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● These numbers only indicate the theoretical availability of vessels and do not reflect specific challenges that Russia may encounter when attempting to acquire them for its shadow fleet. First, there are high up-front costs. For instance, Russia has already spent an estimated $8.5 billion1 on the shadow fleet and additional financing may be hard to secure, especially given the risk of sunk costs due to vessel designations. Second, the EU has recently introduced legislation (in its 12th sanctions package) aimed at cracking down on the sale of mainstream tankers into the Russian shadow trade. Importantly, our estimates do not account for attrition within a fleet of overwhelmingly older vessels.
● We observe a high correlation between the share of the shadow fleet in the transport of Russian oil and the spread between Russian oil prices and benchmark North Sea Brent. Thus, the shadow fleet’s expansion is a direct challenge to the effectiveness – and overall leverage – of the international energy sanctions regime, which is supposed to deprive Russia of financing for the war.
● In addition, the shadow fleet represents a significant and growing risk to the environment around the world due to the advanced age of the vessels in question as well as the fact that they are largely uninsured or underinsured. As Russia’s oil export infrastructure is oriented towards traditional markets in the West, the risk is particularly high in the Baltic Sea, North Sea, Mediterranean, and Black Sea.
● We believe that the expansion of the Russian shadow fleet can be effectively curtailed through targeted measures. Taking such steps is critical for preserving the overall leverage of the price cap, which is an integral part of the international energy sanctions regime, and addressing urgent environmental risks.
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2.4 Tying up with North Korea will cost Russia
Russian President Vladimir Putin visited North Korea in June. The main topic of discussion for Putin and Kim Jong Un was undoubtedly the war in Ukraine. Multiple reports suggest North Korea is supplying Russia with a large quantity of ammunition in exchange for fuel and food. At the same time, Pyongyang is extremely keen to get rocket-building and aviation know-how from Russia. This is evidenced both by foreign intelligence service assessments and by the regular visits of North Korean delegations to Russia (such as one to the Moscow Aviation Institute last month). What is not known, however, is whether Moscow is prepared to go that far.
The main event of the summit was the signing of a wide-ranging treaty between Russia and North Korea. In essence, it resurrects the 1961 alliance between the Soviet Union and North Korea that was signed by Khrushchev and obligated both sides to come to the aid of the other if attacked. The text of
25 RUSSIA Country Report August 2024 www.intellinews.com