November 07, 2025

Sanctions Against Russian Oil Companies: Do They Work?
At the end of October, the US government sanctioned Russia’s two largest oil producers — Rosneft and Lukoil. Until now, the US had refrained from imposing sanctions on these energy companies. How will this affect Russian oil production, and will it reduce Russia’s war chest?

History
On January 10, 2025, the US imposed sanctions on two Russian oil companies — Surgutneftegas and Gazprom Neft, which are smaller than Rosneft and Lukoil. These sanctions did not lead to a decline in their production. Initially, transaction overheads and price discounts increased, but within a few weeks they returned to previous levels. Major buyers of Russian oil remain China and India. Surgutneftegas and Gazprom Neft shipped most of their oil to these countries via intermediaries and third countries, although in some cases they exported oil directly. This practice will probably continue with Rosneft and Lukoil.

The main problem with sanctions against Russian oil is that they are not actively enforced. In theory, when the US imposes sanctions on a company, it means that anything involving the US — such as using US dollars in transactions, leasing oil tankers, or purchasing equipment from US suppliers — is prohibited. While this mechanism could be effective in theory, in practice Russia’s oil business is vast and difficult to monitor. Moreover, the US has significant business and political interests with India and China, which limits how much Washington can penalize their entities for trading with Russia.

Impact of Sanctions on Rosneft and Lukoil
The impact of sanctions against these two companies could be significant for several reasons:

1. Foreign Assets
   Both Rosneft and Lukoil have extensive foreign assets that they must now address. Lukoil’s assets include refineries in Europe, shares in oilfields in Mexico, Kazakhstan, Uzbekistan, and Iraq, as well as hundreds of retail fuel stations worldwide. Lukoil was reportedly trying to sell some of these assets to global oil trader Gunvor, but Gunvor withdrew its bid after criticism from the US. Rosneft owns a 30% stake in an offshore gas project in Egypt, a share in the Indian refinery Nayara Energy, and interests in three large refineries in Germany. Most likely, both companies will be forced to sell their assets at significant discounts.
2. Production Volume
   Together with Surgutneftegas and Gazprom, Rosneft and Lukoil produce about 80% of Russian oil. These companies export approximately 4 million barrels per day (MMbbl/d) of crude oil and condensate, and 1.5 MMbbl/d of refined products. It is impossible to remove such large volumes from the global market; however, some reductions are expected. India may cut its imports of Russian oil by about 0.7 MMbbl/d, while China is unlikely to increase its purchases. The lost supply is expected to be compensated by OPEC members.
3. Restrictions on Foreign Suppliers
   Because of the sanctions, foreign suppliers will be prohibited from dealing with Rosneft and Lukoil, or their cooperation with other Russian companies will be restricted. This includes oilfield services, geological and geophysical exploration, reserves evaluation, equipment and software supply, etc.

As a result of these sanctions, Rosneft and Lukoil are expected to lose tens of billions of dollars, while Russia’s overall oil revenues could decline by around 15%, according to some estimates.

Conclusions
The sanctions will not cause the immediate collapse of Russia’s oil industry — a major source of government revenue — but they may significantly affect oil production over time. The new sanctions, combined with earlier ones, are likely to reduce government revenue and contribute to the budget deficit. However, stricter enforcement will be required to ensure their effectiveness.

References:
Gardner, Timothy and Psaledakis, Daphne. “Gunvor withdraws bid to buy Russian Lukoil assets after US calls it ‘Kremlin’s puppet’.”, Reuters, November 2025, https://www.reuters.com/business/energy/gunvor-says-withdraws-bid-buy-assets-russian-energy-firm-lukoil-2025-11-06/

Vakulenko, Servey. “Impact and Effect. How New US Sanctions Would Change Russian Oil Export.”, Carnegie Politika, October 2025, https://storage.googleapis.com/crng/russia-new-sanctions-effects.html

“Largest Oil and Gas Companies: Who Produced More Oil and Gas in 2024.”, Nprom Online, August 2025, https://nprom.online/popular/krupnejshie-neftegazovyekompanii-kto-dobyl-bolshe-vseh-v-2024-godu/

“Treasury Sanctions Major Russian Oil Companies, calls on Moscow to Immediately Agree to Ceasefire.”, US Department of Treasury, October 2025, https://home.treasury.gov/news/press-releases/sb0290