Key takeaways
Recycling of shadow fleet vessels
EU 20th Sanctions Package has introduced an express derogation.
UK and US sanctions regimes
There is no recycling framework for sanctioned vessels, but licenses may be available.
Ship recycling transactions
These should be structured carefully to comply with applicable regulations.
The recycling of shadow fleet vessels presents a complex legal and compliance challenge for market participants operating across jurisdictions. At the same time, it offers a potential pathway to responsibly manage the growing volume of shadow fleet tonnage, these being vessels operating outside mainstream regulatory and commercial frameworks often associated with sanctions risk.
New EU rules have established a legal avenue for recycling shadow fleet tankers, creating a legitimate mechanism for such vessels to exit the shadow fleet. By contrast, the UK and US regimes do not include equivalent derogations, resulting in a misalignment in how sanctioned vessel recycling is approached across jurisdictions.
The EU position: a structured but un-tested derogation
Under its 20th Sanctions Package against Russia, adopted on the 23rd of April 2026, the EU introduced a specific derogation permitting the recycling of shadow fleet vessels, including authorisation for recycling-related operations.
While such derogation provides a clear legal pathway in principle, it remains relatively new and, as matters stand, untested. As such, parties seeking to rely upon it will be navigating uncharted territory, with no further guidance issued by the EU.
What is clear is that the derogation must be authorised by the competent authority of an EU Member State. In practice, the relevant authority is typically determined by the presence of an EU touchpoint or nexus. This may arise through factors such as the location of contracting parties, insurers, financial institutions, or other transaction participants.
Where no such EU nexus exists, there may be no relevant competent authority to grant authorisation. The derogation is clear in that it is the role of the relevant competent authority in the relevant EU Member State to provide authorisation under the derogation and it is therefore unlikely that the EU Commission will step in to provide authorisation.
Consequently, it may be necessary to structure a recycling transaction to establish a sufficient EU connection. For example, the use of special purpose vehicles (SPVs), which is standard in sale and purchase transactions, may be sufficient to engage an EU Member State if an EU nexus can be demonstrated.
In terms of process, there is no prescribed application form. Requests for authorisation are typically made by way of a written submission to the competent authority of the EU Member State outlining the proposed transaction and reliance upon the relevant derogation. This would generally include comprehensive details of the acquisition structure and a clear explanation of the intended recycling pathway of a vessel.
UK position: absence of a defined recycling framework
In contrast, the UK sanctions regime does not include an equivalent derogation specifically addressing the recycling of sanctioned vessels.
Under UK law, a sanctioned vessel is designated as a ‘specified ship’. This designation triggers a series of restrictions, including prohibitions on entering UK ports as well as possible port entry or movement directions, detention directions, and potential removal from the UK Ship Register.
Importantly, it is relatively uncommon for a vessel to be both specified and subject to an asset freeze simultaneously. Where a vessel’s owner is not subject to financial sanctions, there is generally no standalone prohibition on the purchase of that vessel, provided it is not intended for use in Russia or by persons connected with Russia.
However, where a vessel’s ownership is subject to an asset freeze, financial sanctions become relevant. In such cases, no funds can be made available to a sanctioned owner or dealings with their assets, without a licence from the Office of Financial Sanctions Implementation (OFSI). However, the statutory grounds for obtaining such a licence are narrow and do not clearly encompass payments for the purpose of acquiring a UK specified vessel for recycling.
There may be some scope to engage with the Office of Trade Sanctions Implementation (OTSI), which is responsible for enforcing UK trade sanctions and issuing trade-related licences. However, the absence of a clear prohibition on purchasing a UK specified vessel for recycling purposes makes the legal basis for such an application uncertain.
In practice, even where no explicit prohibition applies, the involvement of UK persons or entities such as insurers, banks or other service providers may trigger the need for a licence or, at minimum, regulatory comfort. Market participants should anticipate that UK-based counterparties will seek assurance from UK sanctions authorities before participating in transactions involving a UK specified vessel.
As a result, one possible approach is to structure transactions to avoid any UK nexus, including the exclusion of UK entities and services. While ring-fencing transactions in this way may mitigate direct engagement with UK sanctions, it does not eliminate commercial challenges. Financial institutions and insurers, in particular, may adopt a cautious approach based on internal risk policies, regardless of whether UK sanctions are technically engaged.
Given these complexities, any application for authorisation or licensing whether in the EU or the UK is likely to be assessed on a case-by-case basis.
Conclusion
At present, the EU is the only sanctions regime which provides a defined legal mechanism for the recycling of sanctioned vessels through an express derogation.
The UK and the US do not offer an equivalent framework. However, this does not mean that transactions involving the recycling of sanctioned vessels are unworkable under UK or US regimes. Depending on the facts, it may still be possible to obtain the necessary licences or regulatory comfort to proceed, albeit with greater uncertainty than under the EU framework.
In practice, the most straightforward cases are likely to arise where a vessel is designated solely under the EU sanctions regime and is not subject to parallel restrictions under other frameworks such as those of the UK or the US. In such circumstances, reliance on the EU derogation may offer a comparatively clear and self-contained legal pathway. By contrast, where a vessel is subject to multi-jurisdictional sanctions, parties must navigate overlapping regulatory requirements and licensing procedures. The position remains unclear as to whether the UK and US will follow the EU’s derogation and provide clearer legal mechanisms to allow the removal of high-risk tonnage from circulation in a controlled and environmentally responsible manner.
Our Sanctions team advises on complex, multi jurisdictional sanctions issues. Please get in touch to discuss how we can support you.
This article was co-authored by Paralegal, Laela Rrustaj.
