Oil from under the floor: secondary EU sanctions will force Russia to apply the Iranian experience

Ivan Zubov

A few days ago, the South Korean company Daewoo Shipbuilding & Marine Engineering (DSME) terminated the contract for the construction of three Arc7 LNG tankers commissioned by the largest Russian shipping company Sovcomflot for the Arctic LNG 2 project due to late payment, Kommersant reported. The shipyard was supposed to hand over the tankers in February, April and July 2023 under a contract worth $872 million. True, the same tankers are being built at the Russian Zvezda plant, but its work is now seriously threatened by the EU sanctions ban on the supply of ship equipment.

In addition, according to experts from the Sevmorput channel, Sovcomflot also had other problems: in order to pay off creditors, it had to sell 14 out of 123 of its own vessels, thereby reducing its debt from $3 to $1.7 billion. In addition, on May 26, the government issued a decree not to pay dividends to Sovcomflot shareholders for 2021, since the federal budget’s lost revenue could amount to about 10 billion rubles.

But the company's misadventures do not end there either, as the EU is about to introduce secondary sanctions that could ban European companies from insuring ships carrying Russian oil in order to prevent other countries from buying it. Even now, according to the Kremlin Mamkoved channel, Russian ships from Sakhalin cannot call at the ports of South Korea to transship raw materials, and foreign companies either do not have ships of the required class, or voluntarily refuse to contact Russian companies.

If the European Union introduces such a ban, the extractive industry will also be hit, since tankers are the main way to export oil. Shipping accounts for almost 3.6 million bpd of total exports of 4.5 million bpd.

As a result, Russia will find itself in exactly the same situation as Iran, which is forced to send its tankers with transponders turned off in order to, at the risk of safety and the environment, reload oil onto Chinese ships right on the high seas...