We assume that the world looked on in horror as Russian missiles began to fall on Ukrainian homes in February 2022, and at the war crimes that Russian soldiers committed in their wake. Most of the world did: hundreds of companies closed their Russian operations and abandoned their assets in Russia. But one group of Western businesses, run from one EU country, headed in the other direction. Around the world, tankers owned by Greek shipping companies turned towards Russian ports.
As other shipping lines refused to take Russian exports, the fees for carrying Russian oil rose, and Greek shipping companies capitalised on the opportunity. As their profits have grown, Greece has lobbied successfully to dilute sanctions on Russian oil. A merchant navy, run by a small group of Western oligarchs, keeps money flowing into Putin’s regime.
Robin Brooks is the chief economist at the Institute for International Finance, the trade association for the global financial services industry. His research has shown the true scale of Greece’s involvement in the Russian economy.
The uncomfortable fact, Brooks tells me, is that “Russia depends on Western transport infrastructure to keep its war going”.
Russia’s economy runs on oil. Gas, despite the political significance of the Nord Stream pipelines, is a secondary concern: Russia has made around four times as much money from oil than gas, banking almost $3.5trn from crude exports over the past two decades, according to data from the Russian central bank. Brooks quotes John McCain’s comment that Russia is a “gas station masquerading as a country”. Most (70-85 per cent) of this oil leaves the country by tanker.
“Oil is the single biggest source of revenue for Russia,” Brooks tells me, “[and] the Greek shipping fleet is the single biggest provider of transport to Russia, even including Russia’s own ships… nobody comes close.”
Brooks’ research shows that before the war in Ukraine, Greek shipping companies provided around a third of the shipping capacity for Russian oil exports; he says it’s now more than half.
The Ukraine war has created a huge opportunity for excess profits. One of the most common routes for shipping Russian oil runs from the Baltic port of Primorsk, through the Mediterranean and the Suez Canal, to the west coast of India. The shipping cost per barrel for this journey is $7.67 per barrel, a price that includes a “sanctions component” of $3.50, according to the market intelligence company Argus Media. This means an Aframax tanker making this journey with a full load of 700,000 barrels of Urals crude oil can charge an extra $2.45m, per journey, thanks to Russia’s invasion of Ukraine.
That figure was calculated by Michelle Wiese Bockmann, a senior analyst at Lloyd’s List Intelligence. Bockmann says that after Russia’s invasion of Ukraine, “the recalibration of oil trades lengthened voyages, which increased demand for tankers and in turn resulted in outsized profits for the entire sector”. Among the tankers shipping Russian oil, Bockmann says premiums of more than $10m per journey were “commonplace” earlier this year.
These profits are the reason that an EU member state, less than 300 miles from the Ukrainian border, is providing economic support for the invasion of the European mainland.
That support is also diplomatic. At the G7 summit in the 2022, the world’s major economies began to discuss a price cap on Russian oil. A total embargo was a risky idea: ditching the world’s third-largest oil producer could have caused oil prices to spike, inducing recessions across the West. The logic of the cap was that it would restrict the flow of money to Putin’s war machine, while minimising the pain felt by Western businesses and consumers. Even this halfway house was rejected by Greece, however, which lobbied (along with Malta and Cyprus, which also have significant shipping industries) to obstruct the price cap.
It took the EU’s member states a further six months to set the price cap, which has been in place since 5 December 2022. During that time, according to the UN, more than 2,000 Ukrainian civilians were killed by Russian forces. For months, countries such as Poland argued that Russian oil should be capped at $20 or $30 a barrel. “That would have been a very material hit to Russia’s money machine,” says Brooks, but a determined lobbying effort by Greece and its allies lifted the cap to twice that level, at $60 a barrel. At the time, Urals crude oil was trading at a substantial discount that put it below this level, so the cap made no immediate difference to Russia’s oil income: “Greek lobbying had a very, very large impact in terms of what kind of shock the G7 price cap was to Russia,” says Brooks. “It ended up being not a shock at all.”
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Most Greek shipping firms are private, family-owned businesses, and they seem unconcerned by the moral implications of their trade. “As the stigma of Russian oil goes up, it becomes more profitable to transport it,” says Brooks. The stain of Russian oil can be washed out, too, by further lobbying: after the Ukrainian government added five Greek shipping companies to its list of “international sponsors of war”, Greece once more blocked the imposition of further sanctions, and the release of hundreds of millions of euros in military funds to Ukraine. The delay lasted for weeks. Eventually, after intervention from Brussels, Ukraine agreed to suspend the listings; hours later, the 11th package of sanctions was passed.
Greece, Cyprus and Malta comprise less than 3 per cent of the EU population, but – in what Brooks calls an example of “extreme dysfunction inside the EU” – they have successfully restricted decisive action against the Russian economy on behalf of a handful of well-connected companies.
Given their outsize impact, it is worth asking just how Greek (or Cypriot, or Maltese) the companies driving this lobbying really are. More than 40 per cent of the workforces on their ships are non-Greek (global shipping depends largely on the Philippines, which supplies one in four merchant seafarers worldwide) and the berths at which they dock are owned by overseas oil companies and refineries. Greek shipping companies have long claimed to contribute around 7 per cent of their country’s GDP, around the same as its tourist industry, but in 2015 a Reuters investigation claimed this was “largely a myth” and that shipping contributes just 1 per cent of Greece’s GDP.
Most importantly, whatever the contribution they may make in terms of employment, ship owners pay no corporation tax in Greece. In a country that has endured a debt crisis and a period of brutal austerity, where real wages have fallen 40 per cent since 2007, a small group of family-owned businesses has not paid corporation tax since 1953; the tax breaks are written into the Greek constitution. Like many oligarchs, the beneficial owners of Greece’s shipping industry may live abroad. Many choose London; if they register as non-domiciled and their income is overseas, they need not pay tax in the UK either.
We should not content ourselves that this is solely a Greek phenomenon. The merchant navy serving Putin’s gangster state depends on financial institutions in Britain and the US. Michelle Wiese Bockmann’s analysis shows that a third of all tankers shipping oil from Russia across the Baltic and Black Sea are insured in the West, while those insured elsewhere are ultimately covered by the London reinsurance market. The companies that are publicly traded raise capital in New York City, while others are financed by Western hedge funds.
In the past year, businesses worldwide have taken the opportunity to sell off old ships, which are suddenly in demand. “We’re seeing more and more tankers that used to be Greek-operated, or Cypriot-operated, that now are owned by some weird shell company,” says Brooks. “There’s been a lot of intermediaries,” adds Bockmann, “so somebody will sell their tanker to a company that looks legit – and then six weeks later, they will find out it has a new owner.”
As Russia laid waste to Ukrainian cities and abducted thousands of Ukrainian children, Western companies took the rewards of a thriving market for the ships that helped finance Putin’s war. “Everybody did it, from the cleanest, ESG-compliant Norwegian company, to… Libya’s government,” says Bockmann. “Everybody piled in.”
The old ships became new members of the “dark fleet” – a motley collection of tankers (operated by shell companies that disguise their true owners) that fly under the flags of tax havens such as Panama, Liberia or Gabon, and which work exclusively in shipping sanctioned oil. Bockmann says the size of the dark fleet has doubled in the past 18 months, to almost 500 vessels.
The result is that no one filling up their car in the UK, Europe or the G7 can really say they have boycotted Russian oil. Britain, which previously imported 18 per cent of its diesel from Russia, banned imports of Russian fuels at the end of 2022. But in April the Centre for Research on Energy and Clean Air, a research organisation based in Finland, identified a huge increase in Russian oil exported to “laundromat” countries including India, China and Turkey in the year after Russia’s invasion of Ukraine. These countries refine Russian oil and re-export it, as Indian or Turkish fuel, back to the West and the G7. In the year after the invasion, the UK imported 5.3 million tonnes of fuel from the “laundromat” countries.
For Robin Brooks, what this amoral business represents is a missed opportunity for decisive action. “The West has the power to put Russia into a financial crisis,” he tells me, because the value of the rouble is so dependent on Russia’s trade. A significant cut to that trade (which is mostly oil) would aggressively depreciate the value of Russia’s currency, forcing up interest rates and the cost of doing business in Russia. “You would have both an inflation hit and a big GDP hit,” he explains.
Had the West done this earlier, embargoed Russian energy entirely or brought in a faster, lower price cap, there would have been consequences for the West: higher inflation, possibly recession. But what this scenario ignores, says Brooks, is the possibility that it would also have led to a much shorter war.
By choosing half-measures, by prioritising British and American consumers over Ukrainian civilians, we have given Russian oil time to seep around the sanctions. Other regimes may find this instructive: any oil-rich autocracy now knows that we may decry its actions, but we won’t sanction the energy that makes it wealthy. “We’re just teaching other current-account-surplus countries that we are reluctant to suffer any pain ourselves,” says Brooks, “and we’re teaching them how to circumvent the things that we are doing.” Brooks says two policies could help immediately: a further cut in the price cap, to $50, and adding oil tankers to the list of banned exports. Together these measures would add up, he says, to an “immediate hit to the financial stability of Russia”. Without them, he says, we are left to watch as Western companies profit from the destruction of Ukrainian cities, and to ask: “What is the EU doing, exactly?”
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