Putin banked €1 billion last year from EU fuel buys despite ban

BRUSSELS — The EU last year added €1 billion to Vladimir Putin’s war chest through fuel purchases despite sweeping bans on Russian oil, a new study shared with POLITICO found. 

In 2023, the EU bought an estimated 35 million barrels of refined fuels — mostly diesel — originating at least in part from Russia, according to the analysis by NGO Global Witness based on Kpler shipping data.

These purchases were allowed through a gaping and now well-known loophole: Despite the EU ban on nearly all Russian oil imports, countries can still legally buy Moscow’s crude as long as it’s first refined into fuels elsewhere. The result is a steady flow of Russian fuel entering to the EU via places like India and Turkey — and lots of money flowing back to the Kremlin. 

The €1 billion figure — equivalent to the cost of around 60,000 of the Iranian-made Shahed drones which Moscow frequently uses to bomb Ukrainian cities — comes as the EU this week agreed to a 13th package of sanctions to mark two years since Russia launched its full-scale invasion.

Those sanctions have been patchy at best in throttling Moscow’s energy revenues, which make up roughly half the Kremlin’s budget. Last year, POLITICO revealed Moscow raked in another €1 billion from a separate EU sanctions loophole in Bulgaria and found EU attempts to cap Russian oil revenues had largely failed.

That’s spurring calls for further action, as the EU begins to prepare its 14th sanctions package, which should be unveiled in the coming months. The latest revelations of Russia’s titanic oil profits — not to mention the death of Russian opposition leader Alexei Navalny — will increase that pressure. 

“The Russian regime keeps indirectly profiting from third countries that sell oil products produced from Russian origin crude oil to the EU,” said Estonian Deputy Foreign Minister Erki Kodar. Brussels, he added, must “assess the problem,” suggesting a new rule requiring foreign refineries to inform EU buyers of any Russian imports.

Thus far, however, fears of a diesel price spike and economic recession have scared officials away from taking such steps.

Refined reliance

In 2022, the EU banned Russian seaborne oil imports and, alongside its G7 allies, imposed a $60-per-barrel price limit for sales outside the EU of Russian cargoes using Western shipping and insurance services. 

“Thanks to this,” European Commission President Ursula von der Leyen said at the time, there will be “a ban on almost 90 percent of all Russian oil imports” entering the EU, later adding the measures would “reduce Russia's revenues significantly.”

However, the plan had some glaring workarounds that have undermined its effectiveness. In addition to the carve-out allowing EU countries to still buy Russian crude refined outside the bloc, a further exemption was given to EU member Bulgaria, which was temporarily allowed to export limited Russian-origin fuels under strict conditions.

In all, that meant seven refineries processing Moscow’s crude in India, Turkey and Bulgaria continued exporting refined fuels to the EU. Indian facilities supplied the most fuel to the bloc, accounting for two-thirds of the supply.

Those processed fuels were then sold legally, including via Western oil firms and commodity traders, and later arrived at EU ports, according to the report. All refineries involved in the process were also in compliance with current EU sanctions laws. None of the facilities' owners responded to a request for comment.

Global Witness estimated that the fuel exports from these refineries to the EU last year generated between €870 million and €1.3 billion for the Kremlin based on the average tax levied on crude exports leaving Russia combined with the amount of unprocessed crude Moscow sent to each refinery.

“Every penny spent on Russian oil helps pay for the Kremlin’s war of aggression on Ukraine,” said Christopher Lambin, a senior analyst at the NGO who authored the report, adding that “the EU should move to close the refining loophole.”

The result is “obviously wrong,” said one EU diplomat, granted anonymity to speak candidly, as the aim is to completely cut off Moscow’s supplies. The diplomat added that the bloc should ban imports from refineries using Russian oil as long as it can secure affordable alternative supplies.

Everybody knows

The EU is already well aware of the issue. 

Last May, the bloc’s foreign policy chief, Josep Borrell, said EU purchases of Indian fuels made with Russian oil “undermine the effectiveness of our restrictive measures” and are “circumventing our sanctions” — and urged the bloc’s capitals to deal with the issue.

A Commission spokesperson said the EU executive was “in regular contact with third countries” on circumvention, adding: “We remain determined to stay ahead of the curve … if need be with additional sanctions.”

But so far, neither Brussels nor EU capitals have moved an inch.

That’s largely because doing so “would be massively disruptive and trigger large price hikes” on diesel, said Eugene Lindell, head of refined products at the FGE energy consultancy. The fuel is already “incredibly expensive” after the EU banned direct oil imports from Russia, and the recent Houthi rebel attacks on cargoes in the Red Sea, he added.  

“EU governments are fighting right now to not have their economies go into recession,” Lindell said. And despite the bloc’s desire to drain Russia’s revenues, there’s an “economic imperative which trumps politics even between archenemies.”