US Sanctions on Russia’s Lukoil Disrupt Bulgaria’s Biggest Refinery
Sofia: By taking over the Balkans’ largest refinery from Lukoil, Bulgaria has for now avoided punishing US sanctions against the Russian oil giant that will come into effect on Friday.
However, it is unclear what will happen next for the important refinery on the outskirts of the city of Burgas on Bulgaria’s Black Sea coast.
Why did Sofia step in?
On October 22, Washington announced that it would impose sanctions on Russian oil giants Rosneft and Lukoil to prevent financing of Russia’s invasion of Ukraine, which begins in 2022.
Among European Union members, Bulgaria, home to Lukoil’s largest refinery in the Balkans, was hit hardest by the measure. Lukoil has owned the Neftochim plant since 1999.
Bulgarian officials said US sanctions would effectively shut down the refinery because all business partners refused to pay companies protected by Lukoil.
In a move aimed at preventing such an outcome, the Bulgarian parliament adopted legal changes on November 7 that would bring all of Lukoil’s assets in the country under state control.
Last week, the government appointed senior government official Rumen Spetsov, director of the National Revenue Agency and also a former bodybuilding champion, to take control of the refinery.
Immediately after this, the US Treasury Department issued a license allowing some Lukoil companies in Bulgaria, including the refinery, to conduct operations until April 29 next year.
The Burgas refinery plays an important economic role for Bulgaria. It is the largest company in the poorest EU member, with a turnover of 4.68 billion euros ($5.39 billion) in 2024.
Thanks to its extensive network of gas stations, Lukoil is the dominant force in Bulgaria’s wholesale fuel market and sales to end customers.
Its presence in Bulgaria makes it “an important part of Russian influence,” said Martin Vladimirov, an expert at the Sofia-based think tank CSD.
But he added that Lukoil’s importance goes far beyond Bulgaria’s borders, describing the company as “an effective market maker for all of southeastern Europe.”
“It is no coincidence that fuel prices have increased in Romania, as the refinery in Bulgaria plays an important role in supplying the Romanian market,” Vladimirov told AFP.
And “it is an important distribution center for the region consisting of Romania, Ukraine, Moldova, Hungary and Austria,” he added.
What’s next?
Bulgaria gave full authority to administrator Spetsov to sell the refinery with the government’s permission.
The US has set a December 13 deadline to find a buyer, and the potential contract is subject to Washington’s approval.
Vladimirov said that in terms of supply, “the situation is stable for now.”
But Lukoil on Wednesday called on Bulgarian authorities not to interfere with its efforts to sell its assets in the country, warning that it “reserves the right to take judicial action to protect its rights and legitimate interests.”
A Bulgarian government source said Lukoil’s parent company, which houses its foreign units, is headquartered in Vienna and that Sofia would lose control over the refinery if Lukoil decided to sell it.
In late October, Lukoil announced that it had accepted an offer from Geneva-based oil trading group Gunvor, which Washington described as a “puppet of the Kremlin”.
The offer was then immediately withdrawn.
