# The Oil Nobody Is Allowed to Buy Maxinomics ยท 2026-03-31 Sanctions create a vacuum the shadow oil fleet fills: the episode traces how Russian oil gets smuggled โ€” from the Bosporus jam of 28 ships with 20 million barrels to the paperwork that gets a $75 million cargo paid through banks โ€” using a playbook pioneered by Marc Rich. Host Phil Andrews explains Rich's 'Apartheid Premium' earned him $1โ€“2 billion selling oil to sanctioned South Africa for 20 years. Smuggling takes a rust-bucket tanker bought for $15 million, not scrapped for $5 million, a Flag of Convenience from landlocked Bolivia for $500,000, and a 48-hour ship-to-ship transfer with transponders off. Rich's unlock was the post-1973 spot market, letting sellers write 'ON ORDERS' on the Bill of Lading instead of a destination. Footnotes cover Turkey's insurance-based ship stops and why enforcement fuels BRICS currency ambitions. ## Questions this episode answers ### Why did the number of oil tankers being scrapped drop after Russian oil sanctions? Phil Andrews explains that about 35 old tankers a year used to go to ship-breaking yards in India, Korea, and China for $5-6 million in metal value. After sanctions, smugglers paid $15 million for them, so only 10 were scrapped over the past 4 years. [4:45](https://maxinomics.podhood.com/5d916980-c222-4f2f-96eb-03469e8b3b46?t=285000) ### How does the 'ON ORDERS' Bill of Lading make smuggled oil's origin disappear? Phil Andrews says after a ship-to-ship transfer in international waters, the paperwork reads 'STS-international waters' and 'ON ORDERS,' meaning the destination isn't known yet. These are legitimate claims, so banks' compliance departments never flag it and payment moves through the banking system. [12:14](https://maxinomics.podhood.com/5d916980-c222-4f2f-96eb-03469e8b3b46?t=734000) ### How did Marc Rich profit from the 'Apartheid Premium'? Phil Andrews explains Rich delivered oil to sanctioned South Africa, filling a ship for $60 million and collecting $90 million in Durban, pocketing tens of millions more than selling elsewhere. Operating behind Switzerland's privacy shield, he made $1-2 billion over 20 years. [3:02](https://maxinomics.podhood.com/5d916980-c222-4f2f-96eb-03469e8b3b46?t=182000) ### Why do smugglers register ships in countries like Bolivia? Phil Andrews says Bolivia is landlocked with no navy to enforce international rules, making it a 'Flag of Convenience.' Ships are floating pieces of their registered country, so only Bolivia's navy could board beyond 24 miles offshore, and Bolivia earns $500,000 in registration fees. [8:02](https://maxinomics.podhood.com/5d916980-c222-4f2f-96eb-03469e8b3b46?t=482000) ## Key moments - **[0:00] Intro** - [0:38] The Sea Majesty waits at the Bosporus as 28 ships carrying 20 million barrels get stuck the week Russian oil became illegal - **[0:41] The Bosporus** - **[1:44] Smuggler's checklist** - [1:46] Four tankers unable to prove their oil wasn't Russian are towed by the Turkish Navy and blacklisted as the shadow fleet - **[2:26] Apartheid Premium** - [2:26] A $75 million oil cargo only needs one piece of paper to pass through the Bosporus chokepoint - [4:01] Marc Rich earned $1-2 billion smuggling oil to South Africa for 20 years via the 'Apartheid Premium' - **[4:17] Getting a ship** - [5:02] The Apartheid Premium math: fill a tanker for $60 million, dock in Durban, collect $90 million - **[5:48] Transponders** - **[7:00] Ship-to-ship** - [7:11] Tanker scrapping collapsed from 35 ships a year to just 10 in four years after Russian sanctions, as smugglers pay $15 million for rust-buckets - **[8:14] Flags of convenience** - **[9:42] The spot market** - [10:49] How a ship-to-ship transfer in the Black Sea with transponders off erases a cargo's Russian origin - **[11:31] The paper trail** - [13:02] Landlocked Bolivia with no navy sells ship registrations for $500,000 a year as a Flag of Convenience - **[13:03] The vacuum** - [13:03] Q: Why are ships registered in countries like Bolivia that have no coastline? - **[14:33] Footnotes** - [14:57] Turkey stopped the shadow fleet tankers because none of 13 insurance companies would cover Russian crude - [15:43] The banking system's sanction power is why BRICS wants its own currency, says Phil Andrews ## Speakers - **Phil Andrews** (host) ## Topics Energy Markets, Global Power ## Mentioned Seven Sisters (company) ## Transcript ### Intro **Phil Andrews** [0:00] First, you need a ship. It won't be the best ship. It won't even be a good ship, which, as you'll see, is the preferred type of ship for the oil smuggling business, because you do not care about the ship. You don't care about the crew. You don't care why the oil needs to be smuggled. All you care is that someone who shouldn't be selling oil sold some to someone who shouldn't be buying it, called you to pick it up, and get it to them. This is the shadow market, where buyers and sellers try to operate away from prying eyes, from anyone asking, "Where did you get this oil from?" Served by an informal armada of ships, not that different from the days when pirates were given the blessing of their king or queen to do pirate things to anyone who wasn't a citizen of the kingdom, except that oil is a unique type of thing to smuggle. This video is sponsored by Draft Kings Predictions. More on them later. The Sea Majesty was the first to find out. She'd loaded 700,000 barrels of crude oil from a Russian port, crossed the Black Sea overnight, arriving at the entrance to the Bosporus Strait early in the morning. ### The Bosporus **Phil Andrews** [0:52] The normal weight of 6 hours to cross through the half-mile-wide channel turned into 12, then into 24, when another oil tanker had shown up, dropped anchor, and was now waiting next to them. By the next day, 6 more had shown up, swinging on anchor in the cold December wind at the mouth of the channel where two sea currents collide. By December 5, there were 28 of these ships: 20 million barrels of crude oil, enough to feed the United States for 3 whole days, swinging on iron strings, nervously waiting to get through the Bosporus. This was the week it became illegal to freely buy and sell oil from Russia. There were 6 places to load oil in the Black Sea. Two of them were on Russian soil. Two weeks passed before the ships started to move. Unable to prove the oil they carried wasn't illegal, 4 ships found themselves being pulled by tugs escorted by the Turkish Navy. The name on the hull, the ship logs, the captain, all the identifying marks of those 4 ships were now taken down and labeled as known ships in the shadow fleet. ### Smuggler's checklist **Phil Andrews** [1:46] A choke point, 7 ports, 28 ships, oil flowing to those ports from multiple countries, rules saying you can't buy oil from one of those countries, and the only thing you need in order to get your cargo of oil worth $75 million through the choke point is a piece of paper. This is a smuggler's paradise. But none of these 4 would matter if this one didn't exist. A normal law is based on the idea that it's permanent. Everyone in the country has to follow it forever, not sanctions. The Clean Air Act might stay on the books for decades. A sanction might disappear overnight if a treaty is signed. They are laws, yes, but it's one country to another country, explicitly intended to hurt the other country, to cause pain, to get the country to conform to whatever the other country wants it to do. You, South Africa, are not allowed to buy oil until you end apartheid, a real situation that lasted for 20 years. Germany devised huge parts of its military to securing oil during World War II. Japan attacked the US so it had more time to capture more islands and the oil on them. ### Apartheid Premium **Phil Andrews** [2:41] Many wars in the Middle East, if not explicitly, at least partially, over oil. Oil is not a nice-to-have. It is a requirement. If people are willing to kill over oil, then some people began thinking, "South Africa would probably be willing to pay a lot more for any oil I could deliver to them," a thought that certainly went through the mind of Marc Rich, the notorious and largest oil smuggler of all time. Operating from behind the fog of Switzerland's privacy shield, Rich made somewhere between $1 and $2 billion in profit delivering oil to South Africa during those 20 years. It starts as a simple game of arbitrage. You have a ship. That ship can hold 1 million barrels of oil. It can go to any port and fill up its hold with oil. There are many countries you can buy oil from. They have more oil than they need. The prices are similar, differing only a bit due to the quality of oil or where it's located. There are many countries that will buy the oil you carry. They do not produce enough oil. But because they can buy oil from many countries for roughly the same price, the profit you'll make filling your ship with oil in Saudi Arabia and selling it to Australia is not that high. But a sanctioned country like South Africa is willing to pay a massive premium, what Marc Rich called the "Apartheid Premium." All you had to do was pick up oil at the market price and get it to South Africa, filling your ship for $60 million and after the 4-week journey out of the Persian Gulf, down the coast of Africa, docking in Durban, where you would collect $90 million, pocketing tens of millions more than if you had taken that same cargo to Australia. Here are these countries that want to sell oil but told they're not allowed to, countries that want to buy oil but told they're not allowed to, ships that vary slightly in color or size but all do the same thing, carrying molecules of oil that are also all about the same. ### Getting a ship **Phil Andrews** [4:17] How hard could it be? First, you need that ship. You could go with one of the new, state-of-the-art, giant crude tankers. Now, what if it gets caught? That's a lot of lost money. What about a used midsize tanker, the workhorse, old reliable, about half the price? Nah, still too expensive. Now we're talking an old rust-bucket tanker, 20 years old. This thing was on its way to the scrapyard. Seriously, about 35 of these old tankers were being scrapped each year, sold to ship-breaking yards in India, Korea, and China. The owners could get 5, maybe 6 million for the metal and machinery in them. They'd take their last voyage across the ocean before intentionally being driven onto the shore. The year after Russian oil was sanctioned, the number of scrapped oil tankers went down to 4. Only 10 have been scrapped in total over the past 4 years. Why scrap it for $5 million when someone who wants to smuggle oil will buy it for $15 million? The seller isn't going to ask, "What are you using it for?" Would you? We have our ship. With the easy part of acquiring a ship out of the way, things will become progressively more difficult because now we're actually going to take possession of illegal oil. We'll be criminals, trying to stay hidden from the long and, as you'll see, long, long, long, long arm of the law. There's a saying in politics that you should never let a good disaster go to waste. People seek protection, an umbrella from the storm, giving politicians an excuse and cover to do things they otherwise would not be able to get people to go along with. It was very clear that a set of rules would have prevented the sinking of the Titanic, or at least increased the success of rescue efforts. The document started out as 40 pages. It was all about safety: lifeboats, radio requirements, nothing that today isn't obvious. ### Transponders **Phil Andrews** [6:01] But then another disaster happened. The Exxon Valdez oil spill in 1989. Apartheid picked up further a requirement to put a transponder on every ship that continuously announced its location: direction, speed, name, country, and cargo. 9/11, the poster child for "never let a good disaster go to waste," pushed hard for the acceptance of tracking systems and cemented the transponder into international law. But in what is one of the premier examples of what we call function creep: mission creep, the ratchet effect, or my personal favorite, dual-use repurposing. Yes, the transponder is safety-enhancing. Ships will run into each other less. But it has also given every government around the world the ability to monitor every ship, even on the high seas, international waters, the open ocean. With the US and Europe putting sanctions on Russian oil, Russia is forced to sell it cheaper than everyone else, $25 per barrel cheaper. Our contact in India, he says if we bring it to him, he'll buy it for $75 a barrel. That would give us a cool $25 million profit, covers what we spent on the ship, and puts a little in our pocket. All we have to do is not get caught. Deal. A friend of ours has a tanker that never leaves the Black Sea. ### Ship-to-ship **Phil Andrews** [7:12] It picks up oil at Russian ports and transfers it to other ships so those ships never have to log that they were at a Russian port. Just the kind of service we need. We'll have them pick up our oil and then meet up in the middle of the Black Sea, international waters, transponders off. As long as the weather holds, we can tie the ships together, pumping all the oil from that ship to our ship. It'll take 48 hours, but once done, we'll be on our way with a load of Russian oil and plausible deniability that we knew it was Russian. Now, I know what you're thinking. Someone is going to notice two oil tankers tied up for 2 days in the middle of the sea. But the ocean is on the side of the smugglers. Under perfect conditions, you need to be within 15 miles just to see the ship as a tiny dot on the horizon. And even if they did, there's nothing technically illegal about transferring oil from one ship to another. Sure, it's dangerous. Two metal bathtubs full of oil banging into each other. But these ships are effectively floating pieces of the country they're registered to. The only people allowed to board our ship when we're more than 24 miles offshore is the navy of our own country. Fortunately, there aren't any rules around what country you register your ship to. So we picked... we picked Bolivia. ### Flags of convenience **Phil Andrews** [8:14] Bolivia doesn't have a navy because Bolivia doesn't have a coastline. It's landlocked. If you've ever noticed all the odd countries that ships are registered under, this is part of the reason. Those countries make it easy. They don't have a lot of rules, and even if they agree to the international rules, they don't have a navy who can enforce them. We call them "Flags of Convenience," and boy, they are convenient for our little operation. And for the country. For that convenience, they're going to charge us $500,000 in registration fees this year, meaningful money for an economy ranked 95th in the world. Everybody's a winner. But now we've got that hard part: getting paid. Pause real quick. Thank you to Draft Kings Predictions for sponsoring this video and letting you trade on real-world outcomes, like the upcoming college basketball tournament, game totals, spreads, who will win the whole thing. There are big shifts happening in these markets. The time where the 3-pointer reigns supreme, it might be passing. 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Crude oil prices are now seeing the biggest weekly spike on record. The price of oil overnight jumped above $100 a barrel. Oil prices surpassed $100 per barrel. **Phil Andrews** [9:57] That is the price of oil if you want it deliveredright now. Say yes and a tanker that has already been loaded with oil will change course and head to you. I want my oil now, on the spot. So it's called the spot market. Did you know that the price of oil did not use to move like this, like how it does today? Oil is up 18% today, 90% over the past week. For the century before 1970, the price of oil was always between $1 and $3. Seven companies controlled everything about oil, pulling it out of the ground, moving it around the world, refining it into gasoline or diesel, then pumping it in your car at one of their gas stations. And then they didn't. Iran kicked the oil companies out first, then Libya. Iraq. By 1973, every single Middle East country took back their oil fields from whichever of these seven companies, called the Seven Sisters, had, until now, controlled them, controlled the entire business of oil, including the price. They stated the price, people signed long-term contracts, that's what they paid. And that is why the Middle East countries took back their oil fields. Like, $3? No, no, no more. You're basically giving our oil away for free. This whole situation is an absolutely fascinating and undertold part of history, but that is for a future video. Oil fields go back to the countries who are not actually in the oil business,right? Moving it, refining it, putting it in your car? Nope. They're like, "We don't care. We're going to pull it out of the ground." You all bid on it. High spitter takes the oil, the spot market, which is significantly more sophisticated than I'm making it out to be. You can buy oil in really any commodity for immediate delivery, for next month delivery, a year from now. But for us, selling our smuggled oil, the spot market, was the unlock. ### The paper trail **Phil Andrews** [11:31] Credit to Marc Rich for being the first to realize that without the big oil companies controlling the whole thing, he could buy and sell a lot of oil on the spot market, allowing him to fill in this critical line on this critical piece of paper that whoever physically holds is the actual owner of the oil on an oil tanker. It is literally worth the value of oil on the boat. You can sell this piece of paper while the boat is moving, and now it's someone else's oil. Give it to a bank as collateral, give it to our bank, who gives it to our buyer's bank, and the buyer's bank will send the buyer's money. Where the oil came from, what kind of oil, all sorts of details, including where the oil is going. If Marc Rich gave this to his bank, who is the one who actually puts up the money for the oil, and it said "Durban, South Africa" instead of "ON ORDERS," he'd be arrested. Banks are like 1 degree away from being a government agency. If the government says you can't sell oil to South Africa and a bank loans someone money to sell oil to South Africa, that bank is going to be in a world of hurt. But "ON ORDERS," this means we just don't know where it's going yet. We haven't sold it. We're going to sell it on the spot market. Get the oil to South Africa and the paper trails clean enough to pass through the banking system. Rewind real quick. This is where we got our clean Bill of Lading. The boat we met, their paperwork said the oil came from Russia. Ours said "STS-international waters" and "ON ORDERS," ship-to-ship in international waters, and we're not sure where we're going to sell it yet. These are legitimate claims in the oil industry. It happens all the time for ships that aren't doing anything illegal. So us smuggling this oil, we're just going to operate in the shadows. The shadows created by those not doing anything illegal. Our boat arrives in India, shows the Bill of Lading. Sure, it's suspicious, but it's also valid. So the compliance department never flags it, and the money successfully moves from that bank to our bank. Have you ever heard the term "nature of horse a vacuum"? ### The vacuum **Phil Andrews** [13:17] We are surrounded by an atmosphere, air that's pushing down toward Earth. If you create a hole of lower pressure anywhere, the pressure of the atmosphere will immediately push air in to fill that space. You don't actually suck liquid up a straw, and a vacuum doesn't actually suck things into it. When you suck on a straw, you create negative pressure inside the straw. The atmosphere pushes on the liquid in the glass, which causes the liquid to go up the straw. It seems bizarre, but it's totally provable. Create a very long straw, put it in a pan of water, and no matter how hard you pull on the top of the straw, the water will only ever go about 35 feet up, where the weight of the atmosphere equals the weight of the water. Point being, there is only one reason to smuggle oil. A vacuum appeared somewhere, a gap between what a country must have and what it can get. Sanctions create that vacuum. Or to use another science way to think about this, South Africa was effectively a complex living organism. Like all living things, it needs energy. Oil is literally stored energy, stored sunlight in a way. If not used directly as energy, it's used to grow other forms of energy, like corn or wheat. No energy, an organism breaks down. Chaotic entropy would be the formal term for the unrest, riots, mayhem that would occur within the country if its oil supply went to zero. A lot of incentive to jack up the price you'll pay for a barrel of oil, which is then a lot of incentive for someone to say, "Deal, I'll buy an old boat and take some risk for that price." ### Footnotes **Phil Andrews** [14:33] We have some interesting footnotes for you that didn't quite make it in that I still want to share. But first, I have recently found out that only 82% of you that watch Maxinomics videos regularly, you don't subscribe. Can you do me a big favor? If you've ever enjoyed the video, please, can you hit the subscribe button? It helps the channel more than you know. The bigger the channel is, the more videos we get to make. And who doesn't want more videos? The better the videos are, too. It makes a huge difference. Thank you very much. About those footnotes. First, at the beginning, those ships stopped by Turkey. They were technically stopped because they couldn't get insurance. None of the 13 insurance companies that offer tanker insurance were willing to take the liability of covering crude oil pumped out of Russia. Turkey has had two big oil spillsright around the Bosporus, so they were like, "Nope, we're not going to pay the billions for a cleanup if you crash." Which is one more dimension to the long arm of the law, because insurance being tightly wound into the financial system means they have to abide by official sanctions. Second, this financial system interweaving thing where a couple governments can say, "You can't do that," and enforce by preventing you from moving money, that is a major reason you hear about the aspiration of a BRICS currency. If you don't control the pipes and the gates, the banking system can just be turned off or turned against you. Russia, China, and plenty of other countries do not like that hanging over their head. Understandably. Again, thank you, and I will see you in the next video. 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