Russian oil risks sparking new political crisis in Bulgaria

According to the news network Euractiv.bg (Bulgaria), Bulgaria's political stability is being threatened by the fuel market crisis as the ruling coalition wants to reduce its dependence on Russian oil.

Several sources in the Bulgarian parliament and government confirmed to Euractiv.bg that this is related to a dispute with Russian energy group Lukoil, which owns the Neftochim Burgas refinery and has a monopoly on the wholesale market in Bulgaria.

While it is clear that Bulgaria is aiming to reduce its dependence on Russia in the oil sector, it appears to want to use its handling of Russian energy as a reason to be accepted into the EU's Schengen travel-free zone and the Eurozone.

“Nothing has been decided yet. The issue will continue to be discussed,” a member of the majority faction in the Bulgarian government’s ruling coalition said on condition of anonymity.

Meanwhile, Bulgarian Prime Minister Nikolay Denkov is said to have opposed taking tough measures against Lukoil, especially regarding the nationalization of the largest refinery in the Balkans, and stressed that the refinery could continue operating with guaranteed supplies and no significant increase in fuel prices.

The Bulgarian government also proposed that the country continue its cooperation with the Russian oil company until spring 2024, but the majority in parliament insisted that this period be reduced to the end of 2023. Those who are determined to quickly terminate the contract with Lukoil are former Prime Minister Boyko Borissov's GERB party, which currently has the largest number of seats in the Bulgarian parliament, and the minority DPS party.

The biggest problem

The future of Lukoil's Burgas refinery is one of the biggest issues facing Bulgaria's fragile pro-European coalition. Further missteps by Lukoil could lead to higher inflation, which could very well be used as an excuse for parties to criticize the government.

In a report submitted to the Bulgarian Government's National Security Council, the country's security agency (SANS) forecast that when Russian crude oil imports by sea are reduced, fuel prices will increase by at least 0.1 - 0.15 euros per liter.

The SANS report also warned authorities about a nearly $800 million loan Litasco granted to Neftochim Burgas. Most of it has been repaid, but in the event of early termination of the contract, the lender could declare the remaining $300 million in default and bankrupt the refinery. This could send shockwaves through the fuel markets in Bulgaria and North Macedonia.

If the refinery were to close for various reasons, Bulgaria would have to rely on local traders to import fuel, which would take time. Data from June 2023 showed that Bulgaria had only two months of fuel reserves.

This September, when the Bulgarian parliament reconvenes for its autumn session, lawmakers will discuss the issue. Bulgaria is currently the only European country that the EU has allowed to import Russian crude oil by sea, a route that will operate until the end of 2024.

On July 21, the Bulgarian Parliament voted to terminate the concession contract for the use of the Rosenets oil terminal, near the Black Sea port of Burgas, by Russian oil company Lukoil, with the aim of Bulgaria then taking over the port and speeding up the process for Bulgaria to join the EU's Schengen agreement.

The port of Rosenets, just outside Burgas, is the only dedicated oil port on Bulgaria’s Black Sea coast and has been under Lukoil’s control since 2011 on a 35-year lease. The port serves Bulgaria’s only refinery, the 196,000-barrel-per-day Neftochim Burgas, which is also owned by Lukoil. In January, the Bulgarian parliament passed a resolution paving the way for the government to take over the refinery’s operations for up to a year.