U.S. Sanctions Russia’s Two Largest Oil Companies

Thursday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Rosneft and Lukoil, Russia’s two largest oil producers, along with a broad network of their subsidiaries, under Executive Order 14024. The action imposes full blocking sanctions on these entities due to their operation in the energy sector of the Russian Federation.

Key Measures

• Rosneft and Lukoil are now subject to full blocking sanctions.

• Subsidiaries: OFAC also designated numerous Russia-based subsidiaries engaged in exploration, production, refining, and related energy activities. Under OFAC’s “50 percent rule,” any entity owned 50 percent or more, directly or indirectly, by Rosneft or Lukoil is automatically considered blocked.

• Legal Effect: All property and interests in property of these entities that are in the United States or held by U.S. persons are blocked and must be reported to OFAC. Transactions involving these entities by U.S. persons are prohibited unless authorized by OFAC.

Compliance Implications

• Foreign financial institutions may face secondary sanctions risk if they conduct significant transactions involving the designated entities or Russia’s military-industrial base.

The designation may trigger additional export restrictions from the U.S. Department of Commerce’s Bureau of Industry and Security (BIS).

Key Takeaways

Anthony Rapa of Blank Rome notes five key takeaways:

1. Rosneft and Lukoil have been subject to limited sanctions since 2014, but the new sanctions are full-on, real-deal, asset-freeze, blocking sanctions. This is a major action against two of the largest oil companies in Russia.
2. The sanctions will be most keenly felt in the three countries that import the most Russian oil: China, India, and Turkey. It is unclear how China and Turkey will respond, but the United States has trying for months to convince India fto curb its Russian oil imports.
3. The major effect of the new sanctions will be the prospect of "secondary" sanctions directed against non-U.S. companies and banks that deal with Rosneft and Lukoil. Many such operators will seek to wind down their exposure in order to avoid being the target of these sanctions.
4. As always, let's not sleep on export controls, which are now turbocharged under the new BIS Affiliates Rule. As a result of the new sanctions action, there will be broad export controls against Rosneft, Lukoil, and their subsidiaries, applicable not only to U.S. items, but certain non-U.S. items incorporating U.S. content or produced using U.S. technology or software.
5. The sanctions pressure on Russia is the greatest it's ever been, with the UK joining in with its own Rosneft / Lukoil sanctions and the EU passing a phased ban on Russian LNG. Vladimir Putin has spent the last 3.5 years lashing out against each new round of sanctions, so it's hard to say this will be the time he comes to the table ready to make a deal, but if oil importers start heading for the exits, anything is possible.

Allied Sanctions

The full blocking of Rosneft, Lukoil, and their subsidiaries—represent a significant escalation beyond the current approach of both the European Union and the United Kingdom.

European Union

• Rosneft: Subject to sectoral restrictions since 2014 under Council Regulation (EU) No 833/2014, including limits on financing, technology transfer, and specific project prohibitions. The EU has not imposed full blocking sanctions on Rosneft as a corporate entity, though its CEO, Igor Sechin, is individually sanctioned.

• Lukoil: The EU has sanctioned Lukoil executives and imposed restrictions on refinery inputs, crude purchases, and product imports, including bans on seaborne crude imports. However, Lukoil is not fully blocked as an entity and continues to operate downstream assets in EU member states (e.g., refineries in Italy and Bulgaria).

United Kingdom

• The UK has implemented bans on Russian oil imports, financing restrictions, and sanctions against key Rosneft and Lukoil executives.

• Like the EU, the UK has not fully designated Lukoil or Rosneft under full asset-freeze measures on a corporate level.

• Certain Rosneft subsidiaries engaged in shipping or trading have been designated, but not the entire corporate structure.

Policy Statement

Treasury stated that the objective of sanctions is to encourage a ceasefire and support a negotiated outcome to the conflict in Ukraine. Treasury Secretary Scott Bessent emphasized that further measures could be taken if necessary and called on partner governments to adopt parallel restrictions.

OFAC has published an annex listing the specific Rosneft and Lukoil subsidiaries designated. Entities seeking removal from the SDN List may pursue OFAC’s administrative delisting process.