US-Russian Price Cap Enforcement Shifts Focus to the World’s Ghost Fleet

In a bid to curtail US-Russian Price Cap Enforcement energy earnings and its financial support for the war in Ukraine, the G7 imposed a $60 per barrel price cap on Western companies providing maritime services for Russian seaborne oil exports. This move, while intended to stabilize global oil markets, has inadvertently given rise to a two-tier shipping market.

Two-Tier Shipping Market Emerges

One tier of this market relies on vessels often referred to as the “ghost fleet.” These aging vessels, past their prime, pose a greater risk of leaks and spills. The other tier includes mainstream vessels that adhere to the price cap regulations, utilizing Western services for their oil shipments.

Ghost Fleet vs. Mainstream Vessels

The enforcement of the price cap by the United States is expected to discourage G7-owned companies from engaging in Russian crude trade, at least in the short term. The main reasons behind this shift are the heightened risks and increased costs associated with proving price-cap compliance, potentially leading to greater utilization of ghost vessels for Russian shipments.

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Major Shipowners React To US Russian Price Cap Enforcement

Prominent shipowners like Teekay, Euronav, and Maersk have either remained silent or declined to comment on these developments.

Russian crude exports on EU-based vessels have fallen from 35% in June to around 20% in October, as reported by Ioannis Papadimitriou from analytics firm Vortexa.

Sanctions on Price Cap Violators

The White House has imposed sanctions on two tankers for carrying Russian oil in violation of the price cap while using U.S. services. These sanctions may also lead energy majors to tighten vessel requirements, further discouraging Russian voyages.

Exxon Mobil’s Involvement

US oil giant Exxon Mobil found itself inadvertently linked to the controversy due to its prior chartering of one of the sanctioned tankers, the Yasa Golden Bosphorus. There is no suggestion that Exxon breached any regulations.

The enforcement of US Russian Price Cap Enforcement sanctions has already caused a surge in freight rates, particularly affecting oil shipments from Russia’s Baltic ports to India.

Global Freight Costs Surge

This rise in global freight costs is part of a broader trend driven by escalating conflicts in the Middle East, which add a risk premium to shipping.

In the short term, ghost vessels may see increased demand, resulting in higher chartering costs. However, in the long term, a surge in secondhand vessel purchases may further expand the ghost fleet.

Non-Western Insurance on Older Vessels

Ghost fleet vessels, typically older, are covered by non-Western insurance, a factor highlighted by the US Treasury due to potential environmental risks.

Market observers note that the first round of sanctions primarily targeted niche Russian crude grades, rather than the widely traded Urals grade. This has raised questions about the effectiveness of the current measures.

US Russian Price Cap Enforcement Dilemma

In the midst of the global energy market reshuffle, the US administration faces the challenge of balancing oil prices amid the unrest in the Middle East. Higher crude prices could impact global markets and lead to increased gasoline prices in the US.

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