The geography of sanctions evasion is not where most people expect it to be. It is not primarily in the back streets of Moscow or Tehran. It is in the corporate registries of New Zealand, the Marshall Islands and the British Virgin Islands, in the insurance markets of Dubai and Mumbai, in the shipping management offices of Hong Kong and Singapore, and in the legal and financial infrastructure of jurisdictions whose governments are nominally aligned with the Western sanctions regime but whose corporate law creates the opacity that evasion requires. Understanding how sanctions evasion actually works requires following the paper trail through these jurisdictions, understanding the corporate structures that make traceability difficult, and recognising that the individuals and companies involved are, in most cases, operating in the space between what is clearly prohibited and what can be defended as legitimate commercial activity in a grey market.

The case of the New Zealand insurance company, which emerged from investigations by a range of journalists and sanctions researchers in 2023 and 2024, is instructive precisely because it is representative rather than exceptional. New Zealand is not a country that most observers would associate with sanctions evasion in the oil trade. It is a Western democracy, a member of the Five Eyes intelligence alliance, and nominally committed to the sanctions framework that its allies have imposed on Russia. Its corporate registry, however, like those of many common law jurisdictions, allows the rapid and inexpensive incorporation of companies with minimal disclosure of beneficial ownership. A company can be registered, a bank account opened, an insurance licence obtained in a related jurisdiction, and a letterhead produced, in a matter of weeks. The company can then offer insurance services to vessels operating in the shadow fleet, accepting premiums and issuing certificates of insurance that allow those vessels to present the appearance of adequate cover to port authorities and flag states that lack the resources or the motivation to investigate the financial substance behind the certificate.

Sanctions evasion in the oil trade is not a single transaction. It is a system, assembled from multiple components each of which may be individually defensible but which together constitute a mechanism for circumventing the intent of the sanctions regime. Understanding the system requires mapping its components and the relationships between them.

The first component is the vessel. A shadow fleet tanker is typically registered under a flag of convenience whose administration does not share information with Western sanctions authorities in real time. Its Automatic Identification System transponder is frequently disabled or manipulated to obscure its movements and its port calls. Its classification certificate, the document issued by a classification society attesting to its structural and mechanical fitness, may be issued by a non-Western classification society whose standards and enforcement are less rigorous than those of the major Western societies that belong to the International Association of Classification Societies.

The second component is the ownership and management structure. The vessel is owned by a shell company in a jurisdiction with minimal disclosure requirements. It is managed by a ship management company that may be nominally independent of the owner but is in practice closely connected to the trading network that charters the vessel. The management company handles crew, maintenance and port logistics. It is the interface between the vessel and the physical world, and it is typically located in a jurisdiction that provides some degree of distance from the jurisdictions subject to the most rigorous sanctions enforcement.

The third component is the cargo documentation. A cargo of sanctioned crude must be presented to port authorities at both the loading and discharge ports with documentation that either misrepresents its origin or presents it in a way that makes verification difficult. Ship-to-ship transfers, in which sanctioned crude is transferred at sea from one vessel to another, are one mechanism for obscuring origin: after the transfer the cargo can be documented as originating from the second vessel's last port of call rather than from the Russian loading terminal. Blending, in which sanctioned crude is mixed with non-sanctioned crude before or during transport, is another mechanism that complicates traceability.

The insurance component of the evasion architecture deserves particular attention because it is both essential to the operation of the shadow fleet and the layer of the system most vulnerable to disruption. A vessel without credible insurance cover cannot call at most international ports, cannot transit certain straits and waterways, and cannot be financed by most commercial banks. The provision of insurance to shadow fleet vessels is therefore a necessary precondition for their commercial operation, and the entities that provide it are critical nodes in the evasion network.

The alternative insurance market that has developed to serve the shadow fleet is heterogeneous. It includes Russian state entities such as the Russian National Reinsurance Company, which was established specifically to provide cover for vessels unable to access Western insurance markets after 2014 and expanded significantly after 2022. It includes Indian P and I clubs, whose member-owned structure and regulatory environment in India gives them some degree of independence from Western sanctions enforcement. It includes entities in the Gulf, particularly in Dubai and Abu Dhabi, whose position at the intersection of Western and non-Western financial systems gives them operational flexibility that purely Western or purely Eastern entities lack.

And it includes entities like the New Zealand company: small, newly established, lightly regulated insurers whose value to the shadow fleet ecosystem lies not in their financial capacity, which is limited, but in their jurisdictional location and their ability to issue certificates of insurance that pass superficial scrutiny. The financial substance behind these certificates is genuinely uncertain. In the event of a major casualty involving a vessel insured by such an entity, the question of whether the insurer has the financial capacity to meet the resulting claims is not merely academic. It is the question on which the entire risk calculus of the shadow fleet ultimately depends, and the answer, in many cases, is that it does not.

The infrastructure assembled to move Russian crude outside the Western sanctions system did not emerge from nothing. It was built in significant part on the foundations laid over decades of Iranian sanctions evasion, and the experience of those involved in the Iranian trade provided both the knowledge and the institutional relationships that the Russian shadow fleet required.

Iran has been subject to various forms of Western oil sanctions since 1979, with the most comprehensive restrictions introduced between 2012 and 2015 and again from 2018 following the American withdrawal from the Joint Comprehensive Plan of Action. During these periods Iranian crude continued to reach Asian markets through a network of evasion mechanisms whose sophistication grew with each successive round of sanctions tightening. Ship-to-ship transfers in Malaysian and Omani waters became a standard feature of the Iranian crude trade. Flags of convenience were rotated regularly to stay ahead of vessel-specific designations. Cargo documentation was systematically manipulated. And a network of alternative insurance and financial intermediaries was developed in jurisdictions outside the reach of American secondary sanctions.

Many of the same vessels, the same trading companies, the same insurance providers and the same legal and logistical intermediaries that had learned their trade in the Iranian market were available to be redeployed in the Russian trade after 2022. The shadow fleet did not need to be invented from scratch. It needed to be scaled up, and the Iranian trade had provided both the blueprint and the personnel.

Western governments have not been passive in the face of sanctions evasion. The United States Office of Foreign Assets Control, the United Kingdom Office of Financial Sanctions Implementation and the European Union's sanctions enforcement bodies have all issued guidance, designations and civil and criminal penalties in connection with shadow fleet operations. Individual vessels have been designated, meaning that any party subject to Western jurisdiction is prohibited from providing them with services. Companies involved in shadow fleet logistics, insurance and trading have been sanctioned. Banks and financial institutions have been warned about their exposure to sanctions violations through their relationships with entities involved in the shadow trade.

The results of these enforcement efforts have been mixed. Vessel designations are effective at excluding specific ships from ports that enforce them, but the shadow fleet has proven capable of rotating vessels, changing names and flags, and continuing to operate designated vessels in markets where enforcement is minimal. Company designations disrupt specific entities but can be circumvented by the rapid establishment of successor companies in different jurisdictions. The warning letters sent to banks and financial institutions have had the effect of making major Western banks more cautious about their exposure to shipping clients with potential shadow fleet connections, but they have also accelerated the migration of shadow fleet financing to non-Western financial institutions in China, India and the Gulf whose exposure to Western secondary sanctions is more limited.

The fundamental challenge of sanctions enforcement against a diffuse, multi-jurisdictional evasion network is that it requires the coordinated action of a large number of national authorities, each operating within its own legal framework and with its own enforcement priorities. The United States has the most extensive extraterritorial reach through its secondary sanctions authority, which allows it to threaten non-American companies and individuals with exclusion from the American financial system if they facilitate transactions that violate American primary sanctions. But secondary sanctions require a political willingness to impose costs on allies and partners whose commercial interests are served by the shadow trade, and that willingness has been inconsistently applied.

India is the clearest example. Indian refiners have been the largest beneficiaries of the Russian crude discount created by the price cap, and the Indian government has made clear that it does not consider itself bound by Western sanctions on Russian oil. American secondary sanctions have not been applied to Indian refiners or to Indian financial institutions facilitating Russian crude transactions, partly because the geopolitical costs of a confrontation with India on this issue are judged to exceed the sanctions enforcement benefits. The result is a significant gap in the enforcement architecture that the shadow fleet has been able to exploit at scale.

The New Zealand insurance case is not important because of the specific entity involved. Its financial significance in the context of the overall shadow fleet is modest. It is important because of what it illustrates about the systemic properties of the evasion architecture. The architecture works not because any single component is sophisticated or powerful but because the combination of multiple components, each individually defensible and each located in a different jurisdiction, creates a system that is enormously difficult to disrupt comprehensively.

Disrupting one component, a vessel designation, a company sanction, a bank warning, forces a reconfiguration around that component rather than a collapse of the system as a whole. The system is resilient because it is distributed, because its components can be replaced, and because the financial incentives for maintaining it remain large as long as the price spread between sanctioned and conventional crude persists. These properties are not unique to the Russian shadow fleet. They are characteristic of any sophisticated sanctions evasion system, and they suggest that the effectiveness of financial coercion as a tool of geopolitical strategy is fundamentally limited by the ability of sufficiently motivated actors to assemble alternative infrastructure outside the reach of the sanctioning powers.

For the countries and communities that bear the risks of the shadow fleet without sharing in its profits, this analysis offers little comfort. The evasion architecture will continue to function as long as the commercial incentives support it. The risks it creates will continue to accumulate on the balance sheets of coastal states, fishing communities and marine ecosystems that had no role in creating the geopolitical confrontation that brought it into existence. And the small insurance company in New Zealand, or its successor registered in some other common law jurisdiction next month, will continue to issue certificates of insurance for vessels whose financial backing it cannot actually guarantee, in a trade it does not fully understand, for consequences it is not equipped to bear.