Date first published: 4/11/2025
Key sectors: all
Key risks: sanctions; business disruptions; trade disruptions
Risk development
On 22 October the United States (US) Treasury Department announced fresh sanctions on Russia’s two biggest oil firms, Rosneft and Lukoil, in a sharp reversal of US policy amid President Donald Trump’s frustration with Russia’s stalling of peace talks in Ukraine. This came after on 21 October a planned summit between Trump and Russian President Vladimir Putin was cancelled over Moscow’s alleged hardline demands in peace talks. The Brent crude benchmark rose by over 6 per cent after the sanctions were announced.
The US sanctions also followed similar United Kingdom (UK)’ punitive measures on the two oil giants on 15 October, including asset freezes on several oil refineries in India and China that allegedly facilitate the flow of Russian oil to global markets, as well as a transactions ban on designated entities and their subsidiaries.
Why it matters
The latest US and UK measures have expanded the list of sanctioned entities to cover all major Russian oil firms following Washington’s January designation of Gazprom Neft and Surgutneftegaz, seeking to curb Russia’s export revenues. Rosneft and Lukoil now face a full transaction ban from 21 November that will deter traders and banks from handling their shipments, raising the risk of delivery delays and contract suspensions. Major Chinese and Indian oil refiners and Turkey – Russia’s top clients – reportedly suspended their purchases of Russian oil following the sanctions. However, the sanctions also throw Russian-linked energy operations worldwide into uncertainty, forcing Rosneft and Lukoil to sell their international assets where they hold a share of over 50 per cent.
Background
While Rosneft’s foreign ownership remains limited, Lukoil owns dozens of foreign assets through its Swiss-based subsidiary Litasco. Its most significant overseas holding is a 75 per cent stake in Iraq’s West Qurna-2 field, producing around 480,000 barrels a day, alongside an 80 per cent stake in nearby Block 10. Lukoil also owns the Neftohim Burgas refinery in Bulgaria, the largest in the Balkans, the Petrotel Ploiesti refinery in Romania and a 50 per cent stake in Kazakhstan’s Kalamkas-Khazar project. On 30 October Lukoil accepted an offer to sell Litasco – valued at around US$22bln – to Swiss-based commodity trader Gunvor, without disclosing the deal’s price. However, a prolonged sale could still see disruptions to Litasco’s global operations once the sanctions take effect. Gunvor warned that Europe faces job losses and fuel supply disruptions if its purchase of Lukoil’s assets is blocked by regulators.
US sanctions came in parallel to growing wartime disruptions to Russia’s energy sector. Ukrainian drone attacks have reportedly knocked out up to 20 per cent of Russia’s refining capacity, triggering fuel shortages in dozens of Russian regions and prompting Moscow on 25 September to expand curbs on diesel and gasoline exports. The disruptions have rippled across the region, causing shortages and price spikes in Mongolia as well as in Central Asia, particularly in Tajikistan and Kyrgyzstan.
Risk outlook
India and China’s pause on imports of Russian oil may prove to be a temporary measure as traders seek to work around or circumvent sanctions. While the two countries rely heavily on discounted Russian oil, US sanctions have effectively made these supplies a bargaining chip in Washington’s trade talks with Beijing and New Delhi. Previous sanctions did not lead to a drastic drop in Russia’s oil exports, instead pushing Russia to redirect flows through its ‘shadow fleet’ of tankers outside of Western oversight. The sanctions will likely raise shipping distances and insurance premiums, pushing Moscow to sell its oil at greater discounts and dent its energy revenues. If strictly enforced, sanctions will add to the growing disruptions to Russian energy trade. This – coupled with ongoing Ukrainian attacks – will exacerbate domestic production woes.