On the morning of 3 May, residents of Batam, Indonesia, the largest city of the country’s Riau Islands, woke up to beaches black with oil.
The suspected source was the Pablo, a 26-year-old tanker with a history of transporting sanctioned crude oil. Two days earlier a fire on board the vessel resulted in multiple explosions, ripping open the vessel’s fuel tanks and dumping their contents into the sea. The vessel, which has no known owner or insurer for authorities to interact with, has been left floating abandoned in the South China Sea, with no one able to relocate her so far.
In Batam, local authorities were left to clean tons of oil waste from beaches often thronged with tourists. Though the cleanup effort was far from the region’s largest, cities elsewhere along Southeast Asia’s bustling shipping lanes may do well to take note.
The global “shadow fleet” transporting sanctioned oil from Russia, Venezuela, and Iran has grown to include approximately one in five crude oil tankers globally. As this industry has expanded, so too have the number of accidents involving such tankers. According to the most recent report on safety and shipping by German insurer Allianz, there were as many groundings involving tankers transporting sanctioned oil as in the previous three years combined.
The waters in and around the Riau Islands have long been a hub for the transhipment of sanctioned oil en route to China, according to Samir Madani, co-founder of TankerTrackers.com, an online crude oil shipment tracking service. The transhipments are conducted by ship-to-ship transfers, he explained, usually carried out without many of the safety provisions employed by the mainstream tanker fleet in such operations.
They cause environmental damage because they are spilling oil all the time.”
Samir Madani
“It’s a good halfway location to the destination, and they will do the transhipment there so they can return quickly and pick up more oil,” Madani said. “They cause environmental damage because they are spilling oil all the time – there are no port authorities present, there are no tug boats to assist, there are no boom lines around the vessels in case of an oil spill.”
Beyond the risky activities undertaken by “shadow fleet” tankers, the state of the ships themselves is an active cause of concern.
“The tankers are living longer than they should,” Madani explained. “What happens usually is right before they are sold for scrap, somebody comes in with a million dollar higher bid and then gets hold of that tanker and throws it back into rotation.”
The dynamics of the market to evade sanctions actively encourage such risky behaviour. Elsewhere in the supply chain, traders dealing in sanctioned oil tend to charter the cheapest shipping option available regardless of safety or environmental risks, said Jonathan McConnell, president of the maritime security firm Meridian.
“I think that in a lot of cases, especially when dealing with sanctioned oil, they’re going to go for the lowest bidder,” he said.
In the race to the bottom on charter cost, the owners of these tankers have taken active steps to avoid the costs of inspection and maintenance, flagging their vessels with countries like Gabon or Mongolia. These countries are likely to have less capacity to enforce international standards for the tanker trade, making them appealing for a shipowner looking to operate a ship not in compliance with Oil Companies International Marine Forum (OCIMF) standards.
With the onset of E.U., U.S. and G7 sanctions on Russian crude oil, these dynamics have come to apply to the fleet transporting Russian crude oil as well. The percentage of Russia’s main crude blend, Urals, transported by ships older than 15 years of age has doubled from approximately one third of seaborne exports before the war to approximately two thirds after sanctions on crude exports were imposed in December.
If these practices do lead to an accident, there’s a low chance of holding any of the involved commercial actors liable for any environmental damage. Many of the ships active in the trade lack any known insurer, and many more are insured only on paper.
“If a company is not going to meet the safety record, there is always somebody that is going to quote-unquote ‘insure’ it,” McConnell said. “They’ll give you the piece of paper, but they’re not going to pay up if you have an incident.”
Claimants can take an insurance company to court if it refuses to pay damages after an incident. But James M. Turner, a maritime lawyer with the London-based firm Quadrant Chambers, explained that rulings in such cases are effectively unenforceable unless the insurer has assets in the country where the judgement was secured.
And while winning compensation for an environmental catastrophe from an insurance company that doesn’t want to pay may be very difficult, securing payment from the shipowner is often nigh impossible.
“Ultimately the ship in most cases will be owned by a single ship company whose only asset is the ship, and so if a terrible liability is incurred, and the ship is lost in incurring the liability, there will be no asset against which you can enforce any sort of claim,” said Turner.
With no way of securing compensation from those profiting from the trade in sanctioned oil, the international community is forced to step in and pick up the bill. The International Oil Pollution Compensation (IOPC) Funds, mutual funds set up under the International Maritime Organization, the U.N. agency responsible for regulating global shipping, to provide compensation for oil spills to member states, serves as the de-facto underwriters of last resort in the global tanker trade.
The organisation has already had to compensate victims of an oil spill caused by a dangerously old and under-maintained vessel operating in Southeast Asian waters once this year, when the MT Princess Empress sank in the Philippines. The circumstances of that spill were comparatively favourable, as the owner of the vessel – the Filipino-owned RDC Reield Marine Services – was known and was covered by a reputable insurer willing to compensate for damages.
None of these factors could be taken for granted in the case of a major oil spill involving a vessel like the Pablo.
The rising threat posed by such tankers to both the environment and maritime traffic has not gone unnoticed by the governments of the region.
Singapore detained more tankers for failing safety inspections in the first half of this year than in the entire decade running 2009-2019. Meanwhile, the Indonesian coast guard has committed to strengthening patrols and was able in July to seize an Iranian-flagged tanker engaged in the illegal transhipment of oil in Indonesian waters.
Even China, the primary destination for sanctioned oil transiting the Straits of Malacca, has taken note of the risks these ships pose, increasing safety checks on older tankers at the port of Qingdao, a major destination for the country’s oil imports.
However, with so many unsafe ships continuing to transit Southeast Asian waters and engaging in risky behaviours, this may not be enough to prevent a major oil spill in the future. Any big spill would potentially wreak environmental havoc and cause irrevocable damage to the reputation for safety the tanker industry has spent decades trying to build up.
“I think that the legitimate owners would love to see some enforcement here against these bad actors, it’s just not happening,” said McConnell.
