A joint investigation by Global Witness, the Center for the Study of Democracy (CSD) and the Centre for Research on Energy and Clean Air (CREA) reveals that a refinery in the European Union is exploiting sanctions exemptions and boosting Moscow's revenues from within the bloc’s borders
Situated near the Black Sea port of Burgas, Neftochim Burgas is Bulgaria’s largest refinery – it’s also become one of the largest global consumers of Russian oil. New Global Witness , CREA, and CSD analysis shows the refinery guzzled over 4.95 million tonnes of Russian crude in the first ten months of 2023, sending an estimated €1.13 billion to the Kremlin in direct tax revenues*. According to Russian president Vladimir Putin, that’s enough to operate the Wagner mercenary group for a year.
CREA research for 2023 shows that Bulgaria is the fourth largest buyer of seaborne Russian crude oil, behind only India, China, and Turkey. When the EU implemented an embargo on Russian oil in December 2022, Bulgaria was granted an exemption to “ensure the security of supply" domestically and allow fuel sales to Ukraine. The exemption was designed explicitly to avoid giving Bulgaria an unfair economic advantage over other member states that are prohibited from importing seaborne Russian crude. “The purpose of the exception is for Bulgaria to be able to get supplies and not sell imported Russian oil to other countries” a spokesperson for the European Commission stated last year.
But our investigation shows that rather than simply meeting domestic Bulgarian demand, the refinery, which is majority-owned and operated by Russian fossil fuel giant Lukoil, appears to be exploiting the exemption.
Global Witness analysis of Kpler data shows that prior to the invasion of Ukraine, Burgas’ intake of Russian oil was around 70% of its total imports. This figure has risen to 93% in the first ten months of this year. At the same time, Burgas exported large amounts of the products it refined; CREA analysis estimates that the seaborne exports of refined oil products alone are valued at €984 million in the first 10 months of 2023.
While EU countries feel the embargo’s pinch, Burgas is buying steeply discounted Russian crude from Lukoil and selling refined products on the global market.
As it wages brutal war on Ukraine, the Kremlin is benefitting doubly from this trade: once from the taxes levied on the production and export of the crude bought by the refinery and twice from any tax paid by Lukoil, Russia’s second-largest company and the ultimate owner of 99% of the Neftochim Burgas refinery.
Contacted for comment, Lukoil subsidiary Litasco S.A, the major shareholder of the refinery, said that it was complying with all applicable laws and regulations, including the G7 price cap rules.
Under Bulgaria’s exemption, exports of refined products derived from Russian crude oil are generally prohibited. However the law provides an exception for exports to non-Eu countries when “the products cannot be stored in Bulgaria due to environmental and safety risks”, i.e. when the refinery produces more than can be stored or consumed domestically. The law clarifies that “such sale, supply, transfer or export is not meant to circumvent the prohibitions”. This exception has allowed Burgas to continue to produce and export the excess products it refines to non-EU countries.
No such exception exists for exports to EU member states. Global Witness and CREA have now found evidence that, in spite of the ban, Neftochim Burgas continues to send refined products to the EU.
On the 8th of August, the Seaexpress, a tanker operated by the Greek company Thenamaris Ship Management, moored at the port of Burgas and loaded 40,000 tonnes of fuel oil from the refinery. Tracking data shows that the ship then began a 15-day journey across the Mediterranean before unloading its cargo at the Dutch port of Rotterdam. Prior to the Seaexpress taking on its cargo, Burgas did not receive any non-Russian crude for 21 days. In the same period, Burgas received four shipments of Russian crude oil, totaling over 340,000 tonnes, meaning that the fuel on the Seaexpress was likely derived in part from Russian crude. When contacted by Global Witness, Thenamaris Ship Management declined to comment.
What appears to be a straightforward violation of the terms of Bulgaria’s sanctions exemption is complicated by a principle called mass balance. This principle means that Bulgaria may export to the EU up to the same amount of refined product as the total amount of non-Russian oil it has imported over the course of one year.
Despite the fact that the Seaexpress delivered fuel likely derived from Russian oil directly to the Netherlands the transaction in itself does not violate sanctions. Under EU law, a final determination cannot be made on whether Burgas is violating sanctions until February 2024, when a year’s worth of import and export data can be reviewed to determine if the refinery is exceeding its allowance of European sales.
Data from Eurostat shows that Bulgaria exported 304,000 tonnes of refined petroleum products to the EU between March and July 2023** . During this same period, the refinery imported 2.1 million tonnes of Russian crude and only 216,000 tonnes of non-Russian crude. We cannot exclude the possibility that some of these exports were produced by the two smaller refineries operating in Bulgaria, or that they were re-exported refined products. Some of the refined products which Bulgaria exported to Romania - which represents 52% of all its EU exports - may also have been sent directly to Ukraine, which is permitted under the exemption.
However, considering Burgas’s dominance in the Bulgarian refining sector, the possibility that it is on track to violate EU sanctions must be seriously considered. Lukoil has suggested that Russian oil is necessary for the smooth running of the Burgas plant, but shipment data seen by Global Witness and CREA reveals that prior to Russia’s invasion of Ukraine the refinery had diverse sources of supply including from the Middle East, North Africa, and Europe. If the refinery is going to comply with sanctions, it will have to quickly substitute some of its Russian imports with oil from other sources.
Eurostat data also shows that a concerning amount of refined product was exported without a
destination country being reported. Between March and July 2023, a further 239,000 tonnes of
refined product left Bulgarian ports on voyages where the ultimate destination country could have
been obscured through a series of ship-to-ship (STS) transfers. Since the implementation of the ban
on Russian oil products in February of this year through the end of October, the amount of refined
product exported on tankers that have departed Burgas and conducted STS transfers has tripled
compared to the same period in 2022, according to CREA analysis of Kpler data.
A laundromat for Putin’s oil
Burgas is not only creating a backdoor route for Russian oil into the EU – the refinery is also exporting products to other embargoing jurisdictions like the United States. Shipping data shows that this year, the US imported over 70,000 tonnes of refined product from Burgas. This follows a pattern investigated by Global Witness and CREA into the refining loophole in Western sanctions where crude that has been transported outside Russia and refined into products like diesel or gasoline can be legally imported by sanctioning countries.
In June, Global Witness exposed how refineries in India are acting as laundromats for Russian oil that fuels American cars. Yet given the aid and solidarity which the EU has shown Ukraine, the fact that Burgas is legally operating a laundromat refinery from within the bloc’s borders is all the more shocking. The EU must end Lukoil’s ability to channel profits back to the Kremlin through refining cheap Russian crude in Bulgaria and exporting the petroleum products to countries imposing sanctions on Russia.
Western embargoes on Russian oil were meant to shatter Kremlin revenues and hinder its ability to wage war on Ukraine. But today, Russia continues to export its most lucrative commodity at pre-war levels. With no end to the war in sight and the list of casualties increasing, it is more important than ever for Western countries to tighten energy sanctions. One way to do that is by closing the refining loophole which continues to allow Russian oil to flow around the world, driven in part by Western demand. Another way is to reduce our dependence on conflict-fuelling fossil fuels altogether by investing in the clean energy transition.
- * In Russia, the production and export of crude oil is taxed through the Mineral Extraction Tax and Export Duty. How much the Kremlin collects on each exported barrel is difficult to determine due to a complex system of tax exemptions and subsidies. Our analysis assumes an average level of tax exemption.
- ** March - July 2023 covers the period where data is available from the first full month after the export prohibition came into effect.