In the maze of global economics, Russia’s stronghold on Europe’s energy market stands as a stark reality. The limitations set by Brussels to curb Moscow’s financial inflow seem less like concrete walls and more like permeable barriers, allowing Russia’s oil to stream into the EU at prices above the sanctioned cap. This has led to a whirlpool of consequences: loopholes exploited, new black markets formed, and Europe left in the lurch.
Take Bulgaria, for instance. Granted an exemption from EU sanctions, it found itself in a unique situation—importing Russian oil priced beyond the $60 limit. In early August, Bulgarian officials spotted something they weren’t sure was legal.
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Seeking clarity, Bulgarian officials contacted EU authorities, receiving the green light to proceed with these imports. This clerical oversight led to substantial revenue for Moscow, enriching Russian energy firms and filling the coffers of the Kremlin.
This saga, however, isn’t unique to Bulgaria. The porous nature of these sanctions has allowed Russia’s oil revenues to only marginally drop while its war chest remains robust. The EU’s attempts to fortify these measures have been lackluster, marked by administrative tweaks that experts believe won’t significantly impede widespread evasion.
Should the price of Russian oil surpass the cap, may Bulgaria continue to import it? In a confidential email exchange dated August 4 that POLITICO obtained, customs officers in Sofia requested “clarification” from EU authorities because they were unsure.
The answer was ‘Let it in.’
The EU said, “Crude oil imported based on these derogations does not need to be at or below $60 per barrel.”
With the go-ahead, Bulgaria imported only Russian oil above the price ceiling from August through October, according to private customs records obtained by POLITICO. The Centre for Research on Energy and Clean Air (CREA) think tank calculated the estimated value of the cargoes to be €640 million.
The sanctions loophole is a symbol of the larger weaknesses that have undermined the EU’s efforts to prevent Russia from earning billions of dollars from its energy exports. Approximately one year following the enactment of the first sanctions, legal snags, lax enforcement, and a burgeoning black market have conspired to sustain Moscow’s fossil fuel income, providing nearly half of Vladimir Putin’s voracious war budget.
It’s conceivable that new routes will bring Russian oil to Europe for use as fuel. The enforcement system on the Continent is dispersed and depends on erratic data. Additionally, a whole new criminal industry has emerged to ship, conceal, and insure Russia’s petroleum as it moves across the globe.
Stated differently, the sanctions have not been sufficient. Only 14% of Russia’s oil export revenue has been lost since the restrictions were put in place. Moreover, Russia’s earnings from fossil fuels reached an 18-month high in October.
Furthermore, it seems the EU has run out of steam to take significant action. The majority of the most recent EU sanctions package, which will be decided upon this week at a leaders’ summit, are administrative adjustments that analysts believe would not significantly reduce widespread evasion.
Bulgaria’s move to expedite the end of its exemption and calls for closing the price cap loophole indicate growing pressures to rectify these financial fissures. This step, coupled with efforts to reduce reliance on Russian energy, signals a shift away from entanglements that benefit Moscow at the expense of local interests.
However, the challenge lies not just in loopholes but also in enforcement. Across the EU, inconsistent monitoring and gaps in implementation allow Russian oil to traverse European waters, feeding Moscow’s financial stability. Even with attempts to tighten regulations, the industry’s skepticism remains high, casting doubts on the efficacy of these measures. There are no attempts to lower the oil price cap much further.
The reason behind Bulgaria’s price cap loophole is a clear oversight.
Officials from the EU specifically prohibited EU shipping companies and insurance companies from trafficking Russian oil above the $60 level to non-EU states when they enacted the price cap for the G7. The idea was to limit the Kremlin’s income while maintaining stable oil supplies around the world.
However, officials never considered applying same regulations on supplies to EU nations, in part because Brussels had that same day prohibited imports of Russian crude oil by sea. Excluding Bulgaria.
Moscow has made millions more in money thanks to the backdoor. CREA reports that the Kremlin received over €430 million in direct taxes from Russian oil export earnings from Bulgarian sales from August to October, of which a third came from sales above the price cap. Deliveries of Russian-origin barrels, which ranged in price from $69 to $89 a barrel, were entirely dependent on assistance from the West, namely Greek ship operators and British and Norwegian insurers.
The Bulgarian case “highlights one of the many loopholes that make sanctions less effective at lowering Russian export earnings used to finance the Kremlin’s war chest,” according to Isaac Levi, who leads CREA’s Russia-Europe team.
The hypocrisy of the EU is evident. While advocating for additional penalties, they continue to permit Russian oil shipments to pass through their waters en route to other destinations.
CREA research on behalf of POLITICO found that 822 ships transporting Moscow’s crude transferred their cargo to another ship in EU territorial waters — the majority in Greek, but also Maltese, Spanish, Romanian and Italian waters — since the oil sanctions kicked off last December. The volumes were equivalent to 400,000 barrels per day.
The EU is well aware of the loophole but it knows that Russia’s energy dominance is quite a big animal making it hard to shoot it with a single shot of sanctions.
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