Russian oil companies are in crisis after US sanctions

100 billion dollars in fire

US sanctions have pushed Russian oil companies deeper into crisis

Lukoil, Russia’s second-largest oil producer, is facing significant financial difficulties amid new US sanctions. This group only had a little time left.

The Russian oil company, Lukoil, is getting worse. The reason is US sanctions, which require extensive processing of international business – due to time pressure. Companies must sell their overseas subsidiaries by November 21. Otherwise, there is a risk of major economic losses.

Lukoil is Russia’s second-largest oil producer after state-owned Rosneft. In contrast to this, Lukoil operates as a private company with a broad international presence. These include refineries in Bulgaria, Romania and the Netherlands as well as a network of filling stations in the Balkans. The most important foreign project is in Iraq: Lukoil controls 75 percent of the West Qurna 2 production field with a daily production capacity of around 500,000 barrels.

An attempt to sell part of the international portfolio to Swiss raw materials trader Gunvor failed. The US government has called Gunvor a “Kremlin puppet” – an assessment the company rejects. The deal fell through and Gunvor withdrew the offer.

Moscow energy analyst Mikhail Krutikhin told “Welt” that Lukoil suffered greatly from the sanctions: “While Rosneft mainly sends its oil to China via pipeline, Lukoil depends on international sea connections.” Economic dependence on foreign activities makes Lukoil’s situation very critical.

The real impact of sanctions on Lukoil is already starting to be felt. In Finland, for example, banks froze payments to the Teboil gas station chain, a subsidiary of Lukoil. In Iraq, state oil company Somo appears to have halted deliveries from the West Qurna 2 field. In Bulgaria, the government plans to change the law to take control of the country’s only refinery – operated by Lukoil.

The value of Lukoil’s overseas subsidiaries is estimated at around $14 billion. These assets are at risk of being lost if they are not sold. Observers believe that a state takeover of certain business areas by another country is possible – similar to Rosneft’s investment in Germany after the start of the Ukraine war.

There is also speculation about a possible takeover by Rosneft. The state-owned Russian company led by Igor Sechin has expressed interest in the past. The Kremlin has so far resisted – but a weakening of Lukoil’s economy could change the situation.

Energy expert Wasily Astrow of the Vienna Institute for International Economic Studies estimates that the sanctions will not leave a supply gap in global markets in the long term. “Russia will find new export routes. But the revenues will be less because buyers will demand discounts,” the expert told Die Welt.