Russia put together a shadow fleet of oil tankers to beat Western sanctions, but a key bottleneck is emerging that could threaten flows

• Russia put together a fleet of tankers to circumvent Western sanctions, but a key bottleneck is emerging, Bloomberg reported.
• The long distances the so-called shadow fleet must travel cuts down on the availability of Russia-friendly ships.
• That means Russia is relying on European ships, but they are barred from ferrying Russian oil that costs more than the $60 price cap.

Russia's shadow fleet of oil tankers was meant to circumvent Western sanctions by minimizing the need for European vessels, but it has been stretched thin, according to a Bloomberg report. 

Since Russia's invasion of Ukraine last year, Moscow has increasingly relied on China and India as export markets as European customers shunned Russian crude, forcing tankers to travel longer distances.

The increased distance has meant each ship needs to spend more time on the water, cutting down on availability and requiring more ships to maintain oil flows.

But on December 5, the European Union banned EU companies from providing shipping and other services for Russian oil cargoes unless they abide by a $60-per-barrel price cap.

Before the EU sanctions, European ships carried nearly half of Russian crude exports coming out of its western ports. That collapsed to about one-quarter after December 5. 

But now, per the Bloomberg report, Russia has an insufficient number of tankers to make all the required deliveries because many are tied up on long-distance round trips to Asia, so the proportion of trade completed on European ships has rebounded to more than one-third.

European ships are vulnerable to EU sanctions, which also bar European companies from providing related shipping services like insurance.

Russia's shadow fleet was already under pressure. Russia had amassed more than 100 oil tankers in December to bust Western sanctions, but analysts at Rystad estimated that the Kremlin needed over 240 ships to maintain oil flows.

Meanwhile, oil demand in Asia is picking up. The International Energy Agency's latest forecast puts global oil demand at record highs in 2023, largely due to the re-emergence of China in the oil consumption calculation.