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Oil Tanker Firm Fractal Loses Bid to Escape UK Sanctions

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March 22, 2024

By Jonathan Browning (Bloomberg) —

A Dubai-based shipping firm that was targeted for being part of Russia’s shadow fleet has lost a court bid to suspend UK sanctions, in the first public challenge of cases connected with the oil price cap.

Lawyers for Fractal Marine DMCC, which managed a fleet of 28 vessels as an intermediary between owners and charterers called the UK government’s allegations “entirely baseless.” They had argued that the company, which was set up in early 2022, would be forced into liquidation unless the measures were lifted.

Judge Adam Johnson ruled Friday that Fractal Marine couldn’t challenge the UK government at this stage in the appeal. The company had offered not to transport any Russian crude before a final government review as it warned that potentially unscrupulous competitors could take over the tanker trade.

“The consequence is that Fractal Marine is unable to operate, unable to pay its staff” and “vessel owners will have no choice but to replace Fractal Marine with one of its competitors,” lawyer Maya Lester said.

Tanker Giants Sprout From Nowhere To Keep Russian Oil Moving

Fractal was one of several firms that appeared to come out of nowhere shortly after the imposition by the Group of Seven countries of a price cap and wider western sanctions on Russian oil after President Vladimir Putin’s invasion of Ukraine. It previously played a significant role in transporting Russian oil but has always insisted that it operated within the cap “through extensive due diligence and attestation measures.”

The firm said it was suffering from the closure of its bank accounts and withdrawal of insurance coverage following the UK crackdown in February. Fractal’s lawyers said that if it was forced to shut down, other competitors that might include the “shadow fleet” would instead transport the Russian oil. “This is entirely counterproductive,” Lester said.

UK government lawyers, who have so far won all the various court challenges to Russian sanctions, had argued that the judge should deny the request.

“The fact that the substantial effect of sanctions can be relaxed could be perceived as a sign of leniency or ineffectiveness by individuals and entities who could be the subject of sanctions in the future,” the UK government lawyer Richard Hanstock said in a court filing.

The UK acted unilaterally when it hit the company with sanctions in February when it was already in conversations with US authorities, Fractal’s lawyers say. They want a judge to quash the sanctions declaring them unlawful.

© 2024 Bloomberg L.P.

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