On 15 October 2025, the UK Government designated PJSC Lukoil  ("Lukoil") and PJSC Rosneft ("Rosneft") under the Russia (Sanctions) (EU Exit) Regulations 2019 (the "2019 Regulations"), extending asset-freeze restrictions to Russia’s two largest oil companies.

These sanctions were imposed in response to the companies’ strategic role in supporting the Russian Government and financing its war in Ukraine. The UK Government cited their economic significance to the Kremlin and their contribution to state revenues that sustain military aggression. The move forms part of a broader international effort to curtail Russia’s energy revenues and pressure Moscow toward peace.

1. UK sanctions on Lukoil and Rosneft

The designations prohibit any UK person, including the officers of any UK company, and conduct by any person within the UK from engaging in certain activities, including:

  • dealing in any "funds" or “economic resources” which are owned, held or controlled by Lukoil or Rosneft; or
  • making funds or economic resources available to, or for the benefit of, either company or their subsidiaries.

The prohibitions are deliberately broad and extend to any entity owned or controlled (directly or indirectly) by the designated person. Breach of the 2019 Regulations is both a civil and criminal offence, carrying potential imprisonment for up to seven years.

Licensing framework

Where an activity is prohibited by the 2019 Regulations, the activity must not be undertaken unless the activity either: (i) benefits from an exception; or (ii) prior authorisation, in the form of a licence, is provided by relevant sanctions authority within the UK.

The Office of Financial Sanctions Implementation (OFSI) has issued a limited "Wind-Down" General Licence permitting UK persons to wind down from existing transactions involving Lukoil or Rosneft, including the closing out of any positions.  This General Licence will expire at 23:59 on 28 November 2025. For any transactions outside of the scope of the General Licence, UK persons should consider applying for a specific licence from OFSI. Applicants must provide detailed information about the transaction structure, counterparties, payment routes, and justification for the licence. OFSI may prioritise applications where there is clear strategic or economic importance.

Developments in other jurisdictions

On 22 October 2025, the United States imposed comprehensive sanctions on Lukoil and Rosneft. The measures block access to the US-dollar financial system, prohibit US persons from any dealings with the companies or their majority-owned subsidiaries, and expose non-US financial institutions to secondary-sanctions risk for facilitating such transactions.

The European Union has likewise introduced further measures targeting Russia’s energy sector under its 19th package of sanctions against Russia. These measures include, restrictions on upstream participation and a phased ban on imports of Russian LNG.

2. Why sanctions create a problem for petroleum joint ventures

Sanctions pose a unique challenge for petroleum joint ventures because of how a Joint Operating Agreement (JOA) functions. The JOA is not a loose commercial framework – it is the operational and financial backbone of the venture. Every payment, purchase, and contractual commitment flows through the Operator, who acts on behalf of all participants and spends joint funds for their collective account.

When one participant becomes a designated or sanctioned person, that structure immediately breaks down.

(a) Operator exposure

The Operator routinely:

  • makes payments to contractors and suppliers from a Joint Account funded by all participants;
  • issues cash calls to participants for their share of approved expenditure; and
  • distributes each participant’s share of petroleum or revenues.

If any of these activities involve a sanctioned participant – even indirectly – the Operator risks “making funds or economic resources available” to a designated person, which is prohibited under the Russia (Sanctions) (EU Exit) Regulations 2019 and equivalent regimes.

In practice, this means the Operator cannot lawfully:

  • issue cash calls to the sanctioned participant for its share of costs;
  • make or receive payments on its behalf; or
  • deliver its share of petroleum or revenue.

Once this occurs, the Operator can no longer perform its duties in accordance with both the JOA and sanctions law.

(b) Non-operator exposure

The other, non-sanctioned participants face parallel risk. Continuing to fund operations through the Joint Account may amount to dealing with assets in which the sanctioned party has an interest, while accepting distributions from the Operator that include the sanctioned participant’s share could constitute an unlawful receipt of funds or economic resources.

Even if the sanctioned participant is passive, its mere presence in the joint venture can taint the Operator’s actions and expose the other participants to enforcement or reputational risk.

(c) Contractual paralysis

Because JOAs require unanimous or majority decisions on budgets, work programmes, and expenditure approvals, a sanctioned participant’s inclusion can prevent the joint venture from operating at all. Payments may be frozen, contracts suspended, and suppliers unpaid. Unless the JOA provides a mechanism to exclude or replace the sanctioned entity, the entire project can stall indefinitely.

3. Default and removal under modern JOAs

Recognising these risks, the 2023 AIEN Model International JOA introduced a dedicated set of economic-sanctions provisions designed to isolate a sanctioned participant and allow the remaining parties to continue lawful operations.

The new model:

  • requires the Operator to maintain and implement sanctions-compliance policies in the conduct of Joint Operations;
  • allows the removal or withdrawal of any participant that becomes a sanctioned person;
  • prohibits transfers to or from sanctioned entities, treating any such transfer as a deemed default; and
  • permits non-sanctioned participants to acquire or assume the sanctioned party’s Participating Interest or compel its withdrawal.

These clauses provide a contractual mechanism for continued compliance and operational continuity, ensuring that the venture can continue to function without exposing the Operator or non-sanctioned participants to liability under applicable sanctions laws.

4. Legacy JOAs

Most JOAs executed before 2023 lack explicit sanctions language. In those cases, the remaining participants will need to review the default, forfeiture, and withdrawal provisions to determine whether a sanctioned participant can be suspended or removed.

Any proposed sale or transfer of that participant’s interest will constitute a new transaction requiring a specific OFSI licence. Until the licence is granted, the Operator and other participants should avoid making any payments to, or on behalf of, the sanctioned entity.

5. Producing assets

For producing projects, OFSI has previously allowed operations to continue under bespoke arrangements where revenue attributable to a sanctioned participant is segregated in a restricted account. A precedent exists in the Rhum gas field (UK Continental Shelf), where production continued under licence while an Iranian partner remained designated, with its revenue share held in escrow.

Similar structures could be considered for projects affected by the Lukoil or Rosneft designations, but only with specific OFSI approval. Operating without a licence would carry a significant sanctions-enforcement risk.

6. Key takeaways

As sanctions intensify against Russian oil majors, petroleum joint ventures face a complex compliance landscape. Below are the key regulatory and operational implications to consider:

  • The UK sanctions on Lukoil and Rosneft impose a full asset freeze, prohibiting any direct or indirect dealings with them or their subsidiaries.
  • The US sanctions announced on 22 October 2025 add a further layer of risk by restricting dollar-denominated transactions and creating secondary-sanctions exposure for non-US counterparties.
  • Under any JOA, continuing payments, cost recovery, or operational cooperation with a sanctioned participant may breach sanctions law unless licensed by OFSI.
  • The Wind-Down General Licence applies only to pre-existing obligations and does not authorise new transactions or buy-outs.
  • The 2023 AIEN Model JOA contains modern sanctions clauses allowing removal or withdrawal of a sanctioned participant.
  • For older JOAs, parties must rely on existing default and forfeiture provisions and seek an OFSI licence before any transfer.
  • Producing assets may continue under ring-fenced arrangements only with explicit OFSI authorisation.

This note summarises recent developments under UK law as at October 2025. It does not constitute legal advice and does not address the application of US or EU sanctions law.

Gowling WLG's International Trade and Customs team regularly assists clients in navigating the EU and UK sanctions regimes, helping them to pursue international opportunities while avoiding the risks of civil and/or criminal liability.

If you have any questions about this article, please get in touch with Bernardine Adkins and James Stunt.