Author: IntaCapital Swiss

Russian oil major Lukoil has declared a force majeure at its Iraqi oilfield West Qurna-2, as it struggles under the recently imposed sanctions by the United States. The declaration marks the most significant fallout from the sanctions as President Trump continues his efforts to broker peace between Russia and Ukraine. Lukoil, which has considerable exposure to international markets, has already failed in its attempt to sell its foreign assets to Gunvor (a Swiss commodity trader), after the United States signalled its opposition to the deal.

West Qurna-2, located approximately 40 miles (65 kilometres) northwest of the port city of Basra, is considered the jewel in the crown of Lukoil’s assets and is among the world’s largest oilfields. The company has maintained a global presence through upstream oil and gas projects, as well as refining and fuel retail networks across Europe, the Middle East, the Americas, and Central Asia. Outside Russia, Lukoil accounts for around 0.5% of global oil output, equivalent to approximately 500,000 barrels per day (BPD).

Lukoil owns 75% of West Qurna-2, which, according to data released in April this year, was producing about 480,000 BPD. However, following the declaration of force majeure, Lukoil now has the right to suspend contractual obligations. Experts note that the field will not be shut down entirely, as operations have been handed over to two state-run Iraqi companies. Indeed, SOMO (Iraq’s State Oil Marketing Company) has already cancelled three Lukoil cargoes scheduled for loading in November. Furthermore, Iraq has halted all crude and cash payments to Lukoil since the new sanctions came into force.

Analysts report that, according to an unnamed Iraqi official, if Lukoil fails to resolve the force majeure conditions within six months, the company will be required to cease production and withdraw from the project entirely. Lukoil’s ongoing difficulties have prompted what experts describe as a scramble across Europe to maintain operations at the company’s assets ahead of the 21st November deadline, when all dealings with Lukoil must cease. In Bulgaria, for example, the government has taken steps to assume full control of the country’s largest refinery to safeguard jobs. Several countries have also requested that Washington issue licences allowing them to continue operating Lukoil’s assets beyond the November cut-off date.

Despite Lukoil’s declaration of force majeure in Iraq, crude oil prices opened lower today, with analysts observing that market sentiment remains largely bearish due to projections of oversupply. Many oil market commentators suggest that with OPEC production increasing, global demand slowing, and economic growth weakening across major oil-consuming nations, bearish sentiment continues to dominate the supply side.

Last week on 22^nd of October, in Washington D.C, the U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC) announced that further sanctions on major Russian oil companies were being imposed due to Russia’s lack of serious commitment to a peace process to end the war in Ukraine. Experts advise that the aim of this increased pressure on Russia’s energy sector is to weaken President Putin’s ability to generate revenue for the war effort and to sustain an already fragile economy.

The sanctioning of both Rosneft and Lukoil* by the United States coincided with the EU’s 19^th package of sanctions on Russia, which included a ban on Russian LNG (liquefied natural gas) imports. The United Kingdom had also added to its own sanctions list the previous week.

Rosneft – A vertically integrated energy company specialising in the exploration, production, refining, transportation, and sale of petroleum, petroleum products, and LNG. The Russian Government owns around 40.4% of the company, with the Qatar Investment Authority also holding a significant stake.

Lukoil – Engaged in the exploration, production, refining, marketing, and distribution of oil and gas across Russian and international markets. Lukoil is privately owned, with its founder, Vagit Alekperov, holding approximately 28.3%.

President Trump’s sanction package targeting Rosneft and Lukoil has triggered repercussions in the world’s two most populated nations, India and China. Experts report that a number of oil companies in both countries have begun cancelling orders ahead of the sanction deadline of 21^st November 2025, fearing potential retaliation from the White House for sanction busting.  Analysts estimate that Russia exports between 3.5 and 4.5 million barrels of oil per day to Asia, with a significant portion coming from the newly sanctioned firms. However, experts warn that once the deadline passes, exports of between 1.4 and 2.6 million barrels per day to China and India could completely dry up.

Under OFAC’s latest rules, U.S. secondary sanctions may also be imposed for providing material support to Lukoil or Rosneft, or for operating within Russia’s energy sector. In essence, sanctions can be triggered by any significant transaction involving these companies. The threat of being banned from the U.S. financial system is expected to deter potential sanction busters from engaging in new or existing business with either firm.

The EU’s new sanctions package will prohibit the import or transfer, directly or indirectly, of Russian LNG from 25th April 2026, except for long-term contracts entered into before 17th June 2025. The EU’s implementation has been slower than that of the U.S. and UK due to its greater dependence on Russian LNG.

Meanwhile, both the European Union and the United Kingdom continue to target vessels operating within the so-called shadow fleet*, which is used to transport Russian oil and bypass Western sanctions. The UK has also imposed asset freezes on several companies supplying Russia with critical electronics for missiles and drones. Additionally, the EU has identified 45 new companies and entities that are directly supporting Russia’s war effort by helping to circumvent export restrictions on advanced technology.

Shadow Fleet – A collection of around 45 ageing, uninsured oil tankers used by Russia to export oil while evading Western sanctions. These vessels typically have opaque ownership structures, often sail under false flags, and operate outside the Western financial system. This enables Russia to sell oil below the Western-imposed price cap of USD 60 per barrel, designed to limit Moscow’s export revenues.

The latest round of sanctions is expected to result in increased enforcement activity and greater regulatory scrutiny, particularly if the United States maintains its renewed aggressiveness. With relatively short wind-down periods for both Lukoil and Rosneft, sanctioning authorities will need to act swiftly and with heightened diligence. Strong cross-border coordination among multinational organisations will be essential to ensure a robust and effective sanctions compliance framework.

On Thursday, 23rd October, President Donald Trump announced that he was halting all trade negotiations with Canada, blaming an advertisement funded by the Ontario Government, which cast negative connotations on his tariff plans by featuring the voice of former President Ronald Reagan. The advert used excerpts from a 1987 speech in which President Reagan criticised tariffs as outdated while defending the principles of free trade. Last year, the United States and Canada exchanged in excess of USD 900 billion in goods and services, and the cancellation of trade talks by President Trump has cast a cloud of uncertainty over bilateral trade relations between the two nations.

President Trump’s announcement, made via his Truth social media stated:

“Tariffs are very important to the National Security and economy of the U.S.A. Based on their egregious behaviour, all trade negotiations with Canada are hereby terminated”.

Experts suggest that the President is convinced the Ontario Government timed the adverts (which have been shown more than once) to coincide with a case in the Supreme Court challenging the legality of the tariffs, and to sow discord among Republican supporters. Canada’s Prime Minister, Mark Carney announced on Friday that the country was ready to resume trade talks with the United States and would pause the advert on Monday in the hope that U.S. trade officials would return to the negotiating table.

In a surprise move, President Trump predicted that Brazil and the United States may be able to “pretty quickly” strike a trade deal, despite having imposed punitive tariffs on Brazil earlier this year over the prosecution of former ally Jair Bolsonaro. Brazilian Foreign Affairs Minister Mauro Vieira stated that he hoped sanctions on Brazilian officials would be lifted and that he expected trade negotiations to be completed within weeks.

President Trump is attending the 47^th ASEAN Summit and Related Summits in Kuala Lumpur from 26^th – 28^th October 2025, where he has held several meetings with regional leaders concerning tariffs. He is seeking to increase access to markets for U.S. agricultural goods and, crucially for his administration, to secure access to critical minerals and rare earth sectors. Such framework agreements will include exemptions from tariffs on key exports to the United States for several Southeast Asian countries, including Cambodia, Malaysia, Thailand, and Vietnam.

The United States has released a framework for a trade agreement with Vietnam, which will offer zero tariffs on selected products while granting preferential treatment by the Vietnamese Government to U.S. agricultural and industrial exports. A White House Statement said the agreement is expected to be finalised in the coming weeks, adding that both countries had agreed commitments on investment, digital trade, and services, though further details were not provided.

It has also been announced that a reciprocal trade framework between the United States and Thailand has been reached, under which the U.S. will maintain a 19% tariff on Thai exports, while identifying certain products where tariffs could be reduced or removed. Thailand will eliminate tariffs on approximately 99% of U.S. exports, covering industrial, food, and agricultural products. Both countries also signed a pact giving U.S. companies preferential access to rare earth minerals, crucial in manufacturing high-tech products such as jet engines and semiconductors. However, information released so far remains limited and given that China controls around 90% of the rare earth market, the overall impact for the U.S. may be modest.

Malaysia, as host of the 47^th ASEAN Summit, has signed a Joint Trade and Critical Minerals Agreement with the United States aimed at improving trade across Southeast Asia and countering China’s tightening control of rare earth mineral exports. Analysts say the agreement gives Malaysia an advantage in accessing the U.S export market and, in return, Malaysia will develop its rare earth and critical mineral sectors with U.S firms, while addressing barriers that affect investment, digital trade and services. Furthermore, Malaysia will commit to purchasing products from U.S companies and restricting the export of any U.S. items on the unauthorised list.

Finally, China and the United States are both keen, according to experts, to avoid further escalation of the current trade war, and have shown signs of progress. After China increased export controls on rare earth and critical minerals, President Trump responded by imposing China with 100% tariffs on Chinese goods. However, on 26^th October, it was announced that U.S. and Chinese trade and economic officials had reached an agreement on a framework for bilateral trade, and President Trump confirmed that he expects to finalise a trade deal with President XI Jinping in the coming days. Only time will tell whether the United States and China can reach a sustainable long-term agreement.