Putin is losing his grip on Eastern Europe

As Bulgaria and Serbia tread carefully between Moscow and the West, Russian oil exports slump

Even as Donald Trump proffers Vladimir Putin a deal to end the war, his most recent sanctions have hit the Russian strongman with a powerful gut punch that could last well beyond any ceasefire.

The US-backed sanctions on Russian oil giants Rosneft and Lukoil have sucked billions of dollars out of his war machine, blowing a fresh hole in the Kremlin’s finances and sending Putin scrambling to stave off an economic crisis.

But the sanctions haven’t just hit hard at home. Trump’s crackdown looks set to drive the Kremlin further out of its own Eastern European backyard, dealing a crippling setback to Putin’s visions of restoring Russia’s imperial might.

Serbia and Bulgaria, two former Soviet-bloc countries with deep historical ties to Moscow, have now been forced to expunge the Russian oil giants from the heart of their economies.

“What we are looking at here is a redrawing of the spheres of interest,” says Igor Novakovic, an analyst at the Belgrade-based International and Security Affairs Centre.

“The Russians’ business influence in these countries, and the political interest that comes with it, is over.”

The crunch began on Oct 22, when Scott Bessent, the US Treasury Secretary, announced that America was joining the EU and Britain in levying sanctions on Rosneft and Lukoil, blaming “Putin’s refusal to end this senseless war”.

In Bulgaria, Lukoil owns the country’s biggest refinery and more than 200 petrol stations, meaning the sanctions would ripple across the economy if the Russians were in charge.

To avoid such contagion, the Bulgarian government recently seized control of the company and appointed Rumen Spetsov, a former tax office chief and bodybuilding champion, as a special administrator.

The US then gave Lukoil and the administrator six months to find a buyer.

“Lukoil was the crown jewel of Russian influence in Bulgaria,” says Ruslan Stefanov, chief economist at the Sofia-based Centre for the Study of Democracy.

“Even if there is peace in Ukraine, Russia’s long-term policy is to go against Europe. So we can’t continue to do business with them. Decoupling is the name of the game.”

Although Bulgaria is a member of the EU and Nato, this has been a radical step.

The country, which was once so cosy with Moscow that it asked to be folded into the Soviet Union, is polarised between pro- and anti-Russian political forces.

The pro-Russian president, Rumen Radev, tried to block the state seizure of Lukoil’s assets, but parliamentarians voted to overturn his veto. The political landscape may be changing.

In Serbia, which fought a war with Nato in the 1990s, politicians have long sought to tread a political tightrope between Russia and the EU. But now Belgrade may have to pick a side.

“Sitting on the fence was possible only when we had a stable international order,” says Novakovic. “Now this international order is reshaping, things are changing.”

President Alexandar Vucic is poised to take control of oil refiner Naftna Industrija Srbije (NIS), which is owned by Kremlin-backed Gazprom Neft and Gazprom.

The refinery is in “idle mode” because nobody can sell oil to the sanctioned NIS.

Vucic is hoping the US Treasury will give him a sanctions reprieve that will allow him to restart the refinery while a non-Russian buyer is found.

However, Vucic is still trying to avoid making enemies. He told reporters last week that if NIS were nationalised, “we will offer the highest possible price ... to our Russian friends”.

But behind the emollience, the reality is that Russia has lost a key source of leverage, Novakovic says.

“In one way or another, it seems the Russians and Gazprom are out,” he says. “The consequences of that for Serbia will be the push towards the West, without any doubt.”

For the Russians, it will be a bitter blow. A central tenet of Putin’s thinking is that Russia has a legitimate historical sphere of interest that extends well into eastern and central Europe.

As former president and Putin mouthpiece Dmitry Medvedev put it last year: “The more powerful a state is, the further its strategic fronts extend beyond its state borders. This is the zone of national interests of the state.”

Emilia Zankina, a Bulgarian political scientist and dean of Temple University Rome, says the loss of sway over eastern European energy “does push the Russians into a corner”.

“It doesn’t mean their influence will disappear,” she says. “But it will certainly be constricted, and it will probably dig deeper into their shady networks.”

Meanwhile, if the Rosneft and Lukoil sanctions have caused Putin problems in his European backyard, they may be triggering even greater strife at home as his war machine loses out on billions of dollars a month.

Russia’s oil exports to China, the Kremlin’s biggest buyer, have plunged by 500,000 barrels per day to 800,000 barrels per day since October, Kpler figures show. This is the lowest level recorded since the war began in February 2022. Exports to India and Turkey have also slumped.

Overall, Lukoil’s exports have all but disappeared.

In September, the oil company was selling 569,000 barrels of oil per day. By November, that had plunged 89pc to just 64,000. Rosneft’s seaborne oil exports have also dropped by 28pc in the past two months.

The new rules have hit both the volume of oil that Russia is able to sell and the price at which it can sell it. The discount on Russian oil sold to India has recently widened from $2 versus Brent crude to $6.

Before the US sanctions, Russian oil was actually sold to China at a $2 premium compared to Brent, because of its quality and ease of transport from its eastern Kozmino port. Now, it sells at a discount of $4.

The bill is huge.

All in, the new US sanctions are costing Putin between $2.5bn and $5bn per month in lost oil revenues, estimates Benjamin Hilgenstock, of the Kyiv School of Economics (KSE) Institute.

This is equivalent to about one third of Russia’s monthly export revenues, which totalled $15.4bn in September.

But analysts do not think the impact will last long as Russia seeks to change its strategy.

This stems from the fact that it is still legal to buy Russian oil, meaning buyers only face penalties if they purchase from the sanctioned companies. So Russia is using different companies to sell its oil.

Kpler analysis of recent tanker activity shows a noticeable shift in Russian crude trades, which have started to make more mid-voyage diversions between China and India and ship-to-ship transfers at unusual locations, such as off the coast of Mumbai, which is not a typical transfer zone.

As well as the new “unknown” sellers, a fleet of other smaller Russian companies has emerged as larger sellers of oil in recent months.

Kpler data shows companies such as Tatneft, RusExport, MorExport and Alghaf Marine DMCC have emerged as new, growing sellers of Russian oil in recent months.

It’s a similar playbook to long-sanctioned Iran. Based on this precedent, Falakshahi says it will probably take Russia only two or three months to completely pivot its oil sales through different companies and normalise its oil export volumes.

But although Putin will be able to recover the sales, he is unlikely to be able to claw back the price.

The question is whether this economic setback will finally be enough to get Putin to swallow a peace deal that will most likely fall short of fulfilling his wish-list.