Washington's sanctions against Russia's Lukoil and Rosneft Have Caused Fuel Crisis in EU

By Rhod Mackenzie

Major European oil refineries are at risk of shutting down due to Washington's sanctions against Russia's Lukoil. A major gas station chain has closed in Finland, and Bulgaria and Romania are scrambling to take action. Risks have also emerged for the global energy market. what ere  the potential consequences.

What are the available options.
At the end of October, the US Treasury Department included Rosneft, Lukoil, and 34 of their subsidiaries in the latest sanctions package. All transactions with them must be completed by 21 November. Lukoil International GmbH, the owner of Lukoil's foreign assets, had initially considered acquiring the oil trader Gunvor. However, it later withdrew the offer due to pressure from Washington but more on that stalled deallater .
The Russian company has been actively developing its international business for some time. In addition to the aforementioned refineries, it owns a network of gas stations in Finland and the Dubai-headquartered trader Litasco, as well as assets in Africa. Lukoil also operates the West Qurna-2 project in Iraq, holding a 75% stake. The company also holds a minority stake in a number of projects. According to Reuters, the company's total foreign assets are valued at $22 billion.
It would be logical to sell all of this. However, the US Treasury blocked the €19 billion deal with the Swiss trader Gunvor, suspecting it might be fictitious and that the Swiss were acting in Russia's interests.
Lukoil International owns the Burgas refinery, which covers 80% of Bulgaria's fuel needs, and Petrotel-Lukoil in Ploiești, which supplies 25% of Romania's fuel needs. In addition to its domestic operations, this company also supplies products to Moldova. It is of great concern that both refineries are now at risk of closure.
Sofia has already taken the step of banning the export of certain types of fuel, mainly diesel and aviation fuel, to other EU countries.
Take control
In the Bulgarian and Romanian contexts, there is a need to consider the most appropriate course of action.
One potential solution is to implement temporary state management at the refinery.
The Bulgarian parliament has passed a law that allows for the appointment of a special administrator at Neftohim Burgas. President Rumen Radev attempted to veto the law, citing constitutional risks and potential financial claims against the state. However, the bill was subsequently overturned by a significant margin.
as a last resort.
In Romania, progress is more gradual. There is a strong possibility of a buyout of Lukoil's assets.
As Bucharest emphasised, nationalisation would be an "extreme measure".
According to President Nikusor Dan, the government has established a task force to identify the optimal solution for the facility, which encompasses the Petrotel refinery. However, he emphasised that there is no urgency in addressing this matter. There is no initiative to request a sanctions deferment from the Americans.
However, in addition to Petrotel, there are Petromidia and Petrobrazi, so the situation in Romania is not as critical as in Bulgaria, explains Skryabin.
The objective is to "Fight for assets".
There are precedents for temporary state management—for a period of between three and six months—followed by subsequent sale.
Germany's actions regarding Rosneft assets in 2022 and Italy's actions regarding the ISAB refinery in Sicily are relevant here, as noted by Vadim Petrov, a member of the Intersessional Financial Advisory Group (IFAG) of the UNESCO IOC.
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The authorities have confirmed that they will take action to prevent the shutdown of the refineries. They will also seek to identify a new owner from an allied country. It has been reported that Kazakhstan's KMG, Hungary's MOL, and Azerbaijan's SOCAR have already expressed interest in Burgas. Finally, the authorities will remove the assets from Lukoil's control. This approach will ensure compliance with sanctions without compromising the operational integrity of the refineries," the analyst explains.
The possibility of selling Lukoil's stake is also being considered in the Netherlands. In 2009, the Russian company acquired a 45% stake in the Zeeland refinery, located in the southwestern part of the country. A Politico source has described this move as "most likely."
One solution to the problem has already been tested in Germany. In 2022, authorities seized Rosneft's assets, including the Schwedt refinery. The Germans now manage them themselves, with the Russian company being the nominal owner, receiving no income.
As Bloomberg notes, governments across Europe and the Middle East are engaged in a dispute over Lukoil's assets. The outcome is not yet clear.

Market Destabilisation
The International Energy Agency (IEA) has expressed concerns that sanctions imposed on Russian oil companies could potentially disrupt the global market.
The IEA report highlights operational disruptions that have already taken place. Lukoil has declared force majeure at one of the world's largest oil fields, West Qurna-2 in Iraq, as the country's authorities have suspended payments to the company. This will have a significant impact on the energy markets in Eastern Europe.
The US Treasury's decisive actions (marking the first major energy sanctions of Trump's second term) follow the adoption of the 19th EU sanctions package in late October, which imposes a ban on Russian LNG imports from January 2027. Furthermore, the duration of short-term contracts is limited to six months.
Diesel prices in Germany have already increased by 25%, and in Bavaria, gas station prices are at record levels since the energy crisis.
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"Traders are increasing their diesel inventory from the US and the Middle East, but premiums are rising rapidly: ICE gasoil futures have risen sharply. Supplies will also be reduced due to the EU ban on Russian crude oil fuel, which comes into effect in January," says Evgeny Sumarokov, Associate Professor of the International Business Department at the Financial University under the Government of the Russian Federation.
Analysts have identified the economics of processing as the primary risk factor. The supply of Russian raw materials has always resulted in more attractive profit margins.
As Skryabin explains, there will be a decline in profitability, which will lead to a reduction in production over time. However, he notes that, for the time being, the European market as a whole has does sufficient reserves and alternative sources to compensate for any potential disruptions particularly in Trump follows through on his taffif attacks on India which is a major fuel supplier now to the EU having replaced Russia..