- Russians make up 9% of the global yacht market, oligarchs included.
- The European yacht industry isn’t feeling the pain of the sanctions yet, but is bracing for impact.
- Wealthy Russians may skip the Mediterranean for Dubai, and leave shipbuilders in the lurch.
The economic sanctions against Russia and its oligarchs have yet to rock the yacht industry, but insiders warn that this is the calm before the storm.
Russians make up about 9% of the yacht market, the second largest behind the United States with 23%, according to research from industry trade publication SuperYacht Times. Shipyards and brokers aren’t feeling the pain yet, but they are bracing for impact as yachting is highly seasonal.
Right now is a slow time of year for the Mediterranean, according to Sam Tucker of the market intelligence firm VesselsValue. If the sanctions persist, wealthy Russians are unlikely to return in May and will take their money elsewhere, he told Insider.
“A lot of Russians spend the winter in warmer climates like Dubai, Seychelles, and the Maldives. The question is what’s going to happen once they’re done there,” Tucker, head of VesselsValue’s superyacht group, said. “They can’t get a commercial flight to or from Russia, and you can’t fly a private jet in EU airspace. They’re basically locked out of the Mediterranean unless they take a train down, which I think is quite unlikely.”
Meanwhile, shipyards are stuck with seized yachts lingering at their docks. Service providers, from brokers to crew members, are wary of dealing with any clients with Russian ties even if they are not sanctioned. Tucker has heard from London insurers that they may exclude all Russian yachts, regardless of whether the owner is sanctioned. It’s a stalemate, Tucker said.
"With Western firms, everyone's very cautious about doing business with anyone who may be related to or associated with any Russians," he said. "Everyone in yachting is pretty scared. The penalties of directly or indirectly dealing with Russians are just astronomical. You could be put in prison."
The sanctions have had a chilling effect on non-oligarchs and even non-Russians
Raphael Sauleau, CEO of the international brokerage Frasers Yachts, said the sanctions haven't disrupted his business thus far. That said, he has noticed customers are asking more questions about whether boats for charter or sale are owned by Russians.
Though Russian oligarchs do not represent the majority of Russian buyers, the harsh sanctions have limited the cohort's buying power, and Sauleau has also observed that some European buyers are hesitant to make purchases given the economic volatility happening now.
"We see some potential customers who want to see what is going to happen in terms of the stock market, the raw materials market, the cereals market, you name it," he said, referring to Russia and Ukraine's role as a major grain exporter.
A spokesperson for Heesen, a Dutch shipbuilding company, told Insider that it has a diverse clientele and strong order backlog, but the firm still has qualms about the consequences of the sanctions.
"We are concerned about an eruption in the financial markets and as a consequence about the impact this will have on market demand," Sara Gioanola, the press officer at Heesen, said via email. "Potentially, the sanctions on Russian individuals might reduce the number of future clients."
Benjamin Maltby, partner at the UK law firm Keystone, told Insider that his clients, including yacht owners and brokers, are worried that the media attention on oligarchs and their yachts has damaged the industry's reputation. But he doesn't think this is a cause for concern.
"The strongest part of the market is America, where yachts are symbols of success," he said.
Shipyards building custom yachts for Russians have their hands tied
Though Americans represent the largest share of yacht owners overall, they are neck and neck with Russians when it comes to newly built custom yachts, with Russians owning 16%, according to SuperYacht Times.
Custom-built yachts are typically paid for over time in installments. Usually, if an owner misses installments, the shipyard can take ownership of the ship and attempt to sell the project to another customer, according to Tucker. But it's unclear what a shipyard can do with a partially built yacht that was commissioned by a sanctioned individual who is either unable or unwilling to pay.
"These yachts are enormous, like a hundred meters. That's the size of a football pitch," Tucker said. "If you have a half-built yacht sat in your yard, you can't sell it, you can't do any work to it, and you can't just take control of it because the shipyard doesn't really own it. It's going to be a real gray area."
Shipyards operate on tight margins, according to Steve Marshall, a Miami-based yacht surveyor with Patton Marine. Without those installments, they may have to get bridge loans in order to stay afloat, he said.
Dubai could become the new hot spot for Russian yacht enthusiasts
With the global sanctions changing on a daily basis, it is hard to predict what the summer will hold for the yacht industry, said Sauleau. That said, he and Tucker both predict that high-net-worth Russians who have fled to Dubai will likely spend their summers there.
The United Arab Emirates, which includes Dubai, has not followed Western countries in imposing sanctions and has reportedly reassured Russia that it won't impose any unless mandated to do so by the United Nations.
"I think Dubai is going to become a hot spot for yachts," Tucker said, as it has been pushing development of its marina and shipyard infrastructure. According to VesselsValue's tracking data, some Russian yachts are also heading as far east as Singapore.
Chris Pliske, a yacht surveyor based in Fort Lauderdale, told Insider that over his 23 years of experience, sanctions typically lead to geographic shifts in the industry, not a contraction. Over the long term, the sanctions might give the yacht industry a "bump" if seized yachts go to market, because ship inventory is so low, he told Insider via email.
"Luxury money doesn't go away. It just shifts to different regions and business segments in the world," he said. "If high-end luxury items aren't selling, then the world is in a global depression — or war — and we are all in trouble."