Energy reckoning: How Europe can use US sanctions to cut Moscow’s oil ties

On 22nd October, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) added Rosneft, LUKoil and their subsidiaries to the Specially Designated Nationals list. In doing so, Washington has frozen any assets held by these companies in the US, or any assets controlled by US entities.

In the same announcement, the US declared that external financial institutions and companies which maintain significant relationships with Rosneft and LUKoil may face secondary sanctions. OFAC has issued several general licences that allow for the completion of certain transactions with these companies, such as the sale of assets or settlement of liabilities, until November 21st 2025.

However, while the new sanctions could paralyse the work of several European refineries and risk causing supply disruptions, they are also an opportunity for Europe to cut off its Russia energy dependency for good. If handled well, the change of ownership over the LUKoil and Rosneft assets could enhance Europe’s energy diversification and strengthen security on its eastern flank.

Russia hit hard

The introduction of further US sanctions means that Russia’s four-largest oil producers (alongside GazpromNeft and Surgutneftegas, which the Biden administration targeted in January 2025) are impacted. Together, they account for roughly 75% of national output and 80% of exports. [1] This added pressure is expected to reduce oil and petroleum revenues, which are historically the backbone of Russia’s budget.

Furthermore, some Indian and Chinese firms are halting purchases from Russia, leading to a fall in export volumes. The resulting fiscal strain is likely to limit Moscow’s ability to fund domestic programmes and military operations, while inflation and currency volatility further erode economic stability. Rosneft and LUKoil themselves face mounting financial pressure, with share prices dropping sharply since the announcement: US sanctions target Russian companies’ business, including LUKoil’s foreign assets and its $12–15 billion portfolio spanning the Middle East, Africa, Latin America and Europe.

LUKoil and Rosneft in the EU

Sanctions might also target important Rosneft and LUKoil assets in the EU. Rosneft retains formal ownership of key German refineries, representing around 12% of Germany’s oil processing capacity. However, the German government has held these assets under trusteeship since September 2022—the Energy Security Act means the Federal Network Agency (Bundesnetzagentur) also controls refinery operations.

While Russia no longer manages the facilities, its legal stake still complicates investment and policy clarity. Germany received an American “comfort letter” exempting these assets from sanctions, contingent on a six-month transition to fully sever ties with Rosneft—though it is unclear whether President Donald Trump will extend the exemption, or what he will decide once it expires.

US sanctions could also impact Romania and Bulgaria. LUKoil owns the Petrotel-LUKoil refinery in Ploieşti, Romania; the LUKoil Neftochim refinery in the Black Sea town of Burgas, Bulgaria is among the country’s largest enterprises and the biggest contributor to the state budget (around 60% of its production is exported to other markets in southeastern Europe). LUKoil has also more than 750 retail stations in the Balkans and supplies several airports with jet fuel.

Although the EU imposed an embargo on imports of Russian seaborne oil in 2022, and on imports via the northern branch of the Druzhba pipeline in 2023, its southern branch remained outside the sanctions regime. This allowed the Czech Republic, Hungary and Slovakia to legally import crude oil from Russia. And since Hungary and Slovakia still rely on Moscow for 86-100% of their oil supply, the two countries have used an exemption from other EU sanctions to retain their Russian deliveries, despite strong pressure from Brussels.

Now US sanctions could lead to LUKoil suspending supplies of its crude oil to refineries in Slovakia and Hungary—whose president, Viktor Orban, is looking to convince Trump to grant him a US exemption as well. However, this seems unlikely.

Russia’s bypass strategy

Russia is also likely to try and circumvent US sanctions on LUKoil and Rosneft. On 30th October, LUKoil announced an agreement to sell 100% of the shares in LUKoil International (its global asset-holding arm) to Gunvor, a Geneva-based commodity trading firm. Although Gunvor formally severed ties with Russia in 2014, its co-founder Gennady Timchenko remains under US sanctions for his close relationship with Vladimir Putin. This is raising concerns about the transaction’s true independence from Kremlin influence.

The EU has included Timchenko on its travel ban (2022) and financial sanctions (2024) lists for being a significant player in the Russian economy and energy sector. He is also a close confidant of Putin. If OFAC greenlights LUKoil’s transfer of assets to Gunvor, it suggests that Trump does not really intend to apply pressure on Moscow at all.

LUKoil is also notorious for fuelling strategic corruption in Bulgaria and Romania. It pays almost nothing in Bulgarian taxes and has created a clientele among various political parties. Despite talk of divestment, LUKoil shows no real intent to exit Bulgaria, echoing Serbia’s model whereby sanctioned Russian firms continue operating. Moscow could use the negotiations around LUKoil’s potential sale to delay enforcement or pave the way for a broader Russian-US energy deal. This would risk undermining the sanctions and enable Russia to retain influence in Europe’s energy infrastructure.

European countries replacing Russian oil with American oil could be one outcome of the sanctions. Either way, there remains a chance that the Bulgarian government will take operational control over the LUKoil asset at the Burgas refinery. This also raises the prospect that it will sell to a buyer of their choice—who might even be a European.

Europe’s next steps

European countries holding Russian energy assets should treat US sanctions on LUKoil and Rosneft as a legal and political opening to pursue expropriation. This approach aligns with the EU’s REPowerEU strategy for full independence from Russian energy.

European countries holding Russian energy assets should treat US sanctions on LUKoil and Rosneft as a legal and political opening to pursue expropriation. This approach aligns with the EU’s REPowerEU strategy for full independence from Russian energy

Germany, in particular, needs to avoid seeking exemptions. It should instead use sanctions to resolve Rosneft’s lingering presence in key infrastructure, which continues to block investment and cooperation with allies despite trusteeship arrangements. Berlin should follow its precedent with Gazprom and fully nationalise Rosneft’s assets. Doing so would enhance energy security, streamline refinery operations and reinforce a consistent EU stance against Russian influence.

The proposed sale of LUKoil’s EU assets to Gunvor poses a serious risk of sanctions evasion. Despite formal separation from Russia, Gunvor’s historical role in trading Russian oil and its informal Kremlin ties raise concerns about continued Russian influence. Finalising the deal requires regulatory approval, including from OFAC. EU institutions and member states should block the transaction and prevent LUKoil from using wind-down licences or legal loopholes to maintain operations under a new guise. This is essential in order for the EU to uphold sanctions integrity and protect European energy security.

European countries—especially Bulgaria and Romania—should now permanently remove LUKoil from their energy sectors. The company’s continued presence in refineries and distribution networks poses political and security risks by enabling Russian influence in strategic infrastructure. Instead of relying on temporary measures, EU member states should transfer LUKoil’s assets to European energy firms.

With support from the European Commission, this coordinated effort would reduce Russian leverage and reinforce energy sovereignty. Europe would also demonstrate its commitment to phasing out Russian capital from critical sectors.

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If the US were to grant exemptions to Rosneft and LUKoil’s assets in Europe, this would undermine energy security, stall market reform and weaken the EU’s unified stance on reducing reliance on Russian energy. The EU should actively encourage member states to assume control of the Russian assets and firmly oppose Hungary’s efforts to seek exemptions from US sanctions on LUKoil supplies. It also needs to accelerate energy diversification in line with REPowerEU and the European Commission’s 2025 roadmap to end Russian energy dependency.

Overall, America’s new sanctions regime is the perfect opportunity for European countries to shift their own supply chains toward domestic and independent providers.

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[1] Authors’ own calculations based on the data published by Argus, Russian Central Bank and other industry sources between 2021-2025.