A major Russian oil company has been forced to declare force majeure, due to recent sanctions imposed by Donald Trump. Last month the White House slapped new sanctions on Russia‘s two largest oil companies – Rosneft and Lukoil.
Together they account for nearly half of Russia’s crude oil exports, revenues from which help the Kremlin to finance its grinding war in Ukraine. The measures include the freezing of all US assets belonging to Rosneft and Lukoil, and a ban on American companies and individuals doing business with them. In a further sting, the White House is threatening secondary sanctions on foreign financial institutions that do business with Rosneft and Lukoil.
The swingeing sanctions are biting hard and appear to be having a major effect on production and sales.
Lukoil has suspended normal operations at the giant West Qurna-2 oilfield in Iraq, due to what it describes as force majeure conditions, sources told Reuters. This refers to the abandoment or alteration of a contract due to extreme extentuating circumstnaces outside of the parties’ control.
Since the imposition of the US sanctions, Iraq has stopped all cash and crude payments to the company.
The Russian oil giant is threatening to pull out completely if the issues are not resolved within six months, according to a senior Iraqi oil official.
West Qurna-2 is one of the world’s largest oilfields, producing 9% of Iraq’s total oil production. Located 65 kilometres (40 miles) northwest of the southern port of Basra, it is considered to be Lukoil’s most important foreign asset.
Lukoil has been hit hard by the new sanctions, as it desperately attempts to adapt to the punitive measures.
It is about to lose control over its Bulgarian oil refinery in Burgas, after the government introduced legislation to facilitate an expropriation of the asset.
Under the proposed legislation, an external administrator will be appointed to oversee the refinery’s sale, while Lukoil will lose its voting rights and ability to contest the decision.
Meanwhile the Kremlin is finding it increasingly difficult to find buyers for its oil exports.
The volume of oil in tankers increased by 7% or 27 million barrels in one month, according to data from Bloomberg.