More evidence that Turkey simply relabels Russian oil products and re-exports them to Europe as Turkish emerges from a new study by the Centre for Research on Energy and Clean Air (CREA) and the Centre for the Study of Democracy (CSD).
“Turkey, the world’s largest buyer of Russian refined oil products, has emerged as a strategic pitstop for Russian fuel products rerouted to the EU, likely generating hundreds of millions in tax revenues for the Kremlin’s war chest,” said Martin Vladimirov, senior energy analyst at CSD and co-author of the report.
The report reveals that from the point the EU/G7 Russian petroleum products ban took effect on February 5 last year to the end of February this year, the EU has imported €3bn of oil products from three Turkish ports. The trio of ports—Ceyhan, Marmara Ereglisi and Mersin have no refining hubs and in the period analysed imported 86% of their oil products from Russia.
Turkey’s big role as an importer and re-exporter of Russian crude and oil products came more into focus in January last year when US senators claimed that “masked Russian oil” supplied via mid-sized Turkish oil trans-shipment terminal Dortyol even ended up in US warships after being processed at a Greek refinery.
Turkey’s imports of Russian oil have in fact grown almost fivefold over the last decade and in 2023, Turkey became the world’s biggest buyer of Russian oil products, importing 18% of Russia’s total exports of oil products. It has increased its reliance on Russia for the supply of seaborne refined oil products, mainly diesel, gasoil and jet fuel from 52% in 2022 to 72% in 2023, according to CREA and CSD.
Said CREA: “Investigations carried out by CREA and CSD of specific shipments suggest that European entities may have imported Russian oil products mixed or re-exported from oil storage terminals in Turkey.
“Loose EU legislation, combined with a lack of stringent enforcement, means that EU/G7 countries’ imports may still contain significant volumes of oil products of Russian origin — especially for their imports coming from Turkey that has not implemented sanctions [on Moscow].”
The study authors issued key findings, including:
- In the period assessed, the EU imported 5.16mn tonnes of oil products valued at €3.1bn from the three Turkish ports with no refining hubs—Ceyhan, Marmara Ereglisi and Mersin. In this same assessed year-long period, 86% of the ports’ imports of oil products, in value terms, was from Russia.
- Investigations of specific shipments carried out by CREA and CSD suggest that European entities may have imported Russian oil products mixed or re-exported from oil storage terminals in Turkey.
- In May 2023, the Toros Ceyhan oil terminal at the port of Ceyhan received 26,923 tonnes of gasoil from Russia’s Black Sea oil export port of Novorossiysk — the terminal’s first import of the commodity in three months. Ten days after the import the terminal shipped a similar volume of gasoil to the MOH Corinth refinery in Greece. This trade seems to have exploited a legal loophole that allows blended Russian oil products to enter the EU.
- Since the start of the EU/G7 ban on 5 February 2023 until the end of February 2024, Turkey has imported €17.6 €bn of Russian oil products, marking a 105% y/y increase. Since the introduction of the ban, 81% of Turkey’s imports of oil products have been from Russia, showing an increased reliance that could threaten their energy security.
- Turkey’s domestic consumption of oil products grew by 8% in 2023. In contrast, the country’s seaborne imports of oil products grew by 56% suggesting that Turkey is becoming a re-export hub for oil products, not just satisfying growth in domestic demand.
- Russia’s exports of oil products to Turkey generated €5.4bn in tax revenues for the Kremlin war chest, prolonging and enabling Moscow’s full-scale invasion of Ukraine.
The study authors also issued policy recommendations, namely:
- Tighten existing legislation: The EU should strengthen their sanctions regulations to define precisely that EU Member States cannot import re-exported Russian refined oil products. EU legislation remains vague on the proportion of Russian-origin oil that will constitute sanctions evasion, thereby encouraging the continuing trade and transshipment of products without the threat of repercussions. Stricter rules on enforcement must be implemented to prevent higher oil export volumes and earnings for Russia that are then subsequently used to fuel the Kremlin’s war effort in Ukraine.
- Better enforcement: Sanctioning countries must require strict ‘Rules of Origin’ documentation when importing oil products from countries that have imported oil products from Russia. To enhance transparency and compliance, the EU should amend the Commission Implementing Regulation (EU) 2015/2447, ensuring that the customs declaration includes the true origin of oil products exported to an EU port, confirming they were not produced with Russian oil.
- Investigate and implement strict penalties on violators: EU/G7 countries must investigate shipments from Turkish ports to deduce any violations on the transshipment of Russian oil products. In case of violations, entities must be sanctioned and served with bans and penalties. Enforcement agencies should have the power to board vessels, check certification documents that show evidence of the oil’s origin and chemically test it to determine whether the commodity contains oil originating from Russia. Tankers with falsified statements of the fuels’ origin should be treated as smuggling with all the related legal consequences. This includes the arrest of ships at sea and their confiscation.
- Lower the price cap on products: The coalition must also lower the price cap of oil products which are currently above the market price. Lowering the price cap would be deflationary and force Russia to produce and export more volumes of refined products to make up for the loss in revenue. Lowering the price cap to $35 per barrel for premium products and $25 per barrel for low-value products would cut the Kremlin’s revenues from seaborne oil products by 68% (€3.3 bn per month).
- Remove transfer pricing loopholes: Regulatory authorities such as customs and tax agencies must also ensure that Russian companies do not use transfer pricing schemes to increase profits made from oil sold in different markets, and especially ensure that the proceeds from such transfer pricing cannot reach the Russian government. Creative transfer pricing schemes allow vertically integrated Russian oil companies to sell crude oil or refined products at artificially low prices so that they can extract a profit from selling on the wholesale market at much higher prices abroad (in countries such as Turkey). The profit out of the price difference is then moved to an offshore-registered subsidiary to avoid paying taxes in Russia.
