Bulgaria votes to scrap sanctions opt-out that raked in €1B for Putin

Bulgarian lawmakers on Monday voted in favor of scrapping an exemption to EU sanctions six months early amid outcry that the measure is raising millions for Russian President Vladimir Putin's war effort in Ukraine.

The legal change came after POLITICO revealed last month that Bulgaria was letting 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. Last year, Brussels imposed a bloc-wide ban on Russian seaborne crude imports, but granted Sofia an exemption aimed at protecting local consumers from high fuel prices.

Instead, the loophole raised an estimated €983 million for the Kremlin via production and export levies since February. It also generated almost €500 million in profits for refinery owner Lukoil, Russia's largest private oil firm, according to a classified analysis prepared for Bulgaria’s parliament and seen by POLITICO.

In a raucous parliamentary session Monday, which began with far-right MPs from the pro-Russian Revival party clashing with MPs and blocking access to microphones, Bulgarian lawmakers voted in favor of a proposal to end the opt-out in March instead of a previous self-imposed October 31 deadline. MPs also agreed to suspend export quotas from the Lukoil-owned refinery starting January 1.

Still, the new law failed to close a second loophole that allowed Bulgaria to import millions of barrels of unprocessed Russian crude above a $60 per barrel price limit set by the EU and its G7 allies to further squeeze Russia's budget revenues.

Though legal, the measure raised an additional €430 million in direct taxes to the Kremlin between August and October, POLITICO reported last week. Kiril Petkov, who controls one of two parties in the current ruling coalition, previously said he would pressure the government to close the price cap workaround too.

Despite diplomatic calls to act on this, Bulgarian Prime Minister Nikolay Denkov on Friday indicated the government wouldn't address the price cap loophole specifically. The “best way to close” that legal gap is to end Bulgaria’s special sanctions exemption early, he told POLITICO on the sidelines of a meeting of EU leaders in Brussels.

That means the country could raise another €150 million in direct revenues for Putin before the derogation ends in March, according to a new analysis by the Center for the Study of Democracy think tank published Monday. Still, Petkov told POLITICO ending the exemption early would cost the government €700 million in lost tax revenues.