A Dubai-based shipping firm that was targeted for allegedly being part of Russia’s shadow fleet has lost a court bid to suspend U.K. sanctions, in the first public challenge of cases connected with the oil price cap.

Lawyers for Fractal Marine DMCC, which managed a fleet of 28 vessels as an intermediary between owners and charterers called the U.K. government’s allegations “entirely baseless.” They had argued that the company, which was set up in early 2022, would be forced into liquidation unless the measures were lifted.

Judge Jeremy Johnson ruled March 22 that Fractal Marine couldn’t challenge the U.K. government at this stage in the appeal. The company had offered not to transport any Russian crude before a final government review as it warned that potentially unscrupulous competitors could take over the tanker trade.

“The consequence is that Fractal Marine is unable to operate, unable to pay its staff” and “vessel owners will have no choice but to replace Fractal Marine with one of its competitors,” lawyer Maya Lester said.

Fractal was one of several firms that appeared to come out of nowhere shortly after the imposition by the Group of Seven countries of a price cap and wider western sanctions on Russian oil after President Vladimir Putin’s invasion of Ukraine. It previously played a significant role in transporting Russian oil but has always insisted that it operated within the cap “through extensive due diligence and attestation measures.”

The firm said it was suffering from the closure of its bank accounts and withdrawal of insurance coverage following the U.K. crackdown in February 2024. Fractal’s lawyers said that if it was forced to shut down, other competitors that might include the “shadow fleet” would instead transport the Russian oil. “This is entirely counterproductive,” Lester said.

U.K. government lawyers, who have so far won all the various court challenges to Russian sanctions, had argued that the judge should deny the request.

“The fact that the substantial effect of sanctions can be relaxed could be perceived as a sign of leniency or ineffectiveness by individuals and entities who could be the subject of sanctions in the future,” the U.K. government lawyer Richard Hanstock said in a court filing.

The U.K. acted unilaterally by hitting the company with sanctions in February when it was already in conversations with U.S. authorities, Fractal’s lawyers say. They said that a director at the U.S. Office of Foreign Assets Control had “expressed particular surprise” about the decision taken by British counterparts.