Bulgaria, the fourth-largest buyer of seaborne Russian oil in 2023, is set to replace its Russian oil imports with crude from Kazakhstan, Iraq, and Tunisia in January, according to traders and data from the London Stock Exchange Group (LSEG). The move comes as Bulgaria faces challenges due to restrictions on exports of refined products from Russian crude, impacting its sole refinery in Burgas.

While Bulgaria holds a waiver from a European Union embargo allowing seaborne imports of Russian oil in 2024, the country has chosen to halt all Russian crude imports from March. The Burgas refinery, operated by Russia's Lukoil and with a capacity of 190,000 barrels per day (bpd), is no longer supplied by Lukoil's Urals oil, necessitating the use of oil from alternative sources.

In January, Burgas is scheduled to receive cargoes of crude oil, including two 70,000 metric ton shipments of Kazakhstan's KEBCO crude, one 76,000 ton cargo of Basrah Light from Iraq, one 50,000 ton cargo of CPC Blend, and 33,000 tons of oil from Tunisia, as per LSEG data. KEBCO, with similar quality to Urals, is considered the most likely replacement for Russian oil in Bulgaria. However, its limited supply and higher price compared to Urals pose challenges.

The Burgas refinery, designed to process Urals oil, faces additional hurdles as it can only run on sour grades, making the switch to alternative sources difficult and costly in the European Union. Traders note that the European market for sour barrels is tight due to the unavailability of Urals and Kurdish oil, the latter having faced export suspensions since last spring.

Bulgaria's government has further impacted the profitability of the Burgas refinery by imposing a 60% tax on its profits. Lukoil, the operator of the refinery, has indicated a review of its strategy regarding assets in Bulgaria and is open to considering a sale.

As the dynamics of oil imports shift, Bulgaria navigates the challenges posed by geopolitical factors, supply limitations, and the impact on its refining industry. The move away from Russian oil reflects broader trends in the energy landscape and the ongoing global efforts to diversify energy sources. The situation also draws attention to Iraq, particularly its Kurdistan region, which has experienced suspended oil exports since last spring.