The shadow fleet of oil tankers enabling Russia's war and undermining global sanctions

Russian President Vladimir Putin was sworn in for his fifth term in office this week, even as his country is beset by sanctions, bogged down in a years long war in Ukraine and cut off from capital mar‐ kets.

But Putin has found a se‐ ries of workarounds that have helped bolster growth, funded his country's war ef‐ fort against Ukraine and worked to thumb his nose at the Western countries using economic sanctions to punish Russia.

"We are a united and great people and together we will overcome all obsta‐ cles, implement all we plan‐ ned," said Putin in a brief in‐ augural address this week. "Together we will win."

The Russian economy is now poised to grow at a faster pace than any other G7 nation. Not surprisingly, the key to its economic suc‐ cess is oil.

After Russia invaded Ukraine, the West banded to‐ gether to impose sanctions, curtail Russian energy ex‐ ports and squeeze the Russ‐ ian economy. And in many respects, it worked.

More than a thousand Western companies have left the country, according to a database compiled by Yale University. Over a million young, Russian men have fled the country rather than be drafted. Russian com‐ panies and banks are cut off from global capital markets and more than $300 billion in Russian central bank assets have been frozen.

But when it came to Rus‐ sia's much vaunted energy sector, there was a dilemma.

WATCH | Are sanctions against Russia making an impact?

Oil price caps and Russi‐ a's way around them

Russia produces more than 10 per cent of the

world's oil supply, behind on‐ ly the U.S. and Saudi Arabia. Cutting off all energy exports would have driven up the price of oil everywhere.

So, Western countries, led by the United States, hatched something of a compromise by imposing a price cap.

Russia could continue sell‐ ing its oil and continue using registered shipping vessels with insurance only if that oil was sold for less than $60 per barrel.

WATCH | Setting a price cap on Russian oil:

"We have this weird sort of compromise where we ne‐ gotiate with ourselves into a situation which allows the Russians to completely cheat," said Bill Browder, the author, activist and CEO of Hermitage Capital Manage‐ ment.

On one hand, Browder says, plenty of non-Western countries were perfectly hap‐ py to buy up Russia's oil at prices well below market val‐ ue. But he noted that Russia also found a way to skirt the price cap all together with what's known as its shadow fleet.

"They bought a whole bunch of tankers," said Browder. "Those tankers are moving the oil, and the Indi‐ ans and the Chinese and the Indonesians are very happy to get that oil at a discount of normal price."

Browder told CBC News that Russia is making be‐ tween $500 million and $1 billion US every day by selling oil.

"They're rubbing it on our face and laughing at us."

Shadow fleet's impor‐ tance to Russian economy

In March, one of those shadow tankers collided with another ship off the northern tip of Denmark, according to the Danish Maritime Author‐ ity. Bloomberg reported that the 700,000-barrel capacity Andromeda Star was on its way to Russia to pick up oil for export.

Had the ship been fully loaded, the collision could have led to an environmental catastrophe.

But because the vessels don't use Western ports or report shipments through Western agencies, it's a painstakingly difficult task to determine who owns them and who would be responsi‐ ble for clean-up.

All that also makes it diffi‐ cult to know exactly how much oil is being shipped out of Russia and who is buying it.

"We know these vessels are there. We know they're operating in violation of mar‐ itime laws but there's nothing anybody can do about it," said Elisabeth Braw, senior fellow at the Atlantic Council think-tank.

At first, Russia was clan‐ destine in its efforts to use the so-called shadow fleet. But Braw says it has grown increasingly brazen, noting that there are now hundreds of shadow vessels moving oil to market every day.

That's money Russia des‐ perately needs.

Late last year, the Krem‐ lin's budget highlighted how much the war is costing. Rus‐ sia will spend about six per cent of its GDP on the mili‐ tary in 2024. And for the first time in modern Russian his‐ tory, defence spending will exceed social spending.

The budget calculates government revenue will grow by more than 33 per cent, much of that coming via the energy sector.

That extra wiggle room means Russia can afford to expand its war effort in Ukraine just as Western countries including the U.S. begin to rethink how much money and how much equip‐ ment they're sending to Kyiv.

Waning Western influ‐ ence?

In a lot of ways, Braw says this will be an opportunity to examine the influence West‐ ern countries have when it comes to imposing sanctions to stop what they see as bad actors.

"It really is a test of the entire United Nations system of global governance that we set up at the end of World War Two," she said.

WATCH | What the West is learning about the limi‐ tations of sanctions:

After the Second World War, Western economies set up a system of rules based global trade.

For decades, that system largely worked and even drew in communist countries like Russia and China to take part in an open market, capi‐ talist system of global trade.

Braw's book Goodbye Globalization chronicles how that system has begun to crumble. And as it does, she says, the ability of Western powers to impose their will on the rest of the world is crumbling, too.

"I think we'll look back at this round as essentially, the swan song of Western economic sanctions against a powerful nation," she said.