Privately owned Lukoil, Russia’s second-largest oil producer, has announced its plan to divest foreign holdings after the latest wave of Western sanctions against Russia due to the ongoing invasion of Ukraine. The Western nations have been contemplating how to force Russia to reconsider its “special military operation,” and the consensus has been to impose new and substantial sanctions on Russia and its energy companies. While Lukoil is privately owned and has on several occasions noted that it avoids state-capture, however, simply being a Russian company has forced the energy major to begin selling off holdings in foreign projects.
Lukoil released a press statement on 27 October outlining its plans to divest foreign holdings
The war in Ukraine has devastated not only the nation but has also placed the international energy sector in a conundrum: either allow the flow of Russian energy resources and provide Moscow with a means to finance the war, or end the import of Russian gas and oil, forcing Putin to reconsider his aggressive and unwavering stance.
US President imposed a new round of sanctions on Russian oil on 22 October following an unsuccessful summit with Putin in Alaska in August. Mr Trump has been working uncharacteristically hard to maintain some level of open conversations with Russia; however, it appears that his patience has run out following Russian strikes on Ukraine, showing no signs of easing up.
Western sanctions on Russian oil have largely been ineffective up until this point
It should be worth remembering that this is not the first time that the West has imposed sanctions on Russian oil. In 2022, sanctions led Russia to divert its oil exports to Asia, largely alleviating any pressure on the sector. This new round of sanctions is the first imposed by Donald Trump since starting his second term in the most powerful office in the world.
Lukoil has started the process of offloading its holdings in foreign energy projects
Lukoil released a statement outlining the steps it has taken to offload its holdings in foreign energy projects and has called for any potential bidders to apply for a possible acquisition. This comes after the 19th round of sanctions on Russian gas has been approved by the EU.
The company noted that negotiations to acquire several assets have begun, but gave no further insight or details. Lukoil’s largest foreign asset is the West Qurna 2 oil field in Iraq, in which it holds a 75% stake.
It also holds a 100% ownership in the 190,000 bpd Lukoil Neftohim Burgas refinery in Bulgaria, which is the largest refinery in the Balkans. Additionally, Lukoil also owns the Petrotel oil refinery in Romania.
Lukoil has already sold one of its major projects in Europe due to the Ukraine war
The company stated that it was forced to sell its ISAB Refinery in Sicily, which is one of Italy’s largest refineries. The question for Lukoil becomes, once it has sold off its foreign holdings, what future does the company have in the international energy sector? The sanctions will certainly impact Slovakia and Hungary, which are Lukoil’s biggest European clients. As Hungary recently experienced a fire at a major refinery, the country’s energy sector is facing a bleak future.
The EU has implemented measures to block the flow of Russian energy resources
The latest round of sanctions has placed Russia in a precarious and potentially market-damaging position. The new rules imposed on the indirect flow of Russian oil by the EU have further exacerbated the problems for Mother Russia. With Putin showing no signs of starting peaceful negotiations with Ukraine, the new sanctions by the US and the EU have been welcomed by the international community and have been lamented by Moscow. The end of Russian energy coming into Europe is a lot closer than you might think.
