Commission to question Bulgaria over Russia sanctions loophole

BRUSSELS — The European Commission will probe Bulgaria after a Russian oil firm in the country exploited a loophole in EU sanctions to raise €1 billion for the Kremlin’s war chest.

Taking advantage of its unique exemption from the EU’s Russian oil ban agreed last year, Bulgaria let millions of barrels of Moscow’s oil reach a Russian-owned refinery on its territory, which then exported various refined fuels abroad including to EU countries, as POLITICO first reported Thursday.

“We’re paying attention to it and we’ve asked the Bulgarians to explain themselves,” said a senior Commission official, who was granted anonymity to speak candidly. 

“It’s true that these derogations and exceptions can pose problems,” the official said, adding that “we’re trying to eliminate them gradually, but I can’t hide the fact that there are still a few holes here and there.” 

Aside from the estimated €983 million the loophole raised for Russia via production and export levies, it also generated almost €500 million in profits for refinery owner Lukoil since the exemption began on February 5, according to a classified analysis prepared for Bulgaria’s parliament and seen by POLITICO.

Sofia won the derogation from the EU’s ban on Russian seaborne crude imports last year after it argued the supplies were necessary for its energy security. 

Lukoil did not breach sanctions, but shipped almost 3 million barrels of Russian-origin refined products by sea between March and July this year alone, including to EU countries like Malta, shipping data showed — equivalent to roughly one out of every five barrels of crude oil arriving at the local port of Burgas and then processed by the refinery.

The issue has prompted political blowback in Bulgaria.

Responding to the findings, Bulgarian Prime Minister Nikolay Denkov on Thursday said he was surprised “at the scale on which this sanctions-avoidance scheme is unfolding” and vowed where sanctions “laws are powerless, to improve them accordingly.”

Speaking at a summit in Sofia, Denkov also insisted the government was taxing Lukoil’s profits “to reduce the funds that go to the Russian Federation for waging the war and … [to] increase the funds that go to the Bulgarian budget.”

After political infighting, Bulgaria agreed last month to end the exemption two months early, in October next year — but the findings are leading to fresh calls to scrap the derogation earlier.

“Everyone is shocked, including the government,” said Bulgarian lawmaker Delyan Dobrev, the chair of the energy committee in the country’s parliament, adding that he plans to file a new legal motion to end the exemption immediately.

Previous efforts by Dobrev to end the derogation — his party is one of two major groups controlling the government — floundered after they failed to garner enough support among lawmakers, but the MP was adamant. “This time it would be more difficult … to block it,” he said.