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Mohammad Taha Ali
Independent Researcher | External Contributor to the Ukrainian International Strategy Center (UISC)
Sanctions on Russian oil did not simply redirect flows. They disrupted the institutional infrastructure that enables those flows to function, including insurance, classification, and regulatory recognition. In response, these functions have been partially reconstructed through state-backed and non-Western providers.
What has emerged is not a fully separate parallel system, but a fragmented architecture of substitutes that, taken together, sustain trade while reducing reliance on Western intermediaries. Sanctions did not remove these functions; they displaced them across jurisdictions where verification and enforcement are more limited.
This transformation exposes a structural limitation in current sanctions design. Restrictions continue to focus primarily on ownership structures and identifiable service providers, while the functional requirements that sustain maritime trade remain replicable outside Western jurisdictions. In practice, insurance, certification, and flagging can be reconstituted through alternative institutional arrangements. The system adapts through functional substitution, while enforcement frameworks remain largely entity-based, creating a growing mismatch between regulatory design and operational reality.
The price cap framework illustrates this limitation. It relies heavily on documentation and self-attestation, which becomes increasingly difficult to verify once cargoes are blended, reflagged, or transferred mid-route. Enforcement remains jurisdictionally fragmented, with limited capacity to monitor ship-to-ship transfers or non-Western service providers operating beyond G7 oversight.
In practice, enforcement gaps tend to concentrate in three areas. First, ship-to-ship transfers in international waters remain only partially observable, particularly when accompanied by AIS signal disruption. Second, insurance and pricing documentation depends heavily on self-attestation, which becomes difficult to verify once cargoes are restructured or blended. Third, non-Western service providers operate outside the direct regulatory reach of sanctioning jurisdictions.
Taken together, these gaps do not eliminate enforcement, but shift it toward a reactive model, where verification follows transactions rather than constraining them in real time.
More fundamentally, the price cap is bypassed less through direct violation than through opacity. Ship-to-ship transfers, mixed cargoes, and layered documentation reduce the traceability required for enforcement. Transactions remain formally compliant, but substantively unverifiable. Sanctions frameworks are therefore designed to detect violations, while the system has evolved to make violations increasingly indistinguishable from compliant activity.
Rebuilding the Functions of Shipping
Modern tanker trade depends on three core functions: insurance, classification, and flagging. These determine whether vessels can operate, access ports, and legally transport cargo. Sanctions did not remove these requirements; they displaced the institutions providing them. The constraint was not demand, but the ability to insure, certify, and clear cargoes under alternative arrangements.
The most significant shift has taken place in marine insurance. Prior to 2022, tanker trade relied heavily on the International Group of P&I Clubs, which collectively provide liability coverage of up to approximately 3.1 billion dollars per incident through pooled risk and global reinsurance mechanisms.
Sanctions restricted access to this system for Russian-linked cargoes. In response, coverage has increasingly been routed through the Russian National Reinsurance Company (RNRC), supported by state guarantees. In practice, this often involves a layered structure in which a domestic insurer issues primary cover backed by RNRC, with sovereign support substituting for international reinsurance.
Russian firms such as Ingosstrakh and AlfaStrakhovanie typically provide this primary layer. Unlike International Group coverage, these arrangements are capped at lower levels and are not fully integrated into global reinsurance markets. Their enforceability in multi-jurisdictional incidents remains uncertain, particularly in cases involving environmental liability or multi-port claims.
As a result, liability is no longer broadly pooled across global markets, but retained within state-backed frameworks. These arrangements are operationally sufficient to sustain trade flows, but more limited in terms of international recognition and legal interoperability.
In effect, enforcement is constrained not by the absence of formal rules, but by the declining ability to verify compliance across fragmented jurisdictions.
A similar shift is visible in vessel certification. Classification has traditionally been dominated by internationally recognized societies affiliated with the International Association of Classification Societies (IACS), which provide globally portable technical validation.
Following the withdrawal or restriction of Western-linked classification, a more fragmented structure has emerged. The Indian Register of Shipping has expanded its role, certifying vessels that retain broader usability across multiple jurisdictions. At the same time, the Russian Maritime Register of Shipping increasingly serves vessels operating within more restricted trading circuits.
In practical terms, this creates differentiated levels of acceptance. Vessels certified outside IACS frameworks may continue operating across parts of Asia and the Middle East, but face higher scrutiny or operational limitations in European and British port systems, particularly where insurance validation is tied to recognized classification standards.
Certification has therefore shifted from globally portable recognition to a more conditional and geographically bounded form of legitimacy. Vessels are not excluded from trade, but increasingly confined within specific regulatory geographies.
Flagging practices reinforce this shift. Many vessels are re-registered under permissive jurisdictions such as Panama, Liberia, or smaller registries with flexible compliance thresholds. Regulation is not removed, but selectively adjusted to maintain operability under constraint.
Operational behavior has adapted to support these institutional changes. Instead of fixed routes and predictable contractual structures, Russian oil flows increasingly rely on flexibility in routing, cargo handling, and documentation layering.
Since 2022, India’s share of Russian seaborne crude imports has risen from negligible levels to a substantial proportion, making it a central destination within this system. A recurring corridor links Baltic ports such as Primorsk and Ust-Luga to India’s west coast refineries, including Sikka and Vadinar, often through intermediary maritime zones.
Ship-to-ship transfers have become a structural component of this system rather than an exceptional practice. These operations are frequently conducted in established zones such as waters off Kalamata in Greece or near Ceuta, where cargo is transferred between vessels before continuing onward.
These transfers serve multiple functions simultaneously. They allow for cargo consolidation or partial offloading, enable blending that obscures origin characteristics, and facilitate adjustments in documentation and declared routing. In many cases, they are pre-coordinated rather than opportunistic, forming part of repeatable logistical patterns.
Operationally, such transfers are often accompanied by AIS signal gaps, identity adjustments, or staggered routing declarations. This does not necessarily indicate illegality, but it reduces the traceability required for effective real-time enforcement.
The system is supported by a growing shadow fleet of older tankers, many over 15 years old. These vessels are typically acquired through secondary markets and operated through opaque ownership structures linked to shell companies in jurisdictions such as the UAE or Hong Kong. Maritime tracking data consistently indicates the use of layered documentation and mid-route adjustments, suggesting routinized rather than exceptional behaviour.
These adaptations come with trade-offs. Longer routes, fragmented insurance coverage, and regulatory uncertainty reduce operational efficiency and increase transaction costs.
The result is a segmented fleet structure. One segment consists of vessels able to combine alternative insurance, non-Western classification, and flexible routing. Another remains constrained, unable to secure even minimal certification or coverage, effectively excluding them from key routes.
This division reflects differences in access to institutional functions rather than purely technical capability. Over time, this segmentation may institutionalise a two-tier maritime system, where access to global trade depends not only on compliance, but on alignment with distinct regulatory spheres.
A typical voyage illustrates how these elements interact. An Aframax tanker departing from Primorsk under non-Western classification and insured through a domestically backed provider may proceed through the Mediterranean, where part of the cargo is transferred to another vessel operating under a different flag and documentation structure.
The receiving vessel then continues toward India, with declared routing and cargo characteristics potentially adjusted during transit. Throughout this process, insurance remains outside the International Group system, classification remains non-Western, and routing is structured to maintain formal compliance while limiting regulatory exposure.
This is not a breakdown of the system, but its adaptation under constraint.
India’s role reflects calibrated regulatory flexibility rather than passive participation or overt strategic alignment. By permitting the use of non-Western insurance and classification within existing regulatory frameworks, and by maintaining port access under these conditions, India provides a large and consistent demand base for redirected flows.
This role is best understood not simply as opportunistic purchasing of discounted crude, but as a stabilising function within the system. By absorbing volumes that would otherwise face constrained market access, India enables continuity without formally challenging sanctions frameworks.
This illustrates how large importers can sustain sanction-affected trade not through direct opposition, but through selective adaptation of regulatory boundaries.
Beneath the physical movement of oil, financial settlement mechanisms have also adjusted. Transactions increasingly avoid dollar-denominated channels, relying instead on alternative structures including rupee-based settlement, dirham clearing through UAE-based intermediaries, and, in some cases, yuan-denominated transactions.
These arrangements often involve indirect settlement chains, where payments pass through intermediary institutions before final clearing in local currencies. Smaller or regionally focused banks play a central role, as their limited exposure to Western financial systems reduces sanction sensitivity.
While functional, these systems introduce frictions, including currency conversion risks, reduced liquidity, and reliance on intermediary networks with limited global integration. Financial intermediation is not removed, but redistributed into less transparent and more politically insulated channels.
Despite its functionality, this system remains structurally constrained. Liability risks are concentrated within state-backed insurers whose coverage may not be enforceable across jurisdictions, particularly in the event of major environmental incidents.
Legal fragmentation complicates dispute resolution, as claims may involve multiple jurisdictions with differing recognition of insurance and classification standards. Operationally, reliance on older vessels, extended routing, and complex logistics increases exposure to technical failures, delays, and higher transaction costs.
These constraints do not prevent the system from functioning, but they limit its scalability and resilience.
What is unfolding in the Russia–India oil trade is not simply evasion, but a reconfiguration of how enforcement interacts with market functions. Sanctions remain formally intact, yet their effectiveness is diluted by functional substitution, jurisdictional fragmentation, and financial rerouting.
The result is not the breakdown of the global maritime system, but its partial reassembly in parallel form. Risk is no longer universally pooled, but redistributed across state-backed and regionally contained frameworks. Compliance persists in formal terms, but becomes increasingly difficult to verify in practice.
This points to a structural limitation in sanctions design. Frameworks built around identifiable entities and service providers struggle to constrain systems that adapt at the level of functions. As long as core functions such as insurance, certification, and financial settlement can be replicated outside sanctioning jurisdictions, enforcement will remain incomplete.
Sanctions did not stop the ships. They changed the conditions under which they move.
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