Unintended consequences

On 2 May 2023 the Gabon flagged Aframax tanker Pablo lying at anchor off the coast of Malaysia suffered a catastrophic explosion. Three of the 25 crew are still missing. Thankfully the 1997 built vessel was in ballast at the time and a major oil spill averted. The vessel had recently been fixed to load a cargo of crude from Singapore.

Rightly such incidents will always attract headlines particularly when sections of the deck are filmed flying through the air from the force of the explosion by crew from another vessel at anchor nearby.

But this incident is also serving to shine a spotlight on an area of growing concern to mainstream shipping and regulators. Specifically, the Pablo is part of the so called shadow or dark fleet – vessels flagged, classed and insured in jurisdictions that do not recognise economic sanctions imposed on countries such as Iran, Venezuela and Russia and which provide little or no regulatory oversight on the vessel’s operations and insurance cover.

Quite simply the Pablo was an accident waiting to happen – and it could have been so much worse.

Over the four years prior to the explosion, the vessel had had four different names, was flagged in four separate countries and had had four different owners. It transferred to the Gabon flag only days before the incident. Its liability insurer is still not known. It was known to regularly carry Iranian oil.

The Pablo is but one of a growing number of vessels employed to carry cargoes subject to EU/ G7 sanctions.

Rapid Expansion

Estimates vary as to the numbers of vessels engaged in this trade but as of April 2023 industry analysts estimated that the shadow fleet comprised of somewhere between 500 and 1,000 vessels. This fleet has grown rapidly in 2023 – in all probability because of the introduction of the Russian Oil Price Cap by the EU/G7 group of nations – and is continuing to grow.

The priority for these vessels is not to make money for their owners but to transport sanctioned cargoes. As such they do not need to be operated and maintained to commercially recognised safety standards and the insurance will be placed in markets that may lack the necessary financial coverage to pay for large claims and the experienced claims team to deal with them.

In April a spot check revealed over twenty tankers of greater than 50,000gt transiting the Baltic on a single day having all loaded cargoes of Russian oil at Primorsk. This trade threatens all of us. The Pablo could have exploded and spilled its cargo in the Baltic or the North Sea or off Singapore.

But, the problem is not limited to the shadow fleet because it is not just the deliberate sanctions breaker that may find itself uninsured.

Western maritime sanctions programmes are predicated on the mistaken belief that access to insurance cover is an enabler of unlawful trades and that by requiring an insurer to withhold or cancel cover, owners will be discouraged from engaging in such trades.

Duped Into Carrying

The flaw in this premise is that many of the vessels caught with sanctioned cargo on board have done their best – exercised due diligence – to avoid carrying such cargoes but notwithstanding those efforts are nevertheless duped into loading a sanctioned cargo.

Insurers, banks, flag state and class then withdraw their services leaving the vessel adrift, without insurance cover or access to its usual banking services and with a cargo it cannot discharge. If an accident happens at that point, in all likelihood, no one will respond.

As a result of lobbying by the International Group of P&I clubs in the run up to the introduction of the Russian Oil Price Cap an exceptional allowance has been made for the provision of insurance in the case of an emergency. This permits insurers to respond to liabilities that arise under conventions such as the Civil Liability Convention or Bunkers Convention.

However, that exception remains unique to the Russian Oil Price Cap legislation. No such exceptions apply to vessels loaded with Syrian, Venezuelan or Iranian oil cargoes.

Sophisticated Evasion

Over the years sanctions evasion has become more sophisticated. It is now very difficult for the average shipowner to determine whether a cargo is lawful. This increases the likelihood of the innocent vessel owner being caught out.

The Russian Oil Price Cap scheme requires owners and charterers to verify the price paid for the cargo by requiring their charterer to provide an attestation before loading that confirms that the cargo was sold at a price that did not exceed the Cap.

However, the shipowner has no real means of determining whether that attestation is correct. And if the cargo is sold on board the vessel during the voyage, then no amount of due diligence on the part of the owner can prevent that breach and the subsequent cancellation of the vessel’s insurance.

A few years ago, a North entered vessel trying to enter the port of Singapore to discharge a cargo of oil experienced just this problem. It was denied access by the port agent who had received a tip off from the US embassy that the cargo was of Iranian origin. It had loaded the cargo from a vessel off Malaysia. When the Club checked back using specialist tracking software there was nothing to link the cargo to Iran; and yet given the source of the allegation insurers and banks had no choice but to withdraw their services, leaving the vessel uninsured and idle in one of the world’s busiest waterways.

Eventually the vessel was able to transfer the cargo back to the vessel from which it had loaded, and cover was reinstated. But the solution for this vessel was simply to transfer the problem to another ship.

It may be that the Pablo will serve to draw attention to this issue. I hope so because it is in no one’s interest to have fully laden tankers lying idle, without insurance and with no means of discharging the sanctioned cargo. This is a growing problem and, as others have noted, the ever-increasing number of ships that comprise the shadow fleet have no interest in meeting shipping’s other great challenge – the reduction in greenhouse gases.