Sanctions Net Widens to Catch Russia’s Middle East Shipping Company

EU’s latest measures target Sun Ship, a Dubai unit of Russian state-owned tanker firm that brings in 70% of Russia’s energy revenue

The European Union sanctioned a Dubai-based subsidiary of Russia’s state-owned shipping giant, the first time it has used new powers to hit foreign-based entities that help Moscow circumvent Western restrictions.

The sanctions target Sun Ship Management, the manager of dozens of oil tankers that ferry Russian oil and natural gas around the world. The new sanctions include an EU asset freeze and ban on financing the company, which the EU said is part of government-controlled shipping company Sovcomflot.

The move against Sun Ship was part of the latest package of measures detailed over recent days from the EU, U.K. and U.S. The measures seek to close loopholes in previous rounds of sanctions. The EU and the U.S. sanctioned Sovcomflot last February in the first days of the war.

Sun Ship’s services help bring in more than 70% of Russia’s energy revenue, which enables the Kremlin to finance its war in Ukraine, according to the EU’s official journal published Saturday.

“Sun Ship has been operating as one of the key companies managing and operating the maritime transport of Russian oil,” the EU said. “The Russian Federation is the ultimate beneficiary.”

Sun Ship and Sovcomflot didn’t immediately respond to a request for comment.

The move against Sun Ship uses powers that the EU adopted previously to go after people or companies who knowingly help Russia breach the sanctions.

Sovcomflot set up Sun Ship in Dubai in 2012. The subsidiary was called SCF Ship Management (Dubai) until July. In April 2022, Sovcomflot transferred management of 92 of its tankers and LNG carriers to Sun Ship, according to senior Russian shipping executives with knowledge of the deal.

Dubai, part of the United Arab Emirates, has emerged as a significant hub for Russian business activity in the wake of the Ukraine invasion. Thousands of Russian nationals and Russian businesses have relocated to the Middle Eastern city. International commodity trading and shipping companies moved staff to Dubai from Europe and Singapore to facilitate dealings with Russia.

U.S. authorities last week sanctioned MTS Bank, a Russian lender that opened a bank in the U.A.E. last year. It received a license from the Central Bank of the U.A.E. last year.

The move against Sun Ship and other offshore entities is the start of a broader campaign to keep Russia from finding offshore workarounds to sanctions.

“They’re effectively trying to cut off the corporate mechanisms utilized by Russia to try to continue its operations,” said Zia Ullah, a partner and head of corporate crime and investigations at law firm Eversheds Sutherland.

Unless Sun’s vessels travel to EU ports, they may not be breaking the trade bloc’s new sanctions. But the new measures are aimed at making it more difficult and expensive for Sovcomflot to operate. The West has tried to balance the need to restrict the money Russia earns from energy exports, while allowing Russian and oil and gas to reach global markets and to keep prices low.

To keep delivering Russian oil and gas, Sovcomflot can transfer the ships’ management to new companies, reflag them and add them to the group of ships moving Russian oil without Western insurance or other services, known in industry parlance as the “shadow fleet,” shipping lawyers said.

The Sun Ship vessels mostly fly Liberia and Panama flags, and a handful are flagged by Cyprus. Sovcomflot is still the owner of all vessels managed by Sun Ship Management, the shipping executives say.

Ships listed on Sun Ship’s website have ferried Russian oil in recent weeks, according to data from Kpler, a commodity analytics firm. A vessel known as Sakhalin Island transported crude from Primorsk in the Baltic Sea to the Algerian capital in late January. Ligovsky Prospect and Nevskiy Prospect are en route to Asia from Russian ports.

Neither of these ships is registered as Russian. Ligovsky Prospect and Nevskiy Prospect fly the flag of Liberia, and Sakhalin Island is registered as Panamanian, Kpler data showed.

The EU prohibits Russian vessels from accessing its ports, including ships that have had their flag changed to another country after Feb. 24, 2022. It also bans EU companies from providing services such insurance or finance for Russian oil cargoes, unless the crude or refined products are at or below the price cap levels imposed by the Group of Seven nations.