How sanctions on Russia are shaking up the superyacht world

(CNN) — Superyachts have been making headlines for all the wrong reasons in recent weeks as more and more vessels linked to Russian oligarchs are temporarily frozen.Some of the largest and most expensive superyachts in the world, including Sailing Yacht A, which is valued at over $500 million, and $120 million yacht Amore Vero, are languishing at ports and shipyards after the United States, the UK and the EU imposed sanctions on Russia as part of a foreign pressure campaign over Vladimir Putin’s invasion of Ukraine.”We are joining with our European allies to find and seize your yachts, your luxury apartments, your private jets,” US President Joe Biden said in his State of the Union address earlier this month. “We are coming for your ill-begotten gains.”In the weeks since then, Axioma, a superyacht with ties to another Russian billionaire, has been detained by authorities in Gibraltar, while a group of Ukrainian sailors were seen attempting to block a yacht linked to soccer club-owning billionaire Roman Abramovich as it docked in Turkey earlier this week.The Maldives has also emerged as a “safe haven” for yachts in danger of being frozen, and data from live vessel tracking site Marine Traffic indicates that some well-known ships are either en route to the Indian Ocean island nation, or are already there.Buyer hesitancySolaris, a superyacht linked to Russian oligarch Roman Abramovich, is seen docked in Bodrum, Turkey on March 21. Ali Balli/Anadolu Agency/Getty ImagesThis sudden turn of events have served as a major blow to the superyacht industry, which has been booming over the last two years, with demand soaring higher than ever.Figures from Boat International’s Global Order Book indicated that the number of vessels in production or on order worldwide hit a new record high at the end of 2021.However, there are reports that production on a number of superyachts being built for Russians in Europe-based shipyards has been paused as the vessels now fall under new G7 and EU sanctions banning the export of luxury goods to Russia.”We’ve had a phenomenal couple of years in the industry,” international luxury business strategist Alice C. I’Anson Widdows tells CNN Travel. “Demand has been outstripping supply. Then suddenly we’re being halted mid-production.” The circumstances also appear to be having an impact on sales, at least in the short term. Raphael Sauleau, chief executive officer of Fraser Yachts, says he’s noticed some hesitancy among Europe-based buyers over the past few weeks, but attributes this to uncertainty over the unfolding events in Ukraine rather than the sanctions themselves.”Overall, some buyers, especially those in Europe, are a little bit hesitant,” Sauleau tells CNN Travel.”But that has nothing to do with the sanctions we are seeing around the world, it’s more a matter of them wanting to wait to see how the conflict evolves before they commit to buying a yacht.”While it’s estimated Russian-owned superyachts account for just 7 to 10% of the global fleet, they tend to be the most high-profile due to their size and stature.”Of course, these yachts and their owners make the headlines, because the yachts are often the very biggest in the industry,” adds Saleau.”For now, the demand for yachts and yachting that we have seen increase so much worldwide over the last two years is still very prevalent.”Private yacht broker Denis Suka, who runs popular luxury yacht-focused Instagram account @theyachtmogul, says he’s stopped posting about superyachts owned by Russians altogether due to the hostile response they’ve been receiving since the sanctions were introduced.Increasing customs checksThe yachting industry has been booming for the last two years, as demand increased during the pandemic. Jeremy Suyker/Bloomberg/Getty Images”The yachts that were the most attractive to our audience were the big Russian yachts,” he says. “But that has all turned around because of what’s happening. No one wants to see them anymore.”Suka says he’s also noticed a decrease in sales over the past month as buyers grapple with the disquiet that the conflict in Ukraine has brought about.”Sales have been dropping,” Suka adds. “I think even the biggest brokerages are affected by what’s happening. I am seeing a lot of impact in the industry. Everyone is concerned right now.”Aside from the impact on sales, the turmoil has led to other changes, admits Saleau, including an apparent increase in checks onboard boats by local customs, particularly within Europe.”If the boat is not owned by an individual on the sanction list, then the yacht can typically move freely,” he explains. “But we’ve seen an increase in checks in Europe for sure.”It can be a strain on the crew, because obviously yacht crew are international. So it can be stressful for them to go through this exercise. “Our teams are doing everything we can to support and guide the crew of any of our yachts or people affected by the current situation.”It’s thought that owners are likely to spend at least 10% of the purchase price on the yearly cost of maintaining and operating their yachts.However, the seizure of some of the biggest yachts in the world has led to crew members suddenly finding themselves out of work, and out of pocket in some cases.”This is a €30 billion a year industry, which provides thousands of jobs,” says Widdows, who has 25 years of experience in the business of superyachts. “It’s important to understand that each yacht is a business which generates income, supporting an industry of businesses and families.”She also notes that many of the workers and suppliers from the yachts that come under the sanctions are not from Russia.”Many are now caught up in it,” she adds. “There’s stories of crew not being able to be paid. Now, everyone’s just interested in keeping things moving and in production and keeping people in jobs.”Owner secrecyAmore Vero, a yacht linked to Russian businessman Igor Sechin, was detained in La Ciotat in the South of France.Douane Francaise/APThe outbreak of the war has also led to an increase in prices. In the US, gas prices have almost doubled in recent weeks, while Europe, where prices were already relatively high, has also seen rises.”Some people are complaining about filling their car tank,” says Suka. “But filling a mega yacht, that’s really something to be worried about. The price has doubled.”The cost of materials has also been jumping up in some parts of the world, with items such as aluminum, which a number of superyachts are now built from, surging to a record high as a result of the conflict.Then there’s the privacy element. Yacht ownership can be very difficult to pin down, particularly if the owner is keen to prevent their identity from being disclosed.”If the beneficial owner wants to make it difficult, then it can be very hard to trace who the true owner is,” Benjamin Maltby, an expert in superyacht law, tells CNN via email.”Nearly all large yachts are owned by companies, as they are sources of liability which owners prefer to ring fence.”However, this level of secrecy is now proving to be more problematic, as customers are beginning to ask further questions about the background of the yachts they’re hiring.”At times, we see some charterers wanting to know who owns the boat, or vice versa,” explains Sauleau. “Owners are wanting to know who’s going to come onboard their boat for the summer. “So that’s a new turn of events whereby we need to be very, very careful in our due diligence on all fronts.”However, he notes that several Russian linked superyachts are privately owned and not available to charter. As for the superyachts that have already been frozen, it’s not clear how long they’ll be held for, and what state they’ll be in if or when they’re released for that matter.Maltby stresses that it’s unusual for multiple yachts to be put out of action in this way, noting that on the rare occasions that a yacht is detained, it’s more commonly a measure to force the owner to provide financial security to a party claiming against them.Unprecedented situation”The current situation is unprecedented,” Maltby tells CNN, before explaining that while authorities “may undertake basic maintenance” on the yachts, it’s likely they’ll view the vessels as assets and be less concerned about their upkeep. “Without intensive maintenance, yachts can deteriorate rapidly — especially when left in the water allowing galvanic corrosion to erode key metal parts,” he adds. “With regard to the long term, selling the yachts appears to be the most popular option within the superyacht sector.” As for the unfinished yachts commissioned by Russians currently in production, there are already reports that non-Russian buyers have been making offers to take over these projects.”I think that the yachts that are in build will be snapped up by other interested parties, because the Russian owners can no longer own them,” says Widdows.”That’s the biggest impact we’ll be seeing in the next couple of months, because if the boats can’t get delivered, that’s a real headache for the industry.”Sauleau notes that the spate of recent stories about superyachts being “seized” hasn’t done wonders for the image of an industry that’s been gaining from more positive coverage in recent times.”Yachting is so much more than being about mega yachts or, as is in the news at the moment, Russian oligarchs,” he says, after stressing that any negative publicity “is obviously very, very minor compared to the terrible events in Ukraine.”While Widdows is also mindful of the damage the controversy may have done to the reputation of the industry, she’s been encouraged by the way the yachting community has come together to help those that have been affected by the conflict.According to Yachties United, a website that offers social support, shelter and donations with crew members in need, there are over 600 Ukrainian yacht crew with families in Ukraine. “The industry is based on the strength of relationships and its ability to respond quickly in a crisis,” says Widdows. “There are various initiatives, from Palma and even Monaco, with all the yachting companies coming together to support the efforts and provide medical care, food and clothing for Ukraine. “A truck left on Friday from Antibes [in France] with food and medical supplies, and that was all generated from within the yachting business.”While it’s impossible to predict how the situation in Ukraine will develop, it’s certainly possible that more wealthy Russians will be added to sanction lists, which means even more yachts could be frozen. If this continues, the effects will surely be felt across the board. “The sanctions for Russian residents are very strong, especially in Europe,” admits Sauleau. “So this may have an impact on the sales market and possibly the charter market going forward.”But Sauleau maintains that demand is still high overall, pointing out that American buyers appear to be less hesitant than those based in Europe.”We haven’t seen that [hesitancy] in America yet.”In 2020, US and Canadian buyers jointly made up 24% of all new-build sales of yachts over 40 meters to buyers whose nationality was known, according to data from intelligence platform SuperYacht Times iQ. Challenging timesItalian authorities detained the 65-meter-long yacht Lady M in the port of Imperia, on March 4, 2022.Giovanni Romero/IMAGO/Reuters”I think at this point of time we are waiting to see what’s going to happen,” adds Sauleau. “One possibility is that there may be some reluctance from US-based charterers to come over to Europe this summer.”If this proves to be the case, it will undoubtedly cause problems for the European market, which is still recovering from the impact of the global pandemic, and is likely to be impacted by the loss of income from those yachts that have been frozen or are out of action.”This industry supports so many livelihoods across the western Mediterranean, and in some of the holiday hotspots,” says Widdows. “I know they were affected during the pandemic. So if they don’t get the income that they usually get across their summer season it will affect their livelihoods.”And If they have another season where they’re not getting the boats that they usually get, what’s that effect going to be on their bottom line?”While Suka has been focusing on the US market in recent months, he admits to being concerned about the implications for the European yachting market if things continue into the summer.”The longer it lasts, the worse it gets,” he says. “These are quite challenging times.”While it remains unclear if the current situation in Ukraine, along with the sanctions, will lead to any serious long-term effects for the industry, there’s currently a great deal of optimism about the future.”We receive charter requests from all over the world and people are still seeking to travel,” says Sauleau. “So I think this is something which has yet to be seen if it really affects our industry to a greater extent. “It has obviously put a lot of stress on people in our industry, but as it stands, the business is still going forward.” Widdows shares this sentiment, acknowledging that the yachting world has dealt with many difficult challenges in the past, including the global pandemic most recently, and emerged stronger. “Subject to how this situation transpires, the yachting industry is resourceful. It is resilient, and it will bounce back,” she adds.