Dubai Harbou. Photo via Dubai International Boat Show.

Sanctioned Russians Spark Worries of Industry Crisis at Dubai Yacht Show

Bloomberg
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March 12, 2022

By Devon Pendleton, Lisa Fleisher and Kateryna Kadabashy (Bloomberg) –Superyachts, the ultimate symbol of excess, have long had a whiff of the sordid amid all the splendor.

At this year’s Dubai International Boat Show, there are other S-words hanging in the air — sanctions, seizures. 

In normal times, this yacht exposition, held at a brand-new marina, would be just like all the others: Giddy displays of lavishness put on to entice a growing universe of would-be buyers and awe normal-folk spectators.

But the war in Ukraine and sanctions against some of Russia’s moneyed elite have thrust superyachts to the fore of public consciousness like never before.  

The show this week is still packed with boats out of reach for 99.99% of the world, though there’s nothing that compares with Dilbar. That’s Alisher Usmanov’s superyacht, the largest by volume ever built, which is currently languishing in Germany due to European Union sanctions on the Russian billionaire. Other vessels are stuck in France and Italy. One was nearly sunk off the coast of Spain.

It’s more drama than the Gulf emirate’s boat-show organizers could have imagined when planning the exposition, back after a two-year pandemic hiatus. 

The venue is still hopping. On Thursday afternoon, exhibitors, salespeople and smartly dressed families with children in tow milled around in the 90-degree heat. Waiters swung through with trays of watermelon juice and a VIP section erected by the Nikki Beach resort was packed. It’s a buzzy atmosphere befitting a marquee industry event on the heels of a record sales year

‘The Situation’

Yet the war and its implications loom. Just about every conversation with industry professionals returned to a neutral-sounding term for Russia’s invasion of neighboring Ukraine: “the situation.” 

“Everybody’s talking about it,” said Rainer Behne, chairman of BehneMar, a yacht broker and consultant.

Yacht builders, jubilant over skyrocketing sales amid the pandemic, are getting a shock dose of fear over the ramifications of sanctions and unprecedented public scrutiny.

Adding to the jitters, the Financial Action Task Force earlier this month added the United Arab Emirates to a “gray list” of countries seen as having shortcomings in dealing with illicit finance.

“If somebody wants to buy a yacht, it’s difficult,” said Behne. “The banks are shaking like crazy.” 

Russians make up the biggest percentage of current superyacht owners after U.S. citizens and almost match Americans in the number of new-build boats ordered in the past decade, according to a 2021 report from SuperYacht Times. Many of the yachts are big and showy — and thus, labor-intensive — which is an added boon to builders and designers.

Many industry representatives shrugged off the impact of sanctions, citing the culture of extreme secrecy that shrouds most workers’ awareness of their customers’ identities. Most declined to speak on the record for that reason.

‘Political Statements’

“It’s very hard for a company to make political statements about this,” said Farouk Nefzi, chief marketing officer at Dutch yacht builder Feadship. Out of the 490 boats the company has made since 1949, only eight have been for Russian clients, he said, and the firm frequently monitors sanctions lists in Europe and the U.S.  

Meanwhile, there’s no shortage of scrutiny on the comings and goings of superyachts, especially those of Russia’s richest people and those considered close to Vladimir Putin. News organizations have followed their every move. So has the Florida teen who soared to fame tracking Elon Musk’s private jet.

Satellite data collected over the past two weeks indicate a pattern of Russian-owned boats retreating from European waters for non-EU territory. A few Russian yachts have docked in Dubai, including “A,” a 143-meter sailing boat owned by fertilizer magnate Andrey Melnichenko, and Madame Gu, a blue-and-white Dutch-built ship belonging to the family of investor and Duma member Andrey Skoch. There’s no evidence the movements are linked to the war.

The sanctions pose a quandary for the industry, which is having to navigate an image crisis like never before. 

Logistical Questions

Then there’s the logistics. 

Superyachts are so large that a given shipyard can only handle a few projects at one time. It’s extremely likely that many of the custom ships under construction are Russian-owned, said Sam Tucker, head of superyachts at maritime data company VesselsValue. Sanctions bar builders from receiving payments from affected individuals or companies, and the partially-completed hulls, too vast to move, are taking away precious space to construct vessels for clients who can pay.

The competition for space is so fierce that offers for unfinished superyachts of sanctioned Russians have already started pouring in, people at the Dubai show said. The projects take many vendors and many years, and with the outcome of the war still uncertain, wealthy buyers are vying to take over contracts partway through.

Transferring the contracts could pose a problem down the road if sanctions are suddenly lifted. It’s yet another hypothetical in an already foggy future.

“Who knows,” said Thomas Wieringa, marketing director for shipbuilder Damen Yachting, referring to the effect on shipyards. “We were in Miami three weeks ago — nobody was expecting anything.”

© 2022 Bloomberg L.P.

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