Russian oil producer Lukoil has declared force majeure at the West Qurna 2 oilfield in Iraq following the imposition of US sanctions, according to a Reuters report. The company sent an official letter to Iraq's Ministry of Oil stating that these conditions prevent it from maintaining normal operations at the field.

Impact of US Sanctions

The US imposed sanctions on Lukoil last month, setting a deadline of 21 November for companies and banks to cease all dealings with the Russian company and its subsidiaries. These sanctions specifically prevent Lukoil and its foreign subsidiaries from conducting US dollar transactions. This is critically disruptive because Lukoil operates West Qurna 2 under a service contract that provides it with a share of oil production for international sale and receives its remuneration for operating the field in US dollars.

Contractual and Operational Context

Lukoil had extended its agreement for the West Qurna 2 field in 2023 for a 10-year period until 2045, with an ambitious goal to more than double production to 800,000 barrels per day. The force majeure clause, acknowledged by the Iraqi government and the Iraqi North Oil Company, provides a legal defense against breach of contract claims due to unforeseeable and unavoidable external circumstances. If the issues causing the force majeure are not resolved within six months, Lukoil will be required to shut down production and exit the project entirely.

Immediate Consequences and Market Reactions

The immediate effects of the sanctions are already being felt. Iraq's state oil marketing firm, Somo, cancelled November loadings of three oil cargoes from Lukoil's share of production at West Qurna 2 due to concerns over the sanctions. Furthermore, the US blocked an attempt by the Swiss commodity trader Gunvor Group to acquire Lukoil's international operations, and no other contender has yet submitted an alternative bid to take over these assets.

This material is an AI-assisted summary based on publicly available sources and may contain inaccuracies. For the original and full details, please refer to the source link. Based on materials by Vladimir Afanasiev. All rights to the original text and images remain with their respective rights holders.