Russian energy company Lukoil on Monday declared force majeure at West Qurna-2, a huge oilfield in Iraq. The Iraqi government has reportedly halted all payments to Lukoil due to U.S. sanctions imposed in October.
President Donald Trump imposed heavy sanctions on Lukoil and another giant Russian oil company, Rosneft, on October 23. Trump ordered the sanctions after canceling a planned summit with Russian President Vladimir Putin in Budapest because he believed Putin was not serious about negotiating a ceasefire in Ukraine.
The Treasury Department said the latest round of sanctions would “increase pressure on Russia’s energy sector and degrade the Kremlin’s ability to raise revenue for its war machine and support its weakened economy.”
“Given President Putin’s refusal to end this senseless war, Treasury is sanctioning Russia’s two largest oil companies that fund the Kremlin’s war machine. Treasury is prepared to take further action if necessary to support President Trump’s effort to end yet another war. We encourage our allies to join us in and adhere to these sanctions,” said Treasury Secretary Scott Bessent.
A few days later, Lukoil issued a statement that said it would sell off assets held in 11 different countries due to pressure from the new sanctions. The list of imperiled assets included refineries in Europe, oil and gas fields in the Middle East and Africa, and about 5,000 gas stations around the world.
Lukoil owned far more international assets than Rosneft, so industry analysts predicted the impact of the sanctions would be much greater on Lukoil. One of its most important assets was the West Qurna-2 oilfield in Iraq, which produces some 400,000 barrels per day (bpd). Lukoil holds a 75 percent equity stake in the field, and has been producing oil there since 2014.
Lukoil notified the Iraqi oil ministry last Tuesday that “force majeure conditions” prevented the company from continuing its operations at West Qurna-2. The company has terminated the contracts of all staffers at the oil field who are not Russian or Iraqi.
Two sources told Bloomberg News on Monday that SOMO, the state oil marketing company of Iraq, has canceled three Lukoil cargoes that would have been loaded on tankers in November.
Iraqi officials confirmed the contract for the oilfield has a force majeure clause that will protect Lukoil from penalties during suspended operations, and includes an option for the company to withdraw from the project completely if the issue is not resolved within six months.
Lukoil quickly negotiated a $22 billion deal with Swiss commodity company Gunvor to buy all of its international assets in a package, but the U.S. Treasury Department appears to have scuttled the deal, announcing on Thursday that Gunvor would “never get a license to operate and profit” from the assets because it was “the Kremlin’s puppet.”
Gunvor was co-founded by a Russian businessman named Genadiy Timchenko. Timchenko sold his stake in the company in 2014, when he came under U.S. sanctions following Russia’s illegal annexation of Crimea.
The co-founder of Gunvor and its current CEO, Torbjorn Tornqvist, claimed the Treasury Department’s assessment of his company was “fundamentally misinformed and false,” offering copious assurances that Gunvor’s buyout would not include any backdoor clauses allowing Lukoil to repurchase its assets after sanctions are lifted. He nevertheless pulled his bid for Lukoil’s international business after the Treasury Department expressed its disapproval.
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