The billion-euro loophole

How is Russia still earning revenue from oil exports to Europe in spite of sanctions?

Despite ever-tightening sanctions and sweeping bans on maritime fuel shipments, Russia continues to generate revenue by exporting oil to Europe. So far this year, the EU has imported nearly €1 billion worth of fuel refined from Russian crude via third countries, according to analysts at the Centre for Research on Energy and Clean Air (CREA). In a recent report, Cedar, an independent think-tank that produces data-driven research about Russia, has outlined how this so-called “grey re-export” mechanism operates.

Oil laundering

In January, a ban prohibiting the import of petroleum products made from raw materials extracted in Russia came into force in the EU. In order to keep the petrodollars flowing into Moscow’s coffers, Russian oil producers have been using a workaround dubbed “grey re-exporting”, which involves refineries in third countries buying Russian crude oil, processing it, and then shipping the finished products to customers in the EU. Though the ban introduced in January reduced Russia’s ability to bypass the oil embargo, it did not fully close the loophole.

CREA data shows that between January and May, €929 million worth of petroleum products extracted in Russia entered the EU via refineries in Turkey, India, and Georgia. On a monthly basis, these flows fell by 45% compared with the final quarter of 2025. In October–December 2025, roughly €1.01 billion in similarly sourced products flowed through the same “oil loophole.”

At first glance, this may not look like a huge amount, making up just 1.8% of the EU’s €219- billion-worth of imported crude oil and petroleum products in 2025, but even such relatively modest volumes can bolster the finances of Russian oil producers, which are under pressure from a strong ruble and, until the war in Iran began at least, were losing revenue due to the low oil price.

While crude oil is shipped to refineries in third countries for processing, market participants suggest that some of these cargoes may be resold by traders linked to Russian firms. Due to the fact that petroleum products — particularly diesel — are a high-margin segment with strong global demand, some of the resulting revenue may ultimately go to Russian oil exporters.

So far this year, 49 tanker shipments from refineries processing Russian crude oil reached ports in the EU through this loophole, according to CREA. These cargoes “fall into the high-risk category under EU guidelines,” CREA noted, meaning that they were considered to be potentially in breach of sanctions. A total of 36 such shipments left Turkish ports, while six tankers each were dispatched from refineries in India and Georgia. In Georgia, the new Kulevi refinery received its first cargo of Russian oil in autumn 2025.

For traders and refiners, the financial incentives to use cheap raw materials from Russia still outweigh the regulatory risks.

Cedar highlights two indicators suggesting that part of EU fuel imports from third countries may fall into a “high-risk” category. Between February 2023 and February 2024, about 5.16 million tonnes of petroleum products worth roughly €3.1 billion were exported to the EU from the Turkish ports of Ceyhan, Marmara Ereğlisi and Mersin. Over the same period, Turkish imports of Russian petroleum products rose by 105%. Much of this volume was likely re-exported Russian fuel, as all three ports lack refining capacity and source 86% of their total imported petroleum products from Russia.

A second indicator is that Turkey’s domestic consumption of petroleum products rose by only 8% in 2023, while its maritime exports surged by 56%. “It’s significant that petroleum products imported in this way were not recorded in official EU trade statistics as imports from Russia,” the report noted.

India has also emerged as a major re-export hub since Russia’s full-scale invasion of Ukraine. “Before 2022, Indian refineries mainly relied on crude from Gulf countries, but the arrival of heavily discounted Russian oil pushed these suppliers into the background,” the Cedar report read.

As a result, Indian exports of petroleum products to the EU more than doubled in just a few years, rising from $8.7 billion in 2021–22 to $19.2 billion in 2023–24. These flows declined earlier this year amid pressure by the Trump administration for New Delhi to curtail its purchases of Russian oil, which it duly did by half. However, after the outbreak of war in the Persian Gulf, Washington granted temporary waivers for Russian oil imports, and from April, India increased daily purchases by 70%, suggesting that fuel exports to Europe could rise again.

For traders and refiners, the financial incentives to use cheap raw materials from Russia still outweigh the regulatory risks, according to Tatiana Mitrova, an expert at Columbia University’s Centre on Global Energy Policy. “The margins are simply too tempting. Sanctions have clearly narrowed these flows, but they have not cut them off completely.”

Plausible deniability

There are several reasons why the measures taken by the EU to close the oil loophole have not been completely effective, according to experts who spoke to Novaya Europe. Chief among them, according to Sergey Vakulenko, a senior fellow at the Berlin-based Carnegie Russia Eurasia Centre, is the fact that sanctions enforcement is ineffective.

This is particularly the case when it comes to refineries in Georgia, a country whose once Western-looking government has reoriented itself towards Moscow in recent years. Elsewhere, oil refineries processing Russian oil can claim to “operate multiple production lines, with Russian crude oil only going to one of them, while exports to the EU come from the others,” Vakulenko says, adding: “This is probably untrue, but it grants them plausible deniability.”

From a sanctions enforcement perspective, petroleum products are significantly less transparent, legally and commercially, than the crude oil they are derived from, Mitrova says. “EU sanctions introduced on 21 January targeted fuels produced from Russian oil, but in practice origin tracing relies on documentation, supply-chain monitoring, and segregated processing systems, all of which leave room for manoeuvre,” she adds.

Thus, when the ban came into force in January, Indian diesel exports to the EU effectively stopped and Turkish shipments declined noticeably. But the circumvention schemes did not disappear entirely.

As Mitrova notes, it was only in February that the European Union first proposed levying sanctions on energy infrastructure in third countries that process Russian oil, specifically on the Georgian port of Kulevi. “This suggests that until then, a significant share of external infrastructure had simply not been directly targeted by sanctions, leaving traders room to continue operating,” she added. 

Measures targeting Kulevi were discussed as part of the EU’s 20th sanctions package on Russia, which was adopted in April. The restrictions were ultimately left out of the final text, although the EU has not officially confirmed that it abandoned them.

Another reason the oil loophole is proving so difficult to close, according to Vakulenko, is that EU legislation does not automatically become law in each member state. For it to operate (and for European sanctions to be enforced), corresponding national legislation must first not only be adopted, but actually enforced. “I don’t think all countries are moving quickly on either front,” he added.

According to CREA, between January and May 2026, tanker cargoes from refineries processing Russian oil were most frequently unloaded at ports in Cyprus (16 cargoes), followed by Spain and France (7 shipments each). These petroleum products also reached Bulgaria, Croatia, Ireland, Italy, Romania, Greece, Lithuania, and the Netherlands.

Finally, Mitrova concludes, the economic incentive to buy discounted Russian oil remains very strong, and the relatively cheap price of Russian oil still gives refiners in Turkey, India, and beyond a price advantage.

“As long as this discount exists, traders and cargo recipients have a natural incentive to look for ways to preserve part of the flows — by any means: through changing export routes, reallocating cargo batches, blending, or more creative documentation of the fuel’s origin,” Mitrova said.

For example, as early as February, India managed to ship its first batch of jet fuel to Europe since the ban, stating that the crude oil it had been derived from was not of Russian origin. 

Dire straits

The fact that the EU’s tightening of the rules has only managed to halve grey re-exports is further evidence that sanctions on Russian oil are only partially effective and have not significantly weakened the revenue streams funding Putin’s war machine.

The Cedar report finds that Russia’s oil and gas export revenues have declined only modestly since the first sanctions were introduced in response to the Russian invasion of Ukraine in 2022. Indeed, Russia’s average annual oil and gas revenue in 2023–2024 was just 3.3% lower than its average revenue in 2018–2019, while official figures for 2025 have not yet been published, and estimates differ considerably.

Most importantly, these revenues remain driven primarily by global energy prices and the ruble exchange rate, with sanctions-related shocks having only a temporary effect.

As the Cedar report notes, Russia’s oil and gas industry faced two major shocks last year: first, in January 2025 when the US placed Russian energy giants Gazprom Neft and Surgutneftegas on its Specially Designated Nationals and Blocked Persons list, and, in November, when it imposed sanctions on Russia’s two biggest oil companies, Lukoil and Rosneft. In both cases the impact was temporary and quickly absorbed, however, as Russian suppliers recalibrated their logistics chains to maintain export flows. Nevertheless, Russian oil and gas revenues fell by 24% in 2025, even if that was driven less by sanctions than by lower oil prices and a stronger ruble.

Budget revenues from the sector doubled in April and were 1.5 times higher in March and May compared with the monthly averages in January and February. Yet for the period January–May this year, revenues dropped to 2.9 trillion rubles (€34.6 billion) — almost one-third below the same period in 2025. The Cedar report attributes much of this decline to ruble appreciation. While the average exchange rate in the first five months of 2025 stood at 88 rubles to the dollar, this year has seen the ruble strengthen to an average of 75 rubles to the dollar.