Western sanctions targeting Russian oil major Lukoil have forced the company to declare force majeure at the massive West Qurna-2 oilfield in Iraq.
Lukoil have declared force majeure, citing operational hurdles created by the restrictions, according to a Reuters report.
In a coordinated move demonstrating continued international pressure, both the US and Britain recently announced and implemented significant sanctions targeting key players in Russia’s energy sector.
Sanctions trigger force majeure and escalation
The sanctions, which were imposed last month, specifically targeted Rosneft, which is one of Russia’s two largest oil companies, and Lukoil, the other major national oil giant.
These measures are designed to restrict the companies’ access to international finance, technology, and markets, thereby escalating the economic consequences for Russia.
The action underscores a commitment by Western nations to weaken the Kremlin’s financial resources, which are heavily reliant on oil and gas revenues, as part of a broader foreign policy strategy.
The imposition of sanctions on two such dominant entities in the global energy market is a considerable escalation and is expected to have far-reaching implications for global oil supply chains and market dynamics.
Since then, Iraq has stopped making all cash and crude payments to the company, according to the Reuters report.
Four sources quoted in the report revealed that Lukoil informed Iraq’s oil ministry last Tuesday via letter of force majeure conditions at the West Qurna-2 field, citing factors that prevent the continuation of normal operations.
Iraq freezes payments
According to a senior Iraqi oil industry official, Lukoil will entirely exit the project and cease production if the force majeure conditions are not resolved within a six-month period.
Lukoil’s most valuable international asset is the West Qurna-2 oilfield, situated 65 kilometers (40 miles) northwest of the southern port of Basra, making it one of the largest oilfields globally.
Currently, the field produces approximately 480,000 barrels of oil per day, according to two oilfield officials, contributing about 9% to Iraq’s total oil production.
An oil ministry official stated that the approximately 4 million barrels of crude oil designated for Lukoil as November’s in-kind payments have been cancelled.
According to an oil ministry official, payments due to Lukoil from its operations in Iraq are currently frozen due to US sanctions.
Iraq is unable to conduct business with sanctioned entities.
These payments will remain frozen until a contractual modification is implemented to establish a secure mechanism for the oilfield’s development and for making payments to companies not subject to US sanctions.
According to the report, SOMO’s crude oil supply contract with Lukoil is currently on hold until the issues that led to the sanctions are resolved.
Lukoil’s declaration of force majeure has been approved under its contract terms, an Iraqi official noted. The company is reportedly seeking legal protection to avoid penalties for not fulfilling its contractual obligations to the oil ministry.
Bulgaria moves to seize Burgas refinery
Bulgarian authorities are carrying out inspections and implementing security measures at Lukoil’s Burgas oil refinery, as announced by Prime Minister Rosen Zhelyazkov on Monday.
This action is part of the government’s effort to maintain the refinery’s operations while making preparations to take control of the facility.
Bulgaria approved legal amendments last week that authorize the government to seize the refinery and facilitate its sale to a new owner.
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