To understand just how booming Russia's fossil fuel trade is, one only needs to visit a rooftop cafe along the Bosphorus. Sipping tea on a terrace in Istanbul in March, I spent two hours watching at least four tankers (later identified by an open-source maritime traffic website) carry Russian crude oil and refined products through one of the world's busiest shipping chokepoints.
A recent report by the Center for Research on Energy and Clean Air (CREA) and the Center for the Study of Democracy (CSD) confirms what I observed in Istanbul: Since Russia's full-scale invasion of Ukraine, Turkey has facilitated the flow of Russian oil to the European Union, enabling the Kremlin to evade EU sanctions and prolong the war.
In 2023, Turkey became the world's largest buyer of Russian fossil fuels, importing about 42.2 billion euros ($45.9 billion) worth of oil, natural gas and coal from the country, a five-fold increase over the past decade.
Despite EU and G7 bans on Russian oil imports, European countries continue to buy large amounts of crude oil and petroleum products from Turkey. According to the CREA-CSD report, between February 2023, when the EU ban and G7 price caps on Russian refined petroleum products came into effect, member states imported 5.16 million tonnes of petroleum products worth €3.1 billion through three Turkish ports: Ceyhan, Eleglisi in the Sea of Marmara, and Mersin.
Importantly, these ports have little refining activity and are heavily reliant on seaborne fossil fuels from Russia.
During the same period, the EU's total imports of petroleum products from Turkey increased by 107% year-on-year, while Turkey's total imports of petroleum products from Russia more than doubled in 2023 to a total of €17.6 billion, generating an estimated €5.4 billion in tax revenue for the Kremlin's war chest.
Given the slight increase in Turkey's domestic consumption of petroleum products, these findings strongly suggest that Turkish storage facilities are importing Russian fuel and reselling it to Western countries.
Given Turkey's strategic location and relatively limited refining capacity, traders have traditionally found it more profitable to buy and store petroleum products than to process crude. And now, as the war in Ukraine has driven up energy prices, Russia is making a higher profit margin per barrel it sells in the EU. Most of those profits are realized by trading middlemen for big Russian oil companies, who are often registered in tax havens such as Switzerland, the Netherlands and the United Arab Emirates.
The Kremlin’s strategy of using Turkey as a resting place exploits a glaring loophole in the sanctions regime that allows Russian blended oil products to enter the EU.
According to official guidelines, such products will no longer be considered to be of Russian origin unless they are “substantially altered” — not just relabeled — which suggests that EU traders may have violated sanctions when importing refined petroleum products from Turkish ports that have been adulterated with or contain primarily Russian oil.
EU authorities should step up sanctions enforcement to put an end to this oil laundering scheme, which means conducting due diligence to identify the origins of petroleum products coming from terminals that receive Russian oil.
Additionally, sanctioned countries must ban the import of fossil fuels from any storage facility that has received Russian petroleum products in the past six months to prevent traders from exploiting this loophole.
The Office of Foreign Assets Control, the enforcement arm of the U.S. Treasury Department, must also impose penalties, such as fines and asset freezes, on shipping companies and entities that violate existing sanctions. Publicizing these penalties would likely deter others from engaging in similar transactions.
The EU should also accelerate the criminalisation of sanctions violations and operationalise common instruments for sanctions enforcement, such as the European Public Prosecutor's Office and the EU's anti-money laundering and counter-terrorism financing authorities.
More broadly, EU member states and G7 countries should acknowledge that the current oil price cap has failed to restrict Russia's access to financial resources. Contrary to conventional wisdom in the US and EU, lowering the price cap would actually be deflationary, since it would force Russia to produce and export more refined products to compensate for the loss of revenues.
CREA estimates that lowering the price cap to $35 per barrel for high-end products and $25 per barrel for low-end products would reduce the Kremlin's seaborne oil product revenues by 68 percent, or about 3.3 billion euros per month.
Ultimately, the EU needs to completely divest itself from Russian oil and natural gas, as that is the only way to free it from the shackles of the Russian network of state control that continues to negatively affect European economies and politicians.
Editor's note: The opinions expressed in our opinion columns are solely those of the respective authors. The editorial team of Euromaidan Press may or may not share them.
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Copyright: Project Syndicate. This article was published by Project Syndicate and republished with permission from Euromaidan Press.
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