Ghost Fleet Helps Russia Evade Sanctions

"ISTANBUL -- In a gray four-story office building above a nightclub with a black door here, a company founded by a Turkish sock and underwear magnate has transformed into one of the world's largest shipowners transporting Russian oil.

The firm, Beks Ship Management, has bought 37 vessels since 2021, many of them aging oil tankers, spending more than half a billion dollars in a little over two years and increasing the value of its fleet 10-fold.

Companies such as Beks are a critical element in Russia's attempts to keep supplying oil around the world. The fleet includes hundreds of vessels worldwide, many owned by companies in Greece, India and the United Arab Emirates, as well as Turkey. Many evade Western sanctions by operating outside the usual industry standards, often forgoing insurance with the P&I Clubs, the global networks that insure about 90% of the world's commercial shipping. Some use a parallel Russian insurance system.

The vessels frequently are aging, some 20 years old or more, and have changed owners several times, raising safety and environmental concerns. Shipping analysts say there are growing questions about whether the tankers are properly surveyed, and whether Moscow would pay out in the event of an accident. Russia has said it is pushing for its insurance system to be internationally recognized.

Turkish companies, including Beks, are a particular concern. They have purchased at least 36 vessels that aren't listed as being insured by the P&I Clubs, drawing further attention to Turkey's lax enforcement of sanctions on Russia when President Recep Tayyip Erdogan is attempting to repair strained relations with the U.S.

As of February, Beks was the fourth-largest shipowner in the Russian oil trade, according to shipping data analyzed by Global Witness, an anticorruption group that has campaigned on Ukraine's behalf for tougher sanctions.

Craig Kennedy, an energy analyst and former financial adviser who studies the Russian ghost fleet at Harvard's Davis Center for Russian and Eurasian Studies, called the safety concerns "a ticking time bomb."

"Concern number one is they're old ships. There's a reason they don't keep sailing forever, because then it gets to a point where structural fatigue just becomes too much of an issue," he said.

Beks has had several safety incidents in recent years. In June, Russian rescue workers had to put out a fire in the engine room of the Beks Force, a bulk carrier, off Russia's Pacific coast. Another ship owned by the company ran aground off Tunisia in July.

The fleet is still sailing, however, and, along with other shipping companies, is helping Russia adapt to the West's sanctions, setting up a global stalemate.

Already there are signs that the effectiveness of the U.S.-led sanctions effort is fading.

In July, Russia's leading Urals-grade crude began trading at above $60 a barrel -- above the cap the Group of Seven economies set for Russian oil in December to allow Moscow to continue selling and keep global prices low, while choking off revenue to Russia. Analysts say this suggests that a large portion of its exports are being shipped and sold on at higher prices.

U.S. and allied officials are racing to tighten enforcement of the sanctions, particularly in countries such as Turkey, a North Atlantic Treaty Organization ally that has cut against the grain and expanded trade with Russia recently.

"The price cap is working, and Russian oil revenue is down nearly 50 percent from a year prior. We are monitoring the market closely for potential violations of the price cap," said a spokesperson for the U.S. Treasury.

U.S. officials say Washington remains concerned that Turkey is a hub for Russian sanctions violations, including the ghost fleet for Russian oil, port calls by sanctioned Russian cargo ships carrying weapons and shipments of goods like Western-made electronics that Moscow needs for its military.

"We have an ongoing dialogue with the Turkish government on these issues," said a Western diplomat, referring to U.S. government conversations with the Turkish state and private sector. "Our sincere hope is to avoid a scenario in which a Turkish company is sanctioned, and we've worked with both the government and private sector to inform them of the very real risks."

Ships owned by Beks have loaded oil in recent months at the port of Kozmino on Russia's Pacific coast, where petroleum has consistently been sold at prices above the cap, according to shipping figures gathered by commodity-data provider Kpler and reviewed by The Wall Street Journal.

The company continued to ship oil from the port even after the Treasury Department issued a global warning in April against loading oil at Kozmino and other ports in the Russian far east because of price-cap violations, which prompted some mainstream shipping companies to stop exporting oil from the terminal. Some of those that aren't listed are continuing to ship oil from the terminal, among them another Turkish shipper, Imza Marine. It didn't respond to a request for comment.

One of Beks's largest ships, the crude oil tanker Beks Sun, made a port call at Russia's state-owned Transneft oil-pipeline terminal in Kozmino in July and then set sail for India, shipping data show. Most of Beks's shipping business goes to and from Russia, often transporting oil to China, India and other buyers.

"We are very cautious in complying with [the] price cap mechanism," Cemil Ersoz, a board member and founding partner of the company said in a text message. He didn't respond to a question about how the firm shipped oil from Kozmino at cap-compliant rates.

The net result, however, is that because of lower prices and this wide range of shippers, Russia has expanded its share in some of the world's largest oil markets lately, changing the way the global energy supply works.

It briefly overtook Saudi Arabia as China's largest supplier in April. Now the two are roughly even, with analysts expecting Russia to pull ahead again in the coming months.

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Joe Wallace, Elvan Kivilcim and Summer Said contributed to this article.

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Shipping Firm Grows

Beks Ship Management, founded more than a decade ago, operated in obscurity for years with a small fleet that included only six ships as of 2021. The company began as a side venture by a Turkish textile magnate, Ali Bekmezci, who is better known within Turkey for his factory that makes socks and underwear for Western brands such as H&M.

The company has aggressively expanded in the past 2 1/2 years, with its spending spree accelerating since the events in Ukraine, acquiring 17 vessels since 2022. The company owns 41 vessels worth $782.61 million -- about 10 times the value of its fleet in 2021, according to Veson Nautical, a shipping-data consulting firm.

Cemil Ersoz, a board member and founding partner of the company, said the firm financed the ships from banks in France, China, Japan, Taiwan and Australia, but declined to name the lenders because of what he said are confidentiality agreements. None of the funding came from Russia, he added." [1]

 

1.  World News: Ghost Fleet Helps Russia Evade Sanctions --- Turkish companies have bought dozens of tankers to ship oil for the Kremlin. Malsin, Jared. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 19 Aug 2023: A.8.