New OFAC Sanctions Adversely Impact Rosneft And Lukoil: Extra Diligence Required

Washington, D.C. (October 29, 2025) - On October 22, 2025, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) imposed further sanctions (Sanctions) as a "result of Russia's lack of serious commitment to a peace process to end the war in Ukraine." The Sanctions implement Executive Order 14024 (EO 14024), (as amended by Executive Order 14114) and apply to the two largest oil companies in Russia, Open Joint Stock Company Rosneft Oil Company (Rosneft) and Public Joint-Stock Company Lukoil (Lukoil), including more than 30 of their subsidiaries (Companies). In addition, the Sanctions cover "[a]ll entities owned 50 percent or more, directly or indirectly, by Rosneft and Lukoil, ... even if not designated by OFAC."

The Sanctions provide that all property and interests in property of the Companies that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Importantly, both companies and U.S. and foreign financial institutions may risk exposure to sanctions for engaging in certain transactions or activities with the Companies.

Concurrently with the issuance of the Sanctions, on October 15, 2025, the UK sanctioned Rosneft and Lukoil (UK Sanctions), and on October 23, 2025, the European Union (EU) adopted its 19th package of sanctions against Russia (Package). The Package substantially increases the pressure on the Russian economy, targeting key sectors such as energy, finance, the military industrial base, and special economic zones. Significantly, it expedites the ban on Rosneft's and Gazpromneft's oil and gas imports into the EU.

Implications

The impact of the U.S. and UK Sanctions and the EU Package are significant. Businesses have until November 21, 2025 (U.S.), and November 28 (UK), to wind down transactions with the Companies, and these deadlines will apply to existing relationships between service providers and the Companies. The Companies daily export around two-thirds of Russia's oil and those recipients will have to find other sources. Additionally, all transactions of the Companies that are based in dollars will be subjected to sanctions, further disrupting business.

Lukoil could be severely impacted and has announced it is seeking to sell its international assets. As the second largest oil producer in Russia, such a sale could have far-reaching consequences. It is estimated that Lukoil has about 5,300 service stations across 19 countries, including almost 200 in the U.S. It also operates several refineries in Europe and owns several ships to transport its product.

It is unclear how the U.S.-operated Lukoil service stations will be impacted. Most are owned locally and franchised by Lukoil. While some might receive product from Lukoil-owned refineries, many are supplied by U.S. refineries. Even if locally owned, it is not clear what kind of payments that might be due to Lukoil, such as for brand licensing, royalty payments, or franchise fees, will be affected.

General License No. 128, issued by OFAC simultaneously with the Sanctions, provides some direction for Lukoil service stations. It states that "all transactions prohibited by Executive Order (E.O.) 14024 that are ordinarily incident and necessary to the purchase of goods and services from, or the maintenance, operation, or wind down of Lukoil retail service stations located outside of the Russian Federation... are authorized through 12:01 eastern standard time, November 21, 2025, provided that any payment, directly or indirectly, to a blocked person—other than blocked Lukoil Retail Service Stations—is made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations...." Payments to be made to Lukoil after this date must be paid into a blocked account. Locally owned stations may choose to re-brand and cancel any further transactions with Lukoil in order to avoid the risks of being sanctioned.

Financial Considerations

Both U.S. and foreign financial institutions must exercise extra diligence as a result of the Sanctions. Banks and insurance companies that have provided products and services to the Companies must cease doing so, including dealing with any entity that is 50% or more owned or controlled by them. General License No. 126, which authorizes the wind down of transactions with the Companies until November 21, 2025, requires that any payments made to the Companies must be made into a blocked account.

This could have enormous ramifications. Virtually all commercial transactions involve financing. Foreign financial institutions that conduct or facilitate significant transactions or provide any service involving Russia's military-industrial base, including any persons blocked pursuant to E.O. 14024, risk being sanctioned by OFAC. Additionally, insurance companies that insure or re-insure ships owned by the Companies must engage in extra diligence.

U.S. banks and insurance companies that work with foreign banks and insurance companies must ensure that they are not participants in any transactions that are covered by the Sanctions and the Package. As foreign financial institutions are unwinding their relationship with the newly sanctioned entities, extra diligence is needed to ensure that foreign banks no longer are providing products or services to the Companies' refineries, ships, service stations, or any other entity that is owned or controlled by the Companies or their 50%-owned subsidiaries.

The EU Package imposes new restrictions that include additional banks in the transaction ban and implement new bans on Russia's payment card and payment system; the Package also sanctions certain cryptocurrencies and exchanges used to evade sanctions.

Takeaways

The Sanctions and Package substantially increase the pressure on Russia by striking at its two largest petroleum producers, which provide products worldwide, and significantly in Europe. U.S. companies, including service providers, that have business relationships with the Companies will need to examine those arrangements to ensure compliance with the new Sanctions. Mostly locally owned Lukoil service stations in the U.S. are particularly impacted, as it is unclear if they can operate under the Lukoil name or whether they must associate with another oil company to continue to do business. U.S. financial institutions that have correspondent relationships with foreign financial institutions that provided services to the Companies must increase their diligence as a result of the new sanctions. Foreign financial institutions must cease doing business with the Companies or risk significant OFAC sanctions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.