COLD WAR 2.0
#CriticalThinking
Peace, Security & Defence
Peace, Security & Defence
Jamie Shea
24 Jan 2025
Just as an army marches on its stomach, to quote Napoleon, so money has always been the sinew of warfare. If Russia is to be halted in its aggression against Ukraine, providing Kyiv with modern Western weapons is essential, but this is only one side of the story. Depriving Moscow of the finance to keep its army in the field and war production at a high tempo is just as important. In this context, Russia derives most of its income from its oil and gas exports. So unless these can be significantly reduced, Putin has little incentive to stop fighting, despite Russia’s enormous losses on the battlefield. The supporters of Ukraine in the EU and NATO have tried progressively to tighten the screw. One dimension of this fight has been to reduce the EU’s former dependence on Russian gas. At the beginning of the year, Ukraine closed the Urezgoy-Pomary-Uzhgorod transit pipeline pumping Gazprom gas from Siberia to Slovakia, a move that should deprive Gazprom of around US$8bn a year in revenue. It will also largely eliminate the remaining 8% share that Russia has of the EU gas market. That figure stood at 35% back in 2020 when Moscow started its war against Ukraine, or 65bn cubic metres of gas imported compared to 14bn cubic metres last year. Most EU member states have long since reduced their imports of gas from Russia and replaced them with gas from Norway or liquified natural gas from the US and Qatar. But Slovakia has not made the gas transition. The country’s Prime Minister, Robert Fico, has complained loudly to Brussels, claiming that Slovakia will lose US$1.5bn a year in transit fees as well as 3bn cubic metres of its domestic gas supplies as a result of the pipeline ceasing to operate. He has threatened countermeasures against Ukraine, including a halt to electricity supplies to the country and the expulsion of Ukrainian refugees in Slovakia if the pipeline is not reopened.
Yet the main source of Russia’s income is from oil. Last year, the Kremlin pulled in US$16.4bn from oil sales to finance its war effort in Ukraine. That was 5% more than in 2023. These oil sales allow Moscow to stabilise the rouble, control its budget deficit and keep its balance of payments in credit so that it has money to pay for its imports. Evading the oil price cap imposed by the G7 allowed Russia to earn an additional US$9.4bn in 2024, selling its oil at an average US$65 per barrel (the G7 cap is US$60 a barrel). Moscow has found new markets for its oil in India, Turkey and China, and has been able to reduce the discount that it offers for its oil from US$35 a barrel to just US$10. Given this market, the G7 has long tried to deny Russia easy access to international commercial shipping and insurance to transport its oil to overseas customers. Consequently, the G7 decided back in December 2022 that only barrels of Russian oil priced at US$60 or less can be transported in Western-owned and operated tankers, a price well below the Brent crude benchmark, and thus designed to ensure that Russia loses money. Yet, at the same time, the G7 designed the cap in a way that would not unduly disrupt the global oil trade or push the oil price too high, given the sensitivity of Western governments (particularly the Biden administration) that consumers (and voters), already up in arms about restrictions on their diesel and petrol cars from urban low emissions zones, would not be hit by higher gasoline prices at the filling station.
Moscow has also found a workaround by gathering a shadow fleet of 400 old tankers, some of which belong to the state shipping company, Sovcomflot, and others which have opaque ownership and are registered in places like the UAE, Vietnam, the Seychelles or the Marshall Islands, which do not participate in sanctions against Russia, and fly the flags of convenience of Gabon, the Cook Islands or Panama. The shadow fleet has not just been used to transport Russian oil but also oil from Iran and Venezuela as part of their efforts to circumvent US and international sanctions. These tankers often have no insurance, are in poor condition being 18 years old or more and present an environmental hazard due to their capacity to break down near coastlines or to sink or run aground. Although this fleet is often referred to as a “shadow fleet”, in reality there is not much which is shadowy about its activities. The ships quite visibly load Russian oil at Baltic ports such as Primorsk and Ust Luga, and although they often refuse to communicate with coast guard authorities or Western navies, and do not switch on transponders, their identities are becoming increasingly known to Western security agencies. As a result, the US and UK have already imposed a series of sanctions on individual shadow tankers imposing penalties on any shipping or energy companies or financial intermediaries who deal with them. The EU has so far imposed sanctions on 70 ships in Russia’s ghost fleet. Before the war in Ukraine, around 70% of Russian oil was transported in ships covered by the International Group (IG) maritime insurance consortium, enforcing the high standards of vessel maintenance and safety and transparent ownership set by the International Maritime Organisation. This arrangement brings together 95% of maritime insurance brokers, principally in Lloyd’s of London and the EU. But fewer than 10% of the shadow fleet vessels have proper insurance although they make up 17% of the global oil tanker fleet.
But the challenge from the Russian shadow fleet has now gone from being an economic one and a test of the effectiveness of Western sanctions against Moscow to a security one as well. The tankers used by Russia are implicated in the cutting and sabotaging a number of telecommunications cables and energy pipelines in the Baltic Sea. It appears that they have been dragging their anchors over hundreds of kilometres to damage underwater critical infrastructure. It is relatively easy to do this as the Baltic Sea is relatively shallow between Estonia and Finland and the cables are only 100 metres below the surface. Moreover, the Baltic Sea is a crowded place with 2,000 ships crossing it every day, not all of which can be tracked. On 28 December, Finland impounded a Russian shadow tanker, the Eagle S, suspected of sabotaging the Estlink 2 electricity cable running 145km across the Baltic from Finland to Estonia. The ship clearly showed that one of its anchors was missing, an anchor subsequently recovered from the seabed as part of the investigation. The cutting of the Estlink 2 cable deprived Estonia of one half of its electricity supply, pushing up energy prices at a politically sensitive time in the middle of the winter. If the other cable from Finland, Estlink 1, was also severed, Estonia would need to produce its own domestic electricity and this could provoke political unrest. Meanwhile, the repairs to Estlink 2 will take until the late summer and cost tens of millions of dollars. Eagle S has been impounded by Finland because it has numerous safety violations, including fire protection, navigation equipment and pump room ventilation which must be repaired before the ship can leave the Finnish port of Porvoo. The shipping journal Lloyd’s List also reports that the Eagle S was fitted with surveillance cameras and equipment to monitor maritime activity, something highly unusual in a merchant vessel. Yet the incident with the Eagle S was only the latest in a number of cases of mysterious disruptions of underwater infrastructure in the Baltic Sea. Last November, a Chinese ship, the Yi Peng 3, was suspected of involvement in the severing of cables between Finland and Germany and Sweden and Lithuania. It was temporarily detained by Denmark for investigations also involving the Chinese government before being allowed to continue on its way. In October 2023, another Chinese tanker was suspected of involvement in the severing of a gas pipeline and fibre optic cable between Finland and Estonia but was not stopped. It is not clear if the Chinese ships were under the command of Beijing or Moscow in conducting these sabotage operations. Yet this method of hybrid warfare is now spreading beyond the European theatre as Taiwan is accusing China of severing telecommunications cables off its northern coast. As with cyber-attacks and disinformation campaigns, this form of hybrid warfare has the advantage for the aggressor of achieving enormous disruption which takes a lot of time and money to repair for a very modest upfront cost. A rusting, derelict oil tanker is all that is required, and that cost pales in comparison to what NATO and EU countries need to spend in maintaining expensive warships in the Baltic Sea or the Mediterranean for an indefinite period.
As Russian tankers frequently pass through the English Channel or the Aegean islands as well as the Baltic Sea, the prospects for an ecological disaster and a major oil spill are severe
There is also the environmental dimension. In May 2023, an 18-year-old Russian shadow tanker coming out of the Baltic port of Vysotsk and carrying 340,000 barrels of oil, suffered engine failure and almost ran aground in the Danish Strait. On 10 January this year, another Russian tanker, this time registered in Panama, the Eventin, was pulled by three German tugboats into more open sea after its engines failed off the island of Ruegen. It is currently carrying 99,000 barrels of oil, and was heading from Russia to Egypt. The German Foreign Minister, Annalena Baerbock, has accused Russia of potentially attempting to wreck the Baltic tourist trade by causing contaminated beaches along stretches of Germany’s coastline. In recent weeks, two other ships in Russia’s fleet have sunk, one breaking up off the coast of Spain and the other in the Kerch Strait off Crimea. An irony to the extent that Russia is now also a victim of its own reckless behaviour. There is an oil spill spreading across the Kerch Strait and Russia has set up a state-led task force to deal with it. As the Russian tankers frequently pass through the English Channel or the Aegean islands as well as the Baltic Sea, the prospects for an ecological disaster and a major oil spill are severe. Russia shows no interest or responsibility for the fate of its tankers and the ships, without IG cover in most cases, will not have sufficient insurance to pay for the costs of environmental cleanup. These environmental near misses may just be coincidence; or Russia is deliberately sending these ailing ships towards Europe not just to export its oil but also to intimidate its neighbours, forcing them to live under the constant shadow of a major incident. Last October, the UK announced that it would start requiring insurance details from suspected Russian operated tankers entering its territorial waters, and last December, Denmark, Sweden, Poland, Finland and Estonia took the same measure. They do not stop or impound the ships but add them to the sanctions list. Yet the measures taken thus far have had their impact, making two-thirds of the targeted shadow vessels idle. This means that the money spent on them is wasted and it increases the business cost of using the shadow fleet even if it does not stop its operation altogether.
Ten pipelines and cables have been sabotaged in the Baltic Sea since Russia invaded Ukraine. So EU and NATO are now fully waking up to the multifaceted hybrid threat posed by the rusting shadow oil tankers used by Russia or the ability of Russian sabotage teams to disrupt underwater critical infrastructure. This past week, Finland’s President, Alexander Stubb, and Estonia’s Prime Minister, Kristen Michal, jointly hosted a summit of the Scandinavian and Baltic countries, together with the NATO Secretary General, Mark Rutte, and the European Commission Vice President, Henni Virkkunen, to assess the risks to critical infrastructure in the Baltic region and to discuss further preventive and mitigating steps. In particular, the meeting witnessed the Baltic riparian states and other allies make commitments of forces to increase patrols and intelligence gathering and surveillance on ships coming in and out of Russia’s Baltic ports. The UK-led Joint Expeditionary Force comprising the Scandinavians and the Netherlands has been deployed on ships in the Baltic Sea. The force is operating an AI-enhanced Nordic Warden system to monitor ships identified as belonging to the shadow fleet, evaluate the risks associated with each vessel from plotting trajectories, for instance erratic routes or loitering in areas where underwater cables and pipelines are present, and to compile a register of suspect vessels. NATO is dispatching two warships as part of its Standing Maritime Group 1 to the Baltic Sea to enhance the international monitoring effort and to deter further sabotage activity. Indeed, NATO is calling this operation Baltic Sentry, and said that the initial deployment will be followed by a much more comprehensive air and sea operation managed by the alliance’s Maritime Command (MARCOM at Northwood, near London. Estonia has also deployed three of its military patrol vessels and Sweden will add three warships to the international maritime presence, as well as coast guard vessels and air surveillance this month. The EU and NATO have set up a joint task force to protect oil and gas drilling platforms and critical undersea infrastructure, which will exchange intelligence and coordinate monitoring and intervention operations. NATO has also been cooperating with Elon Musk’s Space X and VIASAT on a NATO-funded HEIST project to use low orbit satellites to carry the same telecommunications data that is carried by the Baltic undersea cables. This will provide backup and resilience for key EU transnational connectivity and address natural as well as manmade threats. Project HEIST is due to be tested in January and to be fully deployed by December 2026. The need for an alternative data transmission infrastructure in space is underlined by the fact that 95% of global internet traffic is currently carried by undersea cables, and these cables extend 1.3mn kilometres across the world’s oceans- a highly vulnerable situation from the perspectives of resilience.
Making grand concessions to Putin ahead of the Ukraine peace talks or the planned Trump-Putin summit would hardly put the US in a strong negotiating position to induce Putin to consider anything short of a total Russian victory
On Friday 10 January, the US and UK announced a series of additional sanctions against the Russian energy sector. The US imposed measures against a further 183 vessels in the shadow fleet and against the two major Russian oil companies, Gazprom Neft and Surgutneftgas as well as against Russian oil traders, oilfield providers and two dozen subsidiaries. In addition to these measures taken by the Treasury Department, the State Department has been targeting Russia’s LNG exports. It announced its own package of sanctions against 80 individuals, including a number involved in the metals and mining sector. Further sanctions were directed at the state atomic energy corporation, Rosatom. It has taken a while for the US to tighten this oil noose on Moscow but, as the US Assistant Secretary for Energy Resources in the State Department, Geoffrey Pyatt, explained, Washington is now more confident that it can limit the rise in the oil price as the result of these sanctions, given that fresh oil supply is coming on stream from the US, Guyana, Canada, Brazil and the Middle East. The price of Brent crude has increased by 3% to US$79, but the market has stabilised. The UK has followed Washington in adopting similar sanctions. The UK Foreign Minister, David Lammy, said that “taking on Russian oil companies will drain Russia’s war chest, and every rouble we take from Putin’s hands saves Ukrainian lives”. Unsurprisingly, President Zelensky has greeted the new measures taken by the US and UK and said that they will deal a “significant blow” to the Russian war effort. Both Gazprom and Rosatom have reacted with outrage, calling the measures “baseless and illegitimate”. The Biden Administration is hoping that this new package will give the US extra leverage over Russia in upcoming peace talks, but coming just a few days before the inauguration of Donald Trump, there is the obvious prospect that Trump could rescind them before they have had the time to come into effect (at the end of March). But Trump would need to consult Congress and solicit its view before he could cancel the sanctions. Congress could express its disapproval and many Republicans have called for the new sanctions. Moreover, making grand concessions to Putin ahead of the Ukraine peace talks or the planned Trump-Putin summit would hardly put the US in a strong negotiating position to induce Putin to consider anything short of a total Russian victory.
So the challenge for NATO and the EU as we enter 2025 is to clamp down further on Russia’s shadow fleet to protect their critical infrastructure, avoid an environmental catastrophe and put Putin under more severe economic pressure. With Russian interest rates at 23%, the rouble losing value and inflation at 9%, this is a good time to put Moscow under more pressure to find a way out of its costly war in Ukraine. The earnings from the illicit oil trade for Moscow are also beginning to tip downwards since the end of last year. A more decisive move against Russian energy exports will also help to optimise the impact of all the other and many international sanctions against Russia since 2022 that otherwise may end in failure and a humiliation for the Western allies. Of course, the willingness of the incoming Trump administration to participate in this additional economic pressure campaign is open to doubt, although Trump may be attracted by the extra profits of US oil and gas exports to Europe to replace declining Russian energy supplies; as well as the curbing of cheap Russian oil to China. But the challenge of the Russian shadow fleet is, above all, to Europe, given its proximity to the Russian oil loading ports. So unsurprisingly it is Europe that is mounting the response. But clearly more can and needs to be done.
One step could be to establish a maritime corridor across the Baltic Sea to the North Sea, and the Atlantic and across the Aegean and the Mediterranean. Oil tankers would be obliged to use this corridor, preventing them from loitering or changing routes. These corridors would keep vessels in the open sea, moving steadily and away from vulnerable coastal communities and concentrations of undersea infrastructure. Tankers would be required to show proof of adequate insurance. Where they fail to do so, the vessels could be redirected to nearby ports for inspection. If they show the same neglect of safety standards as the Eagle 1, they can be impounded until repairs are carried out. The same would apply to shadow vessels which are identified as being subject to existing US, UK or EU sanctions and which can be detained while evidence is gathered about their ownership, financing and seaworthiness. Oil from unseaworthy or illegally operating vessels could be confiscated and given to Ukraine to help it withstand Russian attacks on its electricity grid and power generators. Either NATO or the EU could operate these maritime corridors, which would require an integrated civil-military headquarters to direct daily operations and to fuse information as well as a rotation of participating national assets (warships, coast guard vessels, submarines, surveillance aircraft, observation drones and satellites). The EU has good experience of doing something similar with its Atalanta mission to protect commercial shipping from piracy in the Gulf of Aden in the 2011-21 timeframe. As with all issues of maritime boarding and interdiction, there will be legal issues to be sorted out to enable EU and NATO countries participating in the missions to follow common rules of engagement. But previous counterpiracy, counterproliferation and counterterrorism legal frameworks used by the allies are a basis on which to build.
Another step could be to establish a common database of the owners and operators of the ghost ships in order to establish legal liability in the event of oil spills, pollution or the cost of recovery of stranded vessels. The EU and its member states and partners must prepare the ground legally so they can move quickly to open proceedings against countries, companies and individuals responsible for cable disruptions or pollution. The deliberate opacity of the operation of the shadow vessels, using multiple shell companies and flags of convenience, is designed to make the identity of beneficial owners difficult. So rather than wait for the next incident to happen and then to confront the inevitable obfuscation of Russia and its shadow fleet partners and intermediaries, the EU legal services working with the EU member states concerned should begin to prepare the ground now, gathering the data and the evidence and agreeing on the best legal pathways in terms of jurisdictions and international tribunals. This approach of pre-emptive legal deterrence can help to force at least some of the participants in Russia’s shadow fleet oil business to think again and take the more conventional route. Given the current momentum of Russia’s use of shadow ships for its hybrid warfare against Europe, it is only a matter of time until a major incident occurs.
Another issue for the EU concerns Serbia, whose national gas company, NIS, is 65% owned by Gazprom Neft and its subsidiaries
Third and finally, the EU and G7 need to agree on a diplomatic strategy to dissuade other countries from participating in Russia’s shadow fleet or from contributing to Russia’s energy trade. As mentioned at the beginning, this effort has to start within the EU as Brussels has to deal with member states such as Hungary and Slovakia which have refused to switch their energy systems away from Russian oil and gas. Hungary is still dependent on Russian oil supplies through the Druzhba pipeline, which runs across Belarus and Ukraine and then has spurs to Hungary and Slovakia. The increase in the oil price after the US imposed its new sanctions on Russian energy companies has pushed inflation in Hungary up to 4.4%, and led to the forint falling to a two-year low against the euro. This has led to Hungary seeking more cooperation from its EU neighbours on energy, which could be a useful development in finally convincing Hungary and Slovakia to diversify their energy sources, build more interconnectors with the rest of the EU, invest more in renewables and transition their industries away from cheap Russian oil and gas in the way that Germany has had to do. Czechia, for instance, has stopped all imports of Russian oil and gas, relying on the Italian TAL pipeline instead. Another issue for the EU concerns Serbia, whose national gas company, NIS, is 65% owned by Gazprom Neft and its subsidiaries. So this EU candidate country would be especially affected by sanctions against Gazprom and Brussels will need to work with Belgrade to locate alternative supplies. Yet Serbia needs to transition away from Russian energy as a condition for aligning with the EU energy packages and anti-monopoly measures as part of its EU accession process. Serbia will need to link up with the EU electricity grid as the three Baltic states have finally been able to do since 1 January this year. When it comes to the Russian shadow fleet, the EU and G7 can engage with the flag of convenience countries to upgrade their standards for allowing their flags to be used by foreign shipping companies and operators, clamping down on unseaworthy or underinsured vessels. It is not enough simply to arrest the captains and crews of the ships involved in incidents, although they too may face criminal liability for intent or negligence. The EU and G7 can send inspection teams to flag countries or provide information to establish true ownership and clamp down on the practice of giving oil tankers fake or multiple identities without proper documentation and registration. Many registration countries, like the Marshall Islands, or flag counties like Gabon, Liberia or Panama, have close trading and security relationships with the West and commitments to curbing shadow fleets can be part of trade agreements with the US and EU or conditions of financial aid or climate adaptation financing. Turkey is a particularly important country as it controls the passage of Russian tankers through the Bosphorus, while being highly vulnerable to pollution and oil spills in the Black Sea or an accident with a shadow fleet vessel blocking the Strait. Turkey needs to be engaged too in refusing to facilitate the Russian trade in discounted oil, no easy task given that Ankara has not imposed sanctions on Moscow and maintains close economic ties. The West also needs Turkey’s help with Syria and Iran,for wider stability in the Middle East and for peace in Ukraine. Still the effort needs to be made. Egypt and Panama, which control the two canals vital to global trade, will be important partners too. The incoming Trump administration may well be willing to include the Iranian or Venezuelan use of the shadow fleet in this containment strategy, even if its willingness to turn the heat up on Russia is still an open question. But at all events, protecting underwater pipelines and cables in the Baltic Sea will be much easier if the shadow fleet progressively disappears from the oceans as the result of a coherent Western diplomatic strategy and sustained economic pressure.
In conclusion, 2025 will be a decisive year for Ukraine. The announcements by allies at the most recent Ukraine Defence Contact Group in Ramstein of further arms deliveries to Kyiv (including US$500mn of further US aid for missile defence and F16 armaments) are welcome, and will help Ukraine to hold in check the current Russian offensives around Potrovsk and the Kursk Oblast. But historians of war know well that major conflicts are won as much by depriving the adversary of vital economic resources as by stunning victories on the battlefield. This was true of the Allied naval blockade against the Kaiser’s Germany in the First World War, as well as the oil embargo against Nazi Germany and Imperial Japan in the Second World War. Russia’s oil exports are the remaining economic frontier in the Western strategy to make Moscow pay a heavy price for its aggression against Ukraine. And pushing Russia’s shadow fleet out of business is central to that effort and thus a priority for EU and NATO security policy in the months ahead.
Jamie Shea
Senior Fellow for Peace, Security and Defence at Friends of Europe, and former Deputy Assistant Secretary General for Emerging Security Challenges at the North Atlantic Treaty Organization (NATO)
The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.
Just as an army marches on its stomach, to quote Napoleon, so money has always been the sinew of warfare. If Russia is to be halted in its aggression against Ukraine, providing Kyiv with modern Western weapons is essential, but this is only one side of the story. Depriving Moscow of the finance to keep its army in the field and war production at a high tempo is just as important. In this context, Russia derives most of its income from its oil and gas exports. So unless these can be significantly reduced, Putin has little incentive to stop fighting, despite Russia’s enormous losses on the battlefield. The supporters of Ukraine in the EU and NATO have tried progressively to tighten the screw. One dimension of this fight has been to reduce the EU’s former dependence on Russian gas. At the beginning of the year, Ukraine closed the Urezgoy-Pomary-Uzhgorod transit pipeline pumping Gazprom gas from Siberia to Slovakia, a move that should deprive Gazprom of around US$8bn a year in revenue. It will also largely eliminate the remaining 8% share that Russia has of the EU gas market. That figure stood at 35% back in 2020 when Moscow started its war against Ukraine, or 65bn cubic metres of gas imported compared to 14bn cubic metres last year. Most EU member states have long since reduced their imports of gas from Russia and replaced them with gas from Norway or liquified natural gas from the US and Qatar. But Slovakia has not made the gas transition. The country’s Prime Minister, Robert Fico, has complained loudly to Brussels, claiming that Slovakia will lose US$1.5bn a year in transit fees as well as 3bn cubic metres of its domestic gas supplies as a result of the pipeline ceasing to operate. He has threatened countermeasures against Ukraine, including a halt to electricity supplies to the country and the expulsion of Ukrainian refugees in Slovakia if the pipeline is not reopened.
Yet the main source of Russia’s income is from oil. Last year, the Kremlin pulled in US$16.4bn from oil sales to finance its war effort in Ukraine. That was 5% more than in 2023. These oil sales allow Moscow to stabilise the rouble, control its budget deficit and keep its balance of payments in credit so that it has money to pay for its imports. Evading the oil price cap imposed by the G7 allowed Russia to earn an additional US$9.4bn in 2024, selling its oil at an average US$65 per barrel (the G7 cap is US$60 a barrel). Moscow has found new markets for its oil in India, Turkey and China, and has been able to reduce the discount that it offers for its oil from US$35 a barrel to just US$10. Given this market, the G7 has long tried to deny Russia easy access to international commercial shipping and insurance to transport its oil to overseas customers. Consequently, the G7 decided back in December 2022 that only barrels of Russian oil priced at US$60 or less can be transported in Western-owned and operated tankers, a price well below the Brent crude benchmark, and thus designed to ensure that Russia loses money. Yet, at the same time, the G7 designed the cap in a way that would not unduly disrupt the global oil trade or push the oil price too high, given the sensitivity of Western governments (particularly the Biden administration) that consumers (and voters), already up in arms about restrictions on their diesel and petrol cars from urban low emissions zones, would not be hit by higher gasoline prices at the filling station.
Moscow has also found a workaround by gathering a shadow fleet of 400 old tankers, some of which belong to the state shipping company, Sovcomflot, and others which have opaque ownership and are registered in places like the UAE, Vietnam, the Seychelles or the Marshall Islands, which do not participate in sanctions against Russia, and fly the flags of convenience of Gabon, the Cook Islands or Panama. The shadow fleet has not just been used to transport Russian oil but also oil from Iran and Venezuela as part of their efforts to circumvent US and international sanctions. These tankers often have no insurance, are in poor condition being 18 years old or more and present an environmental hazard due to their capacity to break down near coastlines or to sink or run aground. Although this fleet is often referred to as a “shadow fleet”, in reality there is not much which is shadowy about its activities. The ships quite visibly load Russian oil at Baltic ports such as Primorsk and Ust Luga, and although they often refuse to communicate with coast guard authorities or Western navies, and do not switch on transponders, their identities are becoming increasingly known to Western security agencies. As a result, the US and UK have already imposed a series of sanctions on individual shadow tankers imposing penalties on any shipping or energy companies or financial intermediaries who deal with them. The EU has so far imposed sanctions on 70 ships in Russia’s ghost fleet. Before the war in Ukraine, around 70% of Russian oil was transported in ships covered by the International Group (IG) maritime insurance consortium, enforcing the high standards of vessel maintenance and safety and transparent ownership set by the International Maritime Organisation. This arrangement brings together 95% of maritime insurance brokers, principally in Lloyd’s of London and the EU. But fewer than 10% of the shadow fleet vessels have proper insurance although they make up 17% of the global oil tanker fleet.
But the challenge from the Russian shadow fleet has now gone from being an economic one and a test of the effectiveness of Western sanctions against Moscow to a security one as well. The tankers used by Russia are implicated in the cutting and sabotaging a number of telecommunications cables and energy pipelines in the Baltic Sea. It appears that they have been dragging their anchors over hundreds of kilometres to damage underwater critical infrastructure. It is relatively easy to do this as the Baltic Sea is relatively shallow between Estonia and Finland and the cables are only 100 metres below the surface. Moreover, the Baltic Sea is a crowded place with 2,000 ships crossing it every day, not all of which can be tracked. On 28 December, Finland impounded a Russian shadow tanker, the Eagle S, suspected of sabotaging the Estlink 2 electricity cable running 145km across the Baltic from Finland to Estonia. The ship clearly showed that one of its anchors was missing, an anchor subsequently recovered from the seabed as part of the investigation. The cutting of the Estlink 2 cable deprived Estonia of one half of its electricity supply, pushing up energy prices at a politically sensitive time in the middle of the winter. If the other cable from Finland, Estlink 1, was also severed, Estonia would need to produce its own domestic electricity and this could provoke political unrest. Meanwhile, the repairs to Estlink 2 will take until the late summer and cost tens of millions of dollars. Eagle S has been impounded by Finland because it has numerous safety violations, including fire protection, navigation equipment and pump room ventilation which must be repaired before the ship can leave the Finnish port of Porvoo. The shipping journal Lloyd’s List also reports that the Eagle S was fitted with surveillance cameras and equipment to monitor maritime activity, something highly unusual in a merchant vessel. Yet the incident with the Eagle S was only the latest in a number of cases of mysterious disruptions of underwater infrastructure in the Baltic Sea. Last November, a Chinese ship, the Yi Peng 3, was suspected of involvement in the severing of cables between Finland and Germany and Sweden and Lithuania. It was temporarily detained by Denmark for investigations also involving the Chinese government before being allowed to continue on its way. In October 2023, another Chinese tanker was suspected of involvement in the severing of a gas pipeline and fibre optic cable between Finland and Estonia but was not stopped. It is not clear if the Chinese ships were under the command of Beijing or Moscow in conducting these sabotage operations. Yet this method of hybrid warfare is now spreading beyond the European theatre as Taiwan is accusing China of severing telecommunications cables off its northern coast. As with cyber-attacks and disinformation campaigns, this form of hybrid warfare has the advantage for the aggressor of achieving enormous disruption which takes a lot of time and money to repair for a very modest upfront cost. A rusting, derelict oil tanker is all that is required, and that cost pales in comparison to what NATO and EU countries need to spend in maintaining expensive warships in the Baltic Sea or the Mediterranean for an indefinite period.
As Russian tankers frequently pass through the English Channel or the Aegean islands as well as the Baltic Sea, the prospects for an ecological disaster and a major oil spill are severe
There is also the environmental dimension. In May 2023, an 18-year-old Russian shadow tanker coming out of the Baltic port of Vysotsk and carrying 340,000 barrels of oil, suffered engine failure and almost ran aground in the Danish Strait. On 10 January this year, another Russian tanker, this time registered in Panama, the Eventin, was pulled by three German tugboats into more open sea after its engines failed off the island of Ruegen. It is currently carrying 99,000 barrels of oil, and was heading from Russia to Egypt. The German Foreign Minister, Annalena Baerbock, has accused Russia of potentially attempting to wreck the Baltic tourist trade by causing contaminated beaches along stretches of Germany’s coastline. In recent weeks, two other ships in Russia’s fleet have sunk, one breaking up off the coast of Spain and the other in the Kerch Strait off Crimea. An irony to the extent that Russia is now also a victim of its own reckless behaviour. There is an oil spill spreading across the Kerch Strait and Russia has set up a state-led task force to deal with it. As the Russian tankers frequently pass through the English Channel or the Aegean islands as well as the Baltic Sea, the prospects for an ecological disaster and a major oil spill are severe. Russia shows no interest or responsibility for the fate of its tankers and the ships, without IG cover in most cases, will not have sufficient insurance to pay for the costs of environmental cleanup. These environmental near misses may just be coincidence; or Russia is deliberately sending these ailing ships towards Europe not just to export its oil but also to intimidate its neighbours, forcing them to live under the constant shadow of a major incident. Last October, the UK announced that it would start requiring insurance details from suspected Russian operated tankers entering its territorial waters, and last December, Denmark, Sweden, Poland, Finland and Estonia took the same measure. They do not stop or impound the ships but add them to the sanctions list. Yet the measures taken thus far have had their impact, making two-thirds of the targeted shadow vessels idle. This means that the money spent on them is wasted and it increases the business cost of using the shadow fleet even if it does not stop its operation altogether.
Ten pipelines and cables have been sabotaged in the Baltic Sea since Russia invaded Ukraine. So EU and NATO are now fully waking up to the multifaceted hybrid threat posed by the rusting shadow oil tankers used by Russia or the ability of Russian sabotage teams to disrupt underwater critical infrastructure. This past week, Finland’s President, Alexander Stubb, and Estonia’s Prime Minister, Kristen Michal, jointly hosted a summit of the Scandinavian and Baltic countries, together with the NATO Secretary General, Mark Rutte, and the European Commission Vice President, Henni Virkkunen, to assess the risks to critical infrastructure in the Baltic region and to discuss further preventive and mitigating steps. In particular, the meeting witnessed the Baltic riparian states and other allies make commitments of forces to increase patrols and intelligence gathering and surveillance on ships coming in and out of Russia’s Baltic ports. The UK-led Joint Expeditionary Force comprising the Scandinavians and the Netherlands has been deployed on ships in the Baltic Sea. The force is operating an AI-enhanced Nordic Warden system to monitor ships identified as belonging to the shadow fleet, evaluate the risks associated with each vessel from plotting trajectories, for instance erratic routes or loitering in areas where underwater cables and pipelines are present, and to compile a register of suspect vessels. NATO is dispatching two warships as part of its Standing Maritime Group 1 to the Baltic Sea to enhance the international monitoring effort and to deter further sabotage activity. Indeed, NATO is calling this operation Baltic Sentry, and said that the initial deployment will be followed by a much more comprehensive air and sea operation managed by the alliance’s Maritime Command (MARCOM at Northwood, near London. Estonia has also deployed three of its military patrol vessels and Sweden will add three warships to the international maritime presence, as well as coast guard vessels and air surveillance this month. The EU and NATO have set up a joint task force to protect oil and gas drilling platforms and critical undersea infrastructure, which will exchange intelligence and coordinate monitoring and intervention operations. NATO has also been cooperating with Elon Musk’s Space X and VIASAT on a NATO-funded HEIST project to use low orbit satellites to carry the same telecommunications data that is carried by the Baltic undersea cables. This will provide backup and resilience for key EU transnational connectivity and address natural as well as manmade threats. Project HEIST is due to be tested in January and to be fully deployed by December 2026. The need for an alternative data transmission infrastructure in space is underlined by the fact that 95% of global internet traffic is currently carried by undersea cables, and these cables extend 1.3mn kilometres across the world’s oceans- a highly vulnerable situation from the perspectives of resilience.
Making grand concessions to Putin ahead of the Ukraine peace talks or the planned Trump-Putin summit would hardly put the US in a strong negotiating position to induce Putin to consider anything short of a total Russian victory
On Friday 10 January, the US and UK announced a series of additional sanctions against the Russian energy sector. The US imposed measures against a further 183 vessels in the shadow fleet and against the two major Russian oil companies, Gazprom Neft and Surgutneftgas as well as against Russian oil traders, oilfield providers and two dozen subsidiaries. In addition to these measures taken by the Treasury Department, the State Department has been targeting Russia’s LNG exports. It announced its own package of sanctions against 80 individuals, including a number involved in the metals and mining sector. Further sanctions were directed at the state atomic energy corporation, Rosatom. It has taken a while for the US to tighten this oil noose on Moscow but, as the US Assistant Secretary for Energy Resources in the State Department, Geoffrey Pyatt, explained, Washington is now more confident that it can limit the rise in the oil price as the result of these sanctions, given that fresh oil supply is coming on stream from the US, Guyana, Canada, Brazil and the Middle East. The price of Brent crude has increased by 3% to US$79, but the market has stabilised. The UK has followed Washington in adopting similar sanctions. The UK Foreign Minister, David Lammy, said that “taking on Russian oil companies will drain Russia’s war chest, and every rouble we take from Putin’s hands saves Ukrainian lives”. Unsurprisingly, President Zelensky has greeted the new measures taken by the US and UK and said that they will deal a “significant blow” to the Russian war effort. Both Gazprom and Rosatom have reacted with outrage, calling the measures “baseless and illegitimate”. The Biden Administration is hoping that this new package will give the US extra leverage over Russia in upcoming peace talks, but coming just a few days before the inauguration of Donald Trump, there is the obvious prospect that Trump could rescind them before they have had the time to come into effect (at the end of March). But Trump would need to consult Congress and solicit its view before he could cancel the sanctions. Congress could express its disapproval and many Republicans have called for the new sanctions. Moreover, making grand concessions to Putin ahead of the Ukraine peace talks or the planned Trump-Putin summit would hardly put the US in a strong negotiating position to induce Putin to consider anything short of a total Russian victory.
So the challenge for NATO and the EU as we enter 2025 is to clamp down further on Russia’s shadow fleet to protect their critical infrastructure, avoid an environmental catastrophe and put Putin under more severe economic pressure. With Russian interest rates at 23%, the rouble losing value and inflation at 9%, this is a good time to put Moscow under more pressure to find a way out of its costly war in Ukraine. The earnings from the illicit oil trade for Moscow are also beginning to tip downwards since the end of last year. A more decisive move against Russian energy exports will also help to optimise the impact of all the other and many international sanctions against Russia since 2022 that otherwise may end in failure and a humiliation for the Western allies. Of course, the willingness of the incoming Trump administration to participate in this additional economic pressure campaign is open to doubt, although Trump may be attracted by the extra profits of US oil and gas exports to Europe to replace declining Russian energy supplies; as well as the curbing of cheap Russian oil to China. But the challenge of the Russian shadow fleet is, above all, to Europe, given its proximity to the Russian oil loading ports. So unsurprisingly it is Europe that is mounting the response. But clearly more can and needs to be done.
One step could be to establish a maritime corridor across the Baltic Sea to the North Sea, and the Atlantic and across the Aegean and the Mediterranean. Oil tankers would be obliged to use this corridor, preventing them from loitering or changing routes. These corridors would keep vessels in the open sea, moving steadily and away from vulnerable coastal communities and concentrations of undersea infrastructure. Tankers would be required to show proof of adequate insurance. Where they fail to do so, the vessels could be redirected to nearby ports for inspection. If they show the same neglect of safety standards as the Eagle 1, they can be impounded until repairs are carried out. The same would apply to shadow vessels which are identified as being subject to existing US, UK or EU sanctions and which can be detained while evidence is gathered about their ownership, financing and seaworthiness. Oil from unseaworthy or illegally operating vessels could be confiscated and given to Ukraine to help it withstand Russian attacks on its electricity grid and power generators. Either NATO or the EU could operate these maritime corridors, which would require an integrated civil-military headquarters to direct daily operations and to fuse information as well as a rotation of participating national assets (warships, coast guard vessels, submarines, surveillance aircraft, observation drones and satellites). The EU has good experience of doing something similar with its Atalanta mission to protect commercial shipping from piracy in the Gulf of Aden in the 2011-21 timeframe. As with all issues of maritime boarding and interdiction, there will be legal issues to be sorted out to enable EU and NATO countries participating in the missions to follow common rules of engagement. But previous counterpiracy, counterproliferation and counterterrorism legal frameworks used by the allies are a basis on which to build.
Another step could be to establish a common database of the owners and operators of the ghost ships in order to establish legal liability in the event of oil spills, pollution or the cost of recovery of stranded vessels. The EU and its member states and partners must prepare the ground legally so they can move quickly to open proceedings against countries, companies and individuals responsible for cable disruptions or pollution. The deliberate opacity of the operation of the shadow vessels, using multiple shell companies and flags of convenience, is designed to make the identity of beneficial owners difficult. So rather than wait for the next incident to happen and then to confront the inevitable obfuscation of Russia and its shadow fleet partners and intermediaries, the EU legal services working with the EU member states concerned should begin to prepare the ground now, gathering the data and the evidence and agreeing on the best legal pathways in terms of jurisdictions and international tribunals. This approach of pre-emptive legal deterrence can help to force at least some of the participants in Russia’s shadow fleet oil business to think again and take the more conventional route. Given the current momentum of Russia’s use of shadow ships for its hybrid warfare against Europe, it is only a matter of time until a major incident occurs.
Another issue for the EU concerns Serbia, whose national gas company, NIS, is 65% owned by Gazprom Neft and its subsidiaries
Third and finally, the EU and G7 need to agree on a diplomatic strategy to dissuade other countries from participating in Russia’s shadow fleet or from contributing to Russia’s energy trade. As mentioned at the beginning, this effort has to start within the EU as Brussels has to deal with member states such as Hungary and Slovakia which have refused to switch their energy systems away from Russian oil and gas. Hungary is still dependent on Russian oil supplies through the Druzhba pipeline, which runs across Belarus and Ukraine and then has spurs to Hungary and Slovakia. The increase in the oil price after the US imposed its new sanctions on Russian energy companies has pushed inflation in Hungary up to 4.4%, and led to the forint falling to a two-year low against the euro. This has led to Hungary seeking more cooperation from its EU neighbours on energy, which could be a useful development in finally convincing Hungary and Slovakia to diversify their energy sources, build more interconnectors with the rest of the EU, invest more in renewables and transition their industries away from cheap Russian oil and gas in the way that Germany has had to do. Czechia, for instance, has stopped all imports of Russian oil and gas, relying on the Italian TAL pipeline instead. Another issue for the EU concerns Serbia, whose national gas company, NIS, is 65% owned by Gazprom Neft and its subsidiaries. So this EU candidate country would be especially affected by sanctions against Gazprom and Brussels will need to work with Belgrade to locate alternative supplies. Yet Serbia needs to transition away from Russian energy as a condition for aligning with the EU energy packages and anti-monopoly measures as part of its EU accession process. Serbia will need to link up with the EU electricity grid as the three Baltic states have finally been able to do since 1 January this year. When it comes to the Russian shadow fleet, the EU and G7 can engage with the flag of convenience countries to upgrade their standards for allowing their flags to be used by foreign shipping companies and operators, clamping down on unseaworthy or underinsured vessels. It is not enough simply to arrest the captains and crews of the ships involved in incidents, although they too may face criminal liability for intent or negligence. The EU and G7 can send inspection teams to flag countries or provide information to establish true ownership and clamp down on the practice of giving oil tankers fake or multiple identities without proper documentation and registration. Many registration countries, like the Marshall Islands, or flag counties like Gabon, Liberia or Panama, have close trading and security relationships with the West and commitments to curbing shadow fleets can be part of trade agreements with the US and EU or conditions of financial aid or climate adaptation financing. Turkey is a particularly important country as it controls the passage of Russian tankers through the Bosphorus, while being highly vulnerable to pollution and oil spills in the Black Sea or an accident with a shadow fleet vessel blocking the Strait. Turkey needs to be engaged too in refusing to facilitate the Russian trade in discounted oil, no easy task given that Ankara has not imposed sanctions on Moscow and maintains close economic ties. The West also needs Turkey’s help with Syria and Iran,for wider stability in the Middle East and for peace in Ukraine. Still the effort needs to be made. Egypt and Panama, which control the two canals vital to global trade, will be important partners too. The incoming Trump administration may well be willing to include the Iranian or Venezuelan use of the shadow fleet in this containment strategy, even if its willingness to turn the heat up on Russia is still an open question. But at all events, protecting underwater pipelines and cables in the Baltic Sea will be much easier if the shadow fleet progressively disappears from the oceans as the result of a coherent Western diplomatic strategy and sustained economic pressure.
In conclusion, 2025 will be a decisive year for Ukraine. The announcements by allies at the most recent Ukraine Defence Contact Group in Ramstein of further arms deliveries to Kyiv (including US$500mn of further US aid for missile defence and F16 armaments) are welcome, and will help Ukraine to hold in check the current Russian offensives around Potrovsk and the Kursk Oblast. But historians of war know well that major conflicts are won as much by depriving the adversary of vital economic resources as by stunning victories on the battlefield. This was true of the Allied naval blockade against the Kaiser’s Germany in the First World War, as well as the oil embargo against Nazi Germany and Imperial Japan in the Second World War. Russia’s oil exports are the remaining economic frontier in the Western strategy to make Moscow pay a heavy price for its aggression against Ukraine. And pushing Russia’s shadow fleet out of business is central to that effort and thus a priority for EU and NATO security policy in the months ahead.
Jamie Shea
Senior Fellow for Peace, Security and Defence at Friends of Europe, and former Deputy Assistant Secretary General for Emerging Security Challenges at the North Atlantic Treaty Organization (NATO)
The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.
