Why isn’t the UK stopping Putin’s shadow fleet?

0:02Paul Kelso:Sky News, the full story first.

0:11Paul Kelso:Every month, dozens of tankers carry Russian oil through the English Channel, right under the noses of Ukraine's European allies. So why aren't we stopping Putin's shadow fleet?

0:31Paul Kelso:We're now four years into Russia's war with Ukraine, and despite several rounds of economic sanctions by the West, the latest just this week in fact, Vladimir Putin seems to have more than enough money to keep on fighting. Well, part of the reason the Russian economy remains afloat can be seen sailing past the White Cliffs of Dover.

0:50Niall:Over 400 ships a day come down through the shipping lanes. But when you see these Russian ships like that and these oil tankers, you know, it's a regular occurrence to be honest. No one really takes any notice of it.

1:02Paul Kelso:They're only six miles from the coast. Russia is unable to sell its oil on the open market. So instead it's using a shadow fleet of tankers to shift its crude. And they're shifting plenty. Our business correspondent Paul Kelso has been in the English Channel to see these ships up close.

1:22Niall:So there's been much talk about the so-called shadow fleet. Essentially a fleet of around 800 oil tankers working ad hoc, but essentially for the Russian government, shifting Russia's oil, which is sanctioned by most Western nations, so can't be shifted on the legitimate tanker fleet. Much talk about how that operates and where it operates and the fact that it moves through the English Channel pretty much with impunity because it's the fastest route from Russia's Baltic ports where it loads up with oil. and then to take it to its customers which are getting more further afield so we thought well let's go and have a look we got on a fishing boat guy usually takes out sea fishing trips from Dover and about an hour and a half from Dover midway between almost literally at the halfway point between Britain and France there's a deep water channel and we sat on a sandbank near that and we watched oil tankers three in particular all sanctioned all carrying Russian oil that we tracked using publicly available shipping data to intercept them in the middle of the channel.

2:29Niall:They are absolutely enormous, even from half a kilometre away. I mean, the largest of these is a Suez Max class tanker. The first one we saw is 270 metres long, carrying a million barrels of oil.

2:42Paul Kelso:A million barrels. What's oil going for these days?

2:45Niall:So if you are buying Urals oil, which is the category of Russian oil that they're selling, and that's what they're shipping. That, when we were out there, was about$56 a barrel that day. So that's$56

2:59Paul Kelso:million worth of revenue. These three ships that we say are part of the shadow fleet, I mean, someone must own them, someone must operate them, and they've got to have a flag on them as well, don't they?

3:11Niall:Yes, they do. Under maritime law, you have to be legitimately flagged, sailing under a a legitimate flag. If you are, then you can access shipping lanes like the English Channel, perfectly legally. You are afforded, in the phrase, innocent passage. Now, these ships, there were three of them we looked at. The Rigel was the first of them. That was the Suez Max tanker, the big one we've talked about, sailing under a Cameroon flag. It had left one of the Baltic ports and was heading to Singapore when we caught up with it. Actually, we've checked today, It's changed its destination to a port in the eastern Mediterranean.

3:47Niall:Port Said was essentially the head of the Suez Canal. That, of course, opens up all kinds of destinations for that oil. We can't know where that oil is going or who's going to buy it, but it may well be it's a good place to work out where the end customer is. We saw the Hyperion, which has had a pretty public recent history. It was in Venezuela in December, delivering Naphtha, sailing under a different flag. It then switched to a Russian flag shortly after it made that delivery and it evaded the naval blockade there, made its way up through the channel. How can a ship change its flag? It has to be done through a flag registry.

4:24Niall:In fact, none of the ships, as far as we saw, were actually displaying the flags that they were sailing under. Now, they are supposed to, I understand, under maritime law, but they weren't visible anywhere. The Hyperion made this switch. It happens pretty routinely in shipping. It happens to the Shadow Fleet. It happens all the time. And sometimes there are vessels, not the ones we saw, that use flags that bluntly are not recognised, not least because the countries that they're flagged to are landlocked. So they are flags of convenience. The Hyperion, interestingly, is Russian owned and operated as well.

4:54Niall:It's named in Cyrillic on the bow. It's not trying to hide the fact it's Russian owned. In fact, its owner is one of the largest shipping companies in Russia, 80 percent owned by the Russian state. Of course, it is sanctioned because the UK and the EU and others were trying to do at the start of the Ukraine war. If you're trying to stop the Russian oil trade, you clamp down on the elements of that trade. And one of the biggest, of course, is the tanker industry. The third vessel called the Cusai was sailing under a Sierra Leone flag. It's owned and operated from the Seychelles, according to the records.

5:26Niall:And we did contact all of the owners, such operators of these vessels. We're still waiting to hear back from all of them.

5:33Paul Kelso:How did we know those ships were going to be coming through the channel? How did we know where they got their oil from?

5:38Niall:So ships are required to carry transponders that provide their location. That information is available on publicly available trafficking services, which anyone can look at if you pick up your phone and find them. One of the interesting things about the Shadow Fleet, as it's called, which is an ad hoc collection of vessels, it's not homogenous, It's not run by, as far as we know, by an admiral sitting somewhere in Moscow. But while these ships appear to have gone where they said they were going, and they were where their tracking devices said they were, it's quite common for ships in the Shadow Fleet to switch off their transponders so they can't be seen, to switch their transponders with other vessels, perhaps a cargo boat or another boat, so that it no longer is declaring itself publicly as an oil tanker.

6:24Niall:It's also known for them to spoof their location, So you essentially trick the software so it looks like you are somewhere you are not. You might be doing that because you are doing ship to ship transfers at sea to shift the oil and conceal its origin so that the customer at the other end doesn't know that it is Russian. Essentially laundering oil, the same as you would launder money. And there is clear evidence that that happens, that goes on.

6:52Paul Kelso:How often are we seeing parts of the shadow fleet sailing up the English Channel, seemingly with impunity?

6:58Niall:Dozens of times a month.

7:00Paul Kelso:So that's hundreds of millions of pounds we're talking.

7:02Niall:Absolutely. And it is absolutely routine. This is the quickest route. And they're heading in both directions, of course. They're coming back empty to reload as frequently as they're going in the other direction.

7:12Paul Kelso:We know they're heading off to sell it somewhere. What are we doing about it?

7:16Niall:Well, we are, according to the Ministry of Defence, taking a robust response and disrupting this fleet is a priority. Those are the words of the MOD. What does that look like in practice when we were at sea? One of those vessels, the Kusai, which I mentioned, we overheard a radio message from the Coast Guard issued on behalf of the Coast Guard and the Department of Transport, in the words of the radio operator, to the captain of the Kusai asking for proof of its insurance documents. And now it sounds like a bureaucratic response. And it is. And it requested the insurance documents to be emailed to an email address that it read out within 24 hours.

7:52Niall:And the message also pointed out that the email address isn't always monitored. We compare and contrast with the American authorities that have seized perhaps as many as 10 tankers since December. The French authorities, paramilitaries, helicoptering onto the deck of a tanker in the Mediterranean earlier this month. Now, the MOD defends this practice, says, look, the lack of insurance and the absence of documents is an indicator of nefarious practice, could be an indicator of a vessel in the shadow. And it's also important, right, if there's an accident and there's no insurance, that is catastrophic financially as well as environmentally.

8:23Niall:And the MOD says they've requested these documents of 600 vessels this year. But it does feel like a bureaucratic response. Now, we do know the MOD and John Healy, the Defence Secretary, they are examining more direct and more robust responses. So they've been looking at the legal basis for taking action against these tankers, for seizing them, for diverting them. So there are a lot of questions, a lot of reasons, perhaps why action is taking time. But at the moment, it is absolutely asking, produce your documents as opposed to come to the station with us.

8:57Paul Kelso:Let's just discuss the bigger picture, Paul. I mean, how important is this oil to Russia's economy?

9:04Niall:It's central. By some estimates, anywhere between 30 and 50 percent of Russia's revenue comes courtesy of oil. Oil and gas are the crucial commodity exports that keep Russia going. Now, they have managed on the whole to keep the volume of oil flowing from the start that was thrown before the start of the war, essentially level because of the emergence of the Shadow Fleet. But the challenge for the Kremlin is that the price they can charge for that oil has come down. And before the invasion of Ukraine, the gap between North Sea oil and Ural's Russian oil was about three dollars a barrel. That's got as wide as 25, 26, 27 dollars a barrel right now.

9:48Niall:So they are selling this oil at a very large discount. They are competing with the other pariahs in the oil market, essentially with Iran and now Venezuela, to sell that discounted sanctioned oil. And their customer base has shrunk. And it is now essentially China, largely India, although India is now under great pressure from the US, to stop buying this sanctioned oil and a little bit to Turkey. So they're still shifting the oil, but they're getting less for it. And there is a indication that revenues last year from oil were down by about a quarter. So this is starting to hurt the Russian economy, but you wouldn't necessarily know it from seeing it flowing past Dover.

10:29Niall:But the Ukraine conflict's been going on for four years now.

10:32Paul Kelso:How on earth is the Russian economy still going? I mean, is it just down to this, the shadow fleet?

10:37Niall:It's certainly been critical to keeping the economy going. There was also a big burst of defence spending, which when you're looking at the kind of metrics, GDP and the like, which were propping up the economy, that has now started to change. And, you know, the economy is tightening in Russia. The noose is tightening, but how you are right today, it's tightened very slowly. And right at the beginning of this conflict, the first step that was taken against the Russian oil trade wasn't sanctions, but it was what was called a price cap. And that was because, bluntly, we didn't want, nobody quietly wanted Russian oil to stop flowing because you recall the energy shock caused by that invasion, massive inflation.

11:21Niall:That was largely driven by gas. But there was a concern that if you choked off entirely Russian oil, well, that's going to push up oil prices for everybody. So bluntly, we weren't happy to hit Russia if it cost us. So this price cap essentially meant that if you were paying more than a certain level for Russian oil, you weren't allowed to deal with the Russians. But if it was below a certain point, you were OK to keep dealing with them. Now, that price cap has gone up and up. This was an EU price cap. It is going to be replaced by an outright ban in the coming year. Now, the world is in a position where oil prices are pretty level.

11:58Niall:There is oversupply in the market, even allowing for Iran and Russia and Venezuela coming back on stream. It feels to me like politicians feel they can be tougher on Russian oil because their consumers aren't going to be paying the price.

12:15Paul Kelso:We've just introduced a new round of sanctions on Russia. Why don't we simply target these tankers? And that presumably would tip Russia's economy over the edge.

12:25Niall:Absolutely. And it's very interesting to hear President Zelensky in his address marking the fourth anniversary of the invasion, making precisely that point. He was very clear that if the United States can seize tankers, why can't the European Union? And part of the answer is will. But a big part of the answer is practical. These are risky. You're talking about deploying highly trained forces at sea to seize boats. You're not going to face any resistance, one assumes, but you've then got to take control of these boats and you've got to find somewhere to keep them and you've got to pay for their maintenance.

13:01Niall:Of course, one of the suggestions is, well, you do that by taking the oil and selling it and seizing that income too. But we then come to an argument that's familiar, those who talked about all those frozen Russian assets sitting in bank accounts across Europe. European nations are very reluctant to take it and seize it and spend it by giving it to Ukraine, because the rule of law and the sanctity of European institutions is something hard won. And it would contrast with the complete disregard for the rule of law that the Kremlin has shown.

13:34Paul Kelso:Paul, thanks very much. Well, that's your lot for today. And indeed, that's your lot for the Sky News Daily. Do stay tuned. The other side of the weekend, we have something fresh to bring you that I think you're all going to be interested in. Until then, take care.