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Experts say the shipping industry's 'moral sanctions' against Russian trade are unlike anything 'in the history of mankind'

Apr 7, 2022, 23:24 IST
Business Insider
Activists from the environmental organization Greenpeace demonstrate in the Baltic Sea in front of a ship carrying Russian oil.Frank Molter/picture alliance via Getty Images
  • Historically, the shipping industry has done the minimum when it comes to following sanctions.
  • But since Russia's invasion of Ukraine, companies are choosing to self-sanction for moral reasons.
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When Shell bought Russian crude oil one week after the invasion of Ukraine, the internet, well, freaked out.

The energy giant swiftly apologized for the purchase and vowed to "choose alternatives to Russian oil wherever possible." In a statement posted to Twitter, Shell said it would donate the profits from the exchange to humanitarian efforts in Ukraine.

Shell's purchase was entirely legal and complied with sanctions at the time. But in that moment, the public decided that simply following the rules would no longer cut it.

While the Russia-Ukraine conflict isn't the first crisis to be broadcasted on social media, it is the "most viral" war, as The Economist reported. For many global companies, keeping a clean name is more valuable than keeping Russian clients.

The energy giant's response is just one example of what experts are calling "moral sanctions," or voluntary business limitations created in response to Russia's invasion of Ukraine. In the notoriously ruthless shipping and commodities industry, the trend has led companies like Shell to avoid all trade associated with Russia — even when it's legal.

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"Historically, companies have done the minimum amount of sanctions," Ami Daniel, CEO of the maritime risk consultancy Windward, told Insider. "However, what we've seen in the last month is a lot of companies do the maximum."

In early March, British dockworkers refused to unload Russian crude oil from Seacod, a German-flagged tanker, due to the Ukraine war.Lindsey Parnaby/AFP/Getty Images

The murky line between ethics and reputation control

Companies up and down the supply chain have severed ties with Russia over the past month, citing everything from safety concerns to financial sanctions.

The mass withdraw includes oil companies like BP and Shell, as well as the world's largest freight forwarders and container shipping lines. Even insurers that once covered trade in disputed areas have stopped doing business in the Black Sea and Sea of Azov, according to a March report from Windward.

And it's not just coming from the top ranks. In early March, British dockworkers refused to unload Russian crude oil from Seacod, a German-flagged tanker, due to the Ukraine war.

Daniel, who founded Windward 13 years ago, said the shipping industry hasn't seen moral sanctions like this "ever in the history of mankind."

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"Companies like Nike or Apple or IKEA pulled out of Russia, saying it's immoral to make money with Russia and support Putin's work," he said. "We've never seen that. Nobody's ever seen that."

The term "moral sanctions" implies that companies are going beyond the letter of the law purely for ethical reasons. But as seen in the Shell example, reputational risk is also at play.

"In practice, I think those grounds can get mixed." Raj Bhala, a distinguished professor at the University of Kansas Law School, told Insider.

"I think there are lots of [companies] who genuinely want to do the right thing," he added, noting that more businesses are incorporating ESG into their decisions as younger generations come into leadership.

The short-term and long-term impact of moral sanctions

The blanket rejection of Russian trade by the shipping industry "plugs holes" that legal sanctions left open for exploitation, Bhala said. For example, the European Union has not yet banned Russian oil purchases, but Western companies are still refusing to buy it, Reuters reported.

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Beyond the short term, Bhala told Insider that moral sanctions could permanently change the shipping industry.

"Once a company has decided that it is going to self-sanction based on moral grounds, arguably, it's never going to go back," he said. "It's set a precedent in the Russia case."

On the flip side, Russia's swift isolation from the Western world may lead prompt Russian businesses to attempt to evade sanctions. The industry reported surges in deceptive shipping practices in March, including vessel flag changes and dark activity.

"Russia is still making oil. They're still making gas. It's still making refined products. And it has to go somewhere," Daniel, the Windward CEO, told Insider. "So I think what we're seeing is a lot of people are trying right now to start circumventing the sanctions."

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