Europe’s Incomplete Decoupling from Russian Gas: Sanctions, Shadow Fleets, and Third-Party Deals
By Luca Guerzoni
Before the war in Ukraine erupted in 2022, over 40% of the European Union’s gas came from Russia, delivered primarily through pipelines. This heavy reliance on Russian gas was the result of decades of infrastructure development, as Europe, driven by a need to phase out coal and nuclear energy, turned increasingly to natural gas. Gazprom, the state-controlled Russian energy giant, capitalized on its proximity to Europe and its vast natural gas reserves in West Siberia to lock in long-term supply contracts, binding European nations to Russian gas. These contracts, often spanning 20-25 years, included "take-or-pay" clauses, forcing buyers to pay for a minimum amount of gas, even if they did not use it. This economic arrangement, coupled with low prices, cemented Europe’s dependency.
Four major pipelines have been constructed between Russia and Europe since the rise of Vladimir Putin in 1999, culminating in Nord Stream 2 in 2021, a project designed to double the capacity of Nord Stream 1 by sending gas directly to Germany via the Baltic Sea. This pipeline, however, was met with significant opposition due to concerns that it would leave Europe overly dependent on Russian gas. The U.S. opposed its construction, imposing sanctions on German companies involved and, in 2023, the pipeline was allegedly sabotaged, never becoming operational.
The Impact of the Ukraine War and Europe’s Search for Alternatives
When Russia invaded Ukraine in February 2022, the EU responded by imposing sanctions on Russia, targeting its economy and energy exports. In retaliation, Russia weaponized its natural gas supply, cutting shipments to Europe in an attempt to leverage its energy dominance. This geopolitical crisis forced Europe to rapidly seek alternatives, accelerating the continent’s energy transition toward renewable sources and spurring the diversification of pipeline imports.
Europe began boosting gas imports from Algeria, Azerbaijan, Qatar, and Norway, and turned to U.S. liquefied natural gas (LNG), which, while more expensive, provided a critical alternative. However, to process LNG, Europe needed to build infrastructure, including new LNG terminals in ports across the continent. By the end of 2022, the EU, G7, and their allies introduced price caps on Russian oil ($60 per barrel) and gas (€180 per megawatt-hour), aiming to reduce Russia’s revenues while limiting energy market volatility. Although these measures reduced Russian gas exports to Europe by over 80%, they did not eliminate them entirely. In fact, Russia found new opportunities to maintain its hold on Europe’s energy supplies, albeit indirectly.
Russian Gas Still Flows to Central Europe
Despite sanctions and diversification, Russian gas continues to flow into Central Europe, primarily through pipelines that traverse Ukraine and Turkey. The TurkStream pipeline, which carries Russian gas under the Black Sea into southeastern Europe, remains fully operational. Countries like Hungary, Slovakia, and Austria still rely on Russian gas imports via Ukrainian routes, including the Trans-Siberian pipeline, Soyuz pipeline, and the Soviet-era Brotherhood (Druzhba) pipeline. Long-term contracts between Gazprom and European companies, many of which were signed before the war, remain in place. These contracts often include take-or-pay clauses, obligating European nations to either purchase gas or pay penalties, further entrenching their reliance on Russian energy.
Photo Credit: Radio Free Europe/Radio Liberty
Indirect Purchases via Third Countries
One of the most significant ways Europe has maintained its dependence on Russian energy is through indirect purchases from third countries. Nations like India, China, and Turkey have become major buyers of discounted Russian oil and gas since the start of the war. These countries refine Russian oil or blend it with other sources and then re-export it to Europe under non-Russian labels. For instance, India’s refined products, particularly diesel, are now critical for European markets. Although Europe has stopped purchasing crude oil directly from Russia, the end products are often derived from the same source.
Turkey has also increased its imports of Russian gas, taking advantage of its geographic position along the TurkStream pipeline to resell Russian gas to European neighbors. These practices allow European countries to continue securing energy supplies while technically complying with sanctions.
Russia’s Shadow Fleet: Circumventing Sanctions
To bypass the restrictions imposed by price caps and sanctions, Russia has developed a shadow fleet of oil tankers. This fleet consists of unregistered or reflagged vessels that use a complex web of shell companies based in countries with limited regulatory oversight, such as Dubai, Hong Kong, and Singapore. Russia’s shadow fleet is largely composed of older vessels purchased from the secondary market. By 2022, Russia or Russian-linked entities had reportedly acquired around 100 aging tankers to transport oil covertly. Many of these ships, no longer desired by Western oil companies due to aging infrastructure and environmental standards, were bought at discounted rates.
To continue operating, Russia sought alternatives to Western-dominated insurance markets by turning to Russian and Chinese insurance providers. Additionally, the vessels in the shadow fleet often reflag under countries not part of the sanctions regime, such as Panama, Liberia, and small island nations like the Marshall Islands. This practice obscures the true ownership and allows these ships to transport Russian oil undetected. The fleet also uses deceptive practices, including turning off Automatic Identification Systems (AIS) and engaging in ship-to-ship transfers (STS) at sea to conceal the origin of the oil.
According to estimates from the Kyiv School of Economics, nearly 70% of Russian seaborne oil exports in 2023 were transported by shadow fleet tankers, effectively evading the G7 price cap. This allowed Russia to continue selling crude oil at prices above $60 per barrel, benefiting from the higher market value of its exports.
Ship-To-Ship Transfer in the Gulf of Laconia, Greece (Photo Credit: Bloomberg)
Why the West Has Not Taken a Firm Stance Against the Shadow Fleet
The West, particularly Europe, has been cautious about fully cutting off Russian oil and gas from global markets due to concerns about energy security and potential price shocks. Despite the war in Ukraine, Russia remains one of the world’s largest oil producers, and a sudden, total embargo would likely create a global supply shortage, driving energy prices higher and harming the global economy. Western governments, led by the U.S. and EU, implemented the price cap to limit Russia's revenues while ensuring the continued flow of Russian oil to international markets at a discount.
A full crackdown on the shadow fleet could further reduce Russian oil exports, likely causing a spike in global prices and exacerbating economic problems, particularly in countries already grappling with high inflation and energy costs. Moreover, Europe itself benefits from Russian oil, even indirectly. Imports of refined Russian oil products from third countries like India, China, and Turkey have surged, allowing Europe to access energy without violating sanctions. This complex workaround allows Europe to secure energy supplies while maintaining the illusion of reducing its dependence on Russia.
For these reasons, the best strategy for Europe has been to passively accept the existence of the shadow fleet, ensuring that Russian oil continues to flow but at lower prices. This approach limits Russia’s financial gains while preventing major disruptions to global energy markets. The only risk related to this is a potential oil spilling incident given the age of many of the shadow fleet’s vessels and their unknown insurance coverage.
Conclusion
While Europe has made significant strides in reducing its direct reliance on Russian gas and oil, the continent has not fully decoupled from Russian energy. Indirect purchases, long-term contracts, and Russia’s shadow fleet have enabled Russian energy to continue flowing into Europe, albeit through more convoluted channels. The economic risks related to fully decoupling from Russian gas and the need to maintain global energy stability have led Europe to adopt a more pragmatic approach, allowing for Russian oil and gas to persist in European markets, even as official sanctions remain in place.
