday, is typical: her 228-metre-long hull is painted a dull red, streaked with rust. Below her bridge, in letters easily 10-feet high, is painted the command “NO SMOKING”; she can carry half a million barrels of oil. Myra sails under the flag of Panama, but her owners are in Dubai. She is insured in the US but her cargo was loaded at Primorsk, on Russia’s Baltic coast.

Oil tankers have a commercial life expectancy of around 25 years, of which Myra – built in 2006 – has already done a busy 18; she covered 94,000 nautical miles last year. Similar tankers pass within a few miles of the English coast on an almost daily basis, carrying crude oil and oil products from Russia to refineries in Turkey, India and China. Our navy watches them go past, and in London, beneath the noses of our regulators and politicians, businesses quietly profit from the trade that finances Vladimir Putin’s brutal war in Ukraine.

On Leadenhall Street in the City of London, between a steakhouse and an optician, a small office building is home to the International Group of P&I Clubs, an association of specialist maritime insurance companies that collectively underwrite 90 per cent of the world’s ocean-going cargo. The business of transporting millions of tonnes of crude oil by sea is fraught with risk, and specialised protection and indemnity (“P&I”) insurance is required. The “clubs” that provide it are mutual associations that share risk among shipowners and operators. 

Data shared exclusively with the New Statesman reveals that since the Russian invasion of Ukraine, UK-based P&I clubs have insured more than €120bn in Russian oil and oil products.

The analysis, drawn by the Centre for Research on Energy and Clean Air (CREA) from publicly available data sets, shows that the UK has become the world’s biggest insurer of shipborne Russian oil, and that the Russian oil trade “remains highly reliant on vessels insured in the UK”, which have transported a third of Russia’s ocean-going energy exports (by volume) since sanctions were imposed at the end of 2022.

There is no suggestion that any of the P&I clubs have done anything illegal, but some are insuring more Russian oil shipments than others. A single UK insurer, West of England P&I Club, has insured more than €20bn in Russian oil since the Ukraine war began. In November alone ships insured by another UK P&I club, NorthStandard, transported €1.2bn in Russian crude and oil products.

As previous analysis by CREA has shown, this oil is refined in countries such as India. It might arrive as Russian oil at the giant Vadinar refinery in Gujarat, which can process 20 million tonnes of oil per day and is owned by a consortium led by the Russian state oil company Rosneft, but it leaves as Indian diesel, ready to power the Volkswagens and Vauxhalls of the West. By the end of last year, Europe was buying Indian diesel at a rate of more than 300,000 barrels a day.

For a ship carrying a cargo of Russian oil – which could be worth tens of million dollars – to be insured by one of the P&I clubs, the company operating it must provide an attestation to the insurer. This is a written guarantee that the oil has been purchased at less than the price cap ($60 a barrel for crude oil, $100 for diesel) set by G7 countries as part of their sanctions against Russia. In reality, these attestations are little more than letters, and their power to enforce sanctions is questionable.

When the price of Urals crude (Russian oil for export) rose above the $60 price cap last summer, shipping companies should not have been able to provide attestations that the oil they carried had been sold below that price, but a great many did. Michelle Wiese Bockmann, principal analyst at Lloyd’s List Intelligence, tracked 300 tankers that took on oil from Russian ports from September through November. While reporting agencies put real prices at over $80 a barrel, 137 of these ships provided Western insurers with documents that claimed they’d bought below the $60 cap. “How did that happen?” she asked me, before answering her own question: “Nobody was scrutinising these attestation documents.”

Isaac Levi, a specialist in the analysis of Russian oil flows at CREA, agrees that “Russian oil has consistently been traded above the oil price cap”, which shows that “the policy is not being monitored and enforced properly". British companies are “helping Putin export his oil”, Levi said.

Another way around the sanctions is simply to ignore them. Following the Myra through the Channel this week was the Mystras, sailing under the flag of Gabon. The beneficial owners of Mystras are unknown, but it is operated by Buena Vista Shipping, which is registered to an apparently unoccupied office (according to a recent investigation by the Financial Times) in a dilapidated shopping mall in Mumbai.

The Mystras is a member of the “dark fleet”, which Bockmann says has grown to around 560 tankers, representing almost 80 million tonnes of capacity. These are typically old ships, owned by companies whose owners are invisible and whose funding is unexplained, registered in opaque jurisdictions such as Panama or the Marshall Islands, and used almost exclusively to transport Russian oil. Their numbers grew rapidly after Russia’s invasion of Ukraine, allowing the Putin regime’s main source of income to proceed unaffected. They did so with the help of lawyers, brokers and insurers in the City of London.

Further along Leadenhall Street, and much higher up – on the 44th floor of its most recognisable tower, the “Cheesegrater” – the brokers of Affinity Shipping trade in the vessels that move goods and commodities across the world. In September last year, Affinity’s managing partner, Richard Fulford-Smith, broke his industry’s silence on the dark fleet when he spoke out against the growing number of participants in the shipping industry who have made tens of millions in additional profit by selling old tankers, at inflated prices, to new companies that sprang up in Dubai or Hong Kong.

In the shipping industry, Fulford-Smith told me, the fact that businesses in Nato countries are still profiting from Russia’s dark fleet is an open secret. “Everybody knows. But nobody really wants to talk about it.” The trade is so lucrative that Fulford-Smith has had to explain to his own brokers that under their company’s corporate governance, they cannot participate in a market from which some of their competitors are reaping rewards. Affinity, he told me, requires “proper knowledge” of the source of funds for a ship and its intended trade. The offer of “big, premium prices from unknown, often Dubai-based cash buyers” should be an immediate red flag for any compliance team.

But these are warnings others seem able to ignore. Another source, who asked not to be named, told me that a broker working at another London firm could be overheard at Christmas parties (shipping is a close-knit and sociable community) boasting about the number of tankers he’d sold to Russian-backed entities.

It is not only City brokers who are involved in this trade, Fulford-Smith explained, but well-known law firms and insurers. The lawyers create “single-purpose” companies that exist to buy a tanker. That company’s ownership is obscured using bearer shares (whoever holds the share certificates owns the company), which allows a lawyer or other nominee to stand in front of the true beneficial owner. Financial regulations would require rigorous “know your customer” (or KYC) checks on such a company for it to have a bank account, so the law firm holds the money for the transaction in an escrow account – in which the buyer and seller are joint account holders. The law firm then investigates the company that, as Fulford-Smith put it, “they set up half an hour ago”, and whose finances the law firm itself may also be managing, and unsurprisingly finds it to be entirely above board.

This process has allowed shipowners to sell vessels at greatly inflated prices to companies about which very few questions have been asked. It happens in an industry that is effectively self-regulating, and the UK government shows no sign of understanding the issues at stake. The day after Russia’s invasion of Ukraine, Byron Davies described Vladimir Putin in the House of Lords as “a man with a megalomaniac desire to unleash tyranny on innocent civilians that has no bounds”, but since being made shipping minister last November he has yet to comment on the millions of barrels of Russian oil that daily pass our coastline.

The one person in parliament who has raised this issue is the Conservative MP for Hastings and Rye, Sally-Ann Hart, who in December asked the Department for Transport what assessment it had made of the risk of a Russian tanker spilling oil off the coast of Kent or Sussex. A Transport minister, Guy Opperman, assured Hart that “the government intends to highlight on the global stage the illegality of Russia’s actions”, but made no mention of a specific plan to address the increased risk.

Hart is right to be concerned. An Aframax tanker can carry 700,000 barrels of crude oil, and dark fleet vessels regularly engage in risky practices such as turning off their transponders (which show other vessels where they are) or exchanging oil at sea in order to evade sanctions. “The dark fleet is an accident waiting to happen,” Bockmann told me. “It’s only a matter of time”.

An environmental disaster – and the huge cost of cleaning it up, which would be borne by the taxpayer in the case of an uninsured ship – would also be a political disaster; the government would have to explain how well aware of the risks it had been, and how little it had done. The killing of 10,000 Ukrainian civilians has not spurred us to prevent British and European businesses from enriching themselves from Putin’s war, but perhaps this will change if one of these rusting hulks turns our own beaches black.

Meanwhile, the Russian president’s navy of oil tankers continues to grow and consolidate. Fulford-Smith told me that new ships are still being added, and old ships sold off, as the dark fleet becomes part of the new normal in the global energy trade. It is “now at such a scale that there are almost no ‘price-capped’ trades”, he told me. The attacks on ships in the Red Sea by Houthi rebels may worry regulated Western shipping companies, but they seem to be of little concern to Putin’s fleet, which has increased shipments of crude oil from Russian ports to more than 3.4 million barrels a day. Russian oil is so ubiquitous that even the US military, according to a Washington Post investigation, cannot avoid using it.

This trade delivers a river of money to the Kremlin. The rouble may have been devalued, but increasing revenues from oil have generated record revenue. In 2022 alone, Russia’s current account recorded a $227bn surplus, enough to fight the war in Ukraine for at least another three years.

This is what matters, more than the Ukrainian flags that have adorned Downing Street, City Hall, offices in the City of London and the social media accounts of the companies that work in them: we have committed politically and financially to resisting Putin, but we have failed to look properly at our own businesses, and to ask which of them is helping him continue his war.

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This article appears in the 24 Jan 2024 issue of the New Statesman, The Tory Media Wars