The video discusses the significant shifts in the global energy market following Russia's invasion of Ukraine and how it led to the development of what is termed as the "shadow fleet." This phenomenon involves new shipping entities and loopholes in sanctions that allow for vast sums of money to be traded largely unbeknownst to authorities. As Russia supplants Saudi Arabia as a leading oil supplier, this shadow trade has created billionaires and has become a major challenge for Western politicians striving to maintain energy prices.

The price cap on Russian oil, an innovative mechanism intended to keep Russian oil prices low without disrupting the flow of oil, is described. Despite its initial success, the cap has started to fail as summer wore on, with Russian oil prices exceeding the cap and significant funds being generated from this trade. With two separate pricing points for Russian oil, the policy has allowed a vast shadow fleet, comprising hundreds of ships, to facilitate the transfer of oil globally, despite sanctions being in place.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. shadow fleet [ˈʃædoʊ fliːt] - (n.) - An unofficial group of ships engaging in the transportation of goods, particularly in ways that are meant to bypass regulations or restrictions. - Synonyms: (clandestine fleet, covert fleet, secret fleet)

We see the rise of what's called the shadow fleet.

2. clandestine [klan-ˈdes-tin] - (adj.) - Kept secret or done secretively, especially because illicit. - Synonyms: (secret, covert, furtive)

To actually see clandestine behaviour was really surprising.

3. beneficial owner [ˌbenəˈfɪʃəl ˈoʊnər] - (n.) - An individual who enjoys the benefits of ownership even though the property's title is in another name. - Synonyms: (true owner, primary owner, actual owner)

They're also masking the ownership structure of their companies to try to minimize the likelihood that their ultimate beneficial owner could be under sanctions or could face legal repercussions.

4. sanctions [ˈsæŋkʃənz] - (n.) - Penalties or other means of enforcement used to provide incentives for compliance with the law. - Synonyms: (penalties, embargoes, restrictions)

So I'm afraid to say the sanctions that have been created are largely ineffective as a consequence of that.

5. spoofing [ˈspuːfɪŋ] - (n.) - In shipping and telecommunications, the act of disguising a communication from an unknown source as being from a known, trusted source. - Synonyms: (faking, forging, deception)

There's a name for this kind of behavior, it's called spoofing.

6. atrium [ˈeɪtriəm] - (n.) - An open-roofed entrance hall or central court in a building, but often used metaphorically for the "core" of an activity. - Synonyms: (core, heart, central part)

We're self regulated industry. This is half the problem.

7. opaque [oʊˈpeɪk] - (adj.) - Not able to be seen through; not transparent. - Synonyms: (murky, non-transparent, ambiguous)

...and ultimately out to the very opaque world of global shipping.

8. billionaires [ˈbɪljəˌnɛrz] - (n.) - Individuals whose wealth amounts to at least one billion units of currency (often in USD). - Synonyms: (tycoons, magnates, multi-billionaire)

This is a trade that's made billionaires in the process.

9. dodging [ˈdɑːdʒɪŋ] - (v.) - Avoiding something by a sudden or adroit move. - Synonyms: (evading, bypassing, sidestepping)

Or put it like this, people are, as I said earlier, dodging those sanctions

10. middlemen [ˈmɪdəlˌmɛn] - (n.) - People who acts as an intermediary or broker between the producer and consumer. - Synonyms: (intermediaries, agents, brokers)

The oil industry has always been full of middlemen.

The Shadow Fleet Fueling Russias War | Bloomberg Investigates

The energy world is completely turned upside down by Russia's invasion of Ukraine. We see the rise of what's called the shadow fleet. New ship owners, new shipping companies that we've never encountered before. The sanctions that have been taken are effectively being dodged by those that are willing to actually participate. Russia has dethroned Saudi Arabia as among the biggest suppliers. So that is how significant Russia has become. This is a trade that's made billionaires in the process. Even the most conservative estimates we have would suggest that at least $5 billion a year are going into this shadowy trade to people. We don't know who, but we think much of it is funneling back to russian interests. It's an incredibly difficult problem for politicians in the west, who are terrified that electorates are going to be pushed over the edge by higher energy prices.

To actually see clandestine behaviour was really surprising. That makes you think, well, what else is going on? This is a story that starts in the corridors of power in Brussels, in Washington, in the Kremlin, goes through the trading floors of Singapore and to Dubai, where we're seeing these shadowy middlemen emerge and ultimately out to the very opaque world of global shipping. Europe has relied for decades on russian gas and russian oil to keep its economy going. And all of a sudden, people are saying, we can't allow this to continue. Given that Russia has launched an unprovoked, illegal attack on a european country, the european position quickly becomes, we should stop buying russian oil and gas. But people also realize that that's going to force up the price. So this is the genesis of the whole idea of the price cap.

The price cap is a mechanism that is supposed to ensure that the price of russian oil doesn't get too high. It's supposed to deprive Russia of revenue at the same time as allowing Russia's crude to flow. If you pay $60 a barrel, you can use western services. That means greek oil tankers, that means insurance from London, Bermuda, New York. And if you pay $60.01, you can't. They wanted to keep oil flowing, but they wanted to reduce Putin's revenues. And that's a really difficult balancing act. That's why it's such an interesting, bizarre idea and why so many people thought it would fail.

In the first four months of the year, Russia's budget deficit was bigger than it was supposed to be for all of 2023. So at least for the first six months of the year, the price cap was working as intended. Then, as the summer wore on, you saw the price cap being breached. Russia's oil exports stretch into many, many billions of dollars a year. What you have are two main prices. You have a price at the point of export, and you have a price at the point of import. Since the war, the export price has been much, much lower than the import price. And what that has done is created a huge slug of money that is going. We don't know exactly where. You have to remember that the price of russian oil all over the world is above the price cap.

So how can any ship be truly legitimate? So you've got a policy which is doing very little to constrain the flow of money into the Kremlin, but has created this shadowy world which is funneling billions of dollars to a network of ship owners and traders who we know very little about. Yeah, of course there are rules, and you're supposed to follow them, but the reality is people are turning a blind eye. Once this policy came into place, the energy world was quickly reorientated. We see the rise of what's called the shadow fleet. Russian shipping companies were buying old, rusty tankers that really should have been retired and buying them up at a rapid clip. The shadow fleet is essentially several hundred ships that have been acquired by we don't know who, for the purpose of transporting russian oil.

A very large part, probably most of the fleet, has some kind of shadowy component, whether that's insurance, whether that's who owns the ship, whether that's who operates the ship, very often there will be something about it that is unclear. What's happening is that Russia will get its oil from its ports and take it to a bay in southern Greece, from where it gets transferred onto other tankers, which then transport the same oil all the way to the bay countries, often China and India. So we know from tracking this shadow fleet of tankers that a lot of them are heading to this bay in southern Greece. We don't know exactly what they're doing, but we know there's some transfer of russian oil. And what we want to do is head down there and find out exactly what they're doing.

The shipping industry has been around for a long time, right? It's one of the oldest trades out there, and these guys are very, very resourceful, successful. Russia still needs to get its oil to China and India, and that's why we're leaning very heavily on this shadow fleet to bring that oil to the customers. So what actually happens is that, like, say, China and India, they buy the cargo on a delivered basis. You can kind of give different valuations as to how much the freight would have cost. There are many miscellaneous expenses in between that can be inflated or deflated whichever way you want, and you can then get under the price cap, because we all know that there are many ways to slice and dice a price. Chinese refiners are taking in as much oil as they can. Right now, we are looking at an average increase of about 25%.

And for India, this increase is even more significant because India used to take almost no russian crude before the war, and right now it is taking between 1.5 to 2 million barrels a day. So you take your russian oil and you send it to a refinery in India, you turn it into gasoline. Now, according to all the rules and sanctions. And the whale industry, the moment it's gasoline, it's not russian. Now, a lot of that will be used in India, but India has also emerged as a place where it exports a lot of that fuel back to Europe. So in that sense, there's another way in which russian oil is flowing freely into the global economy. People, traders are making money on it, from it, indian refiners are making money for it and Russia's making money for it.

I'm one of those dinosaurs that still quite like three paper copy. It's extremely difficult for anybody seeing the amounts of money being lavished on people who undertake these trades to encourage them to become involved. We're self regulated industry. This is half the problem. You know, when you don't know the source of the interest you have for chartering, buying or doing a ship, you know, if there's a premium being paid, you need to be on guard. And people are not on guard. They're actually actively undertaking those businesses. It's got to stop. There are new brokers, there are new traders appearing. There are an awful lot of the big houses, the ship broking houses, who have offices in Dubai, who we know are actually creating cells to operate from.

So they try to distance themselves further. I'm not going to point fingers. You go into a restaurant, you go into an elevator, and Russian is oftentimes the main language you'll hear. Dubai has always been a place of wealth and where people like to splash their wealth in an extravagant spot. But it certainly picked up to another level in the past couple years. Dubai has won over a lot of the entities that perhaps their ultimate beneficial owners previously had. Companies in Geneva or London or Singapore, and some of those same individuals have since shifted their operations to Dubai.

They're moving teams, they're creating new companies, and Dubai has been the main base. They're also masking the ownership structure of their companies to try to minimize the likelihood that their ultimate beneficial owner could be under sanctions or could face legal repercussions. The oil industry has always been full of middlemen. It's easier for a finer, for example, in China, to go to a trader they know and say, I need a cargo of russian oil, than it is to pick up the phone and phone Rosneft. And so those middlemen have always existed, and they work for some very, very big companies now, those traders, in the aftermath of the invasion, they didn't really want to be a part of russian oil.

There's a new group of brokers, a new group of middlemen, which has emerged very quickly, many of them based on Dubai, Dubai being a jurisdiction which has been pretty happy to host. Russians keep doing business with Russia. And we've looked at many of these traders, whether or not they are the people on paper, are the legitimate owners and ultimate beneficial owners of these companies or nothing. But there's a lot of people who figured out how to make money out of this. So for a single cargo, the trader, in theory, is making ten or $15 million. This is a trade that's made billionaires in the process.

The chief concern from Washington, for instance, is how much of the windfall is actually going back to Moscow, how much of it ultimately is going to the Kremlin to fuel Russia's war efforts. So we're here in the Gulf of Lakonikos. We've spent over 2 hours coming here by boat, and we're here to check out a hub of russian oil trade. Can we get a view of those ships there? So over there we've got two oil tankers. They are transferring oil between, from one to the other.

A ship to ship transfer works where these ships will come with cargoes from Russia. Millions of barrels of oil each month are getting transferred. Another ship will come alongside and then spend a couple of days just transferring the cargo from one to the other. This right here is the shadow fleet. You've got two tankers that the owners aren't clear. The insurance isn't clear in terms of the depth of the insurance. The flag is as bad as it gets. These are shadow fleet tankers.

When we came round that bay, I was expecting to see some tankers. We've seen them on satellite tracking systems. What I really wasn't expecting to see was one of the most notorious vessels in the global fleet sitting alongside another tanker when we couldn't see it on global tracking systems, you can see that there are two tankers there a black one called the Simba and a red one called the turbo. Now, if you look on here, this is a global tracking system and it shows you its automatic identification system signal and you can only see one ship. That ship is the Simba, not the turbo. If you look further, you will find that the turbo is about 7 km away and it has been giving a signal.

There's a name for this kind of behavior, it's called spoofing, and what that means is that you alter the AI's system so that the signal appears to be somewhere that it isn't. Somebody is doing something to make that ship appear somewhere else. Honestly, we don't fully know why they're doing it, but what it does mean is that there's a degree of separation. A trader may not be completely comfortable with taking delivery of oil that has originated in Russia and may just want to hide that so that they can kind of just get it imported without too many questions being asked.

To see that and to see that against the tracking that we have was really shocking and it made me wonder about everything else. The dot feeds growing and growing. And of course, the price of oil is now above $90, so it's a bigger and bigger gap from where the price gap was. So actually what's happening is the amount of illegal trading is creating a better result for those that actually are utilising what they are actually creating in terms of oil sales.

Do sanctions work? Well, they don't work, frankly, unless the culprits have been apprehended. So I'm afraid to say the sanctions that have been created are largely ineffective as a consequence of that. Or put it like this, people are, as I said earlier, dodging those sanctions. They're finding a way around them. China and India have pretty much set up an entirely different supply chain to ensure that russian crude continues to flow, whether it's below the price cap or above the price cap.

So these two countries have created their own kind of a separate ecosystem that's outside of EU or western services. So therefore the price cap doesn't really affect crude flows as much anymore, because the two biggest customers of russian crude have kind of found a very viable way around the system. The oil is flowing, we've got a very willing seller in Russia, we've got very willing buyers in India and China, and we've got the middlemen, the middle people who can make it happen.

When I look at that hull, it's very, very rusty. It is looking in great condition. You've got to keep in mind that tanker is supposed to carry a million barrels of oil. You know, that's a risky ship. And the red one is even older. Now, what you need to know about the turbo is that it's one of the worst tankers in the fleet. It should have been decommissioned by now. It's coming to the end of its useful trading life. It's gone beyond the end of its useful trading life.

If you look behind me, you see a beautiful village which is clearly dependent on tourism. Lots of restaurants, hotels, there's fishing in the area. Now, those industries don't need to see an oil spill, right? The last thing they need to see is an oil tanker, a rusting old oil tanker leaking its cargo into this gulf, and a huge environmental cost. And you have to remember, it's not completely clear that any insurance company is truly going to be able to pay out to cover the compensation that these people would need if something were to go wrong.

Actually, my concerns are that there's going to be accidents and they're going to be big and nasty accidents and innocent people are going to get hurt. You know, we had 600, 700 ships, over 10% in certain size categories of tankers, which is now in the dark fleet. That's a huge percentage. And I think that that's a major concern, frankly, to other seafarers and to other people who are bumping up against this fleet.

This architecture of the shadow fleet that we've described, this community of shadowy oil traders that we've described, it's working. But what are people paying? They're paying more than they were, because as people get more comfortable with this new architecture, there are less reasons not to do it. And there is a lot of evidence that a lot more oil is trading above a price cap.

It's a much more difficult challenge to control this shadow fleet. These are not businesses that are subject to western rules. What can the US do to tell somebody in a foreign country with no links to the US that they can't transport oil? It's a very difficult situation. What I do know is that nobody does anything about it. And that is, I'm afraid to say, my biggest bugbear with this, and I do point finger at the authorities, to be frank with you.

What's the point in having sanctions unless they're going to be properly implemented? The US did sanction a couple of very small entities, but it's pretty small in scale compared to the scope of the problem. I think a lot of people will be looking for them to do more, and the suspicion will remain that the thing that they really care about is keeping the oil flowing.

When they agreed the price cap, they agreed to review it regularly, and it has been reviewed, but as it's been described to me, EU member states get in their room, they're shown a bunch of graphs and they say, yes, the price cap is working and it has not been lowered. I think there's nervousness about rocking the boat and, you know, I don't think anyone wants to do anything that might feed into inflation.

Across the world, everybody globally understands that Russia is a very big producer of oil, is a very big exporter, and we need its oil. I think the last thing that any consumer across the world would want is for Russia's oil supply to be cut off. This was, in a sense, an attempt to have your cake and eat it, to have a sanctions regime that punished Russia but didn't harm the global economy.

Now, it succeeded in one sense of that. The global economy has its problems, but oil prices aren't a huge part of that right now. But on the other hand, it's not punishing Russia, but it shows that sanctions have unintensive consequences. And those unintended, unintended consequences can be unpalatable.

There is every incentive to cheat. The penalties are tiny. They clearly want this to flow. They clearly want the oil to flow. There is clearly a real desire from the G seven to prioritise the flow of petroleum. That's just reality. There's no doubt if the oil price continues to rise and the oil continues to flow and more, that oil trades above the price cap, then that means more money for the Kremlin. And the Kremlin will use a lot of that money to buy arms and to pay soldiers.

Economics, Global, Politics, Russian Oil Trading, Shadow Fleet, Sanctions, Bloomberg Originals