Divide and sell – Newspaper Kommersant No. 194 (7395) of 10/19/2022

LUKOIL’s trading structure, the Swiss Litasco, is considering the issue of dividing the business into two companies – Swiss and UAE. The trader himself is not under sanctions, but in practice his operations may be hindered after the EU embargo on Russian oil comes into force in December. In theory, after the separation, the Swiss part of Litasco can be sold to management, which will allow it, without formal ties with LUKOIL, to supply the Russian company’s refineries in Europe.

Litasco, LUKOIL’s Swiss trading structure, is considering a business split, the agency said. Bloomberg with reference to sources. It is expected that as a result of the reorganization, a Swiss structure Litasco West will be created, which will specialize in operations with oil and oil products of non-Russian origin, while the Dubai (UAE) Litasco Middle East will operate with Russian grade Urals and Asian grades. LUKOIL did not answer “Kommersant”.

Litasco manages the flow of LUKOIL’s oil and oil products, including deliveries of oil to the company’s plants in Italy, Bulgaria, the Netherlands and Romania.

Lukoil was not sanctioned as a result of the Ukrainian crisis and remained the only major Russian oil company to retain control of its refineries in Europe.

However, from December 5, the EU imposes an embargo on the purchase of marine consignments of Russian oil, which will make it impossible to supply Urals to LUKOIL’s refineries. At the same time, Litasco cannot now buy oil of non-Russian origin for them, since banks do not provide financing for such transactions due to the trader’s Russian roots, although he is not under sanctions. For this reason, according to Bloomberg, LUKOIL is also considering selling refineries in Italy. At the same time, Kommersant’s interlocutors have so far denied such a scenario, saying that LUKOIL wants to keep this valuable asset and is looking for ways to load it.

Prior to the outbreak of hostilities in Ukraine, Litasco’s trading volume exceeded 3 million barrels per day of oil and oil products. But then the volume of the company’s business declined after European buyers began to refuse sea shipments of Urals. Litasco partly compensated for this by supplying exclusively Russian oil to LUKOIL’s refineries in Europe.

According to two interlocutors of Kommersant, LUKOIL may sell Litasco directly to management so that the trader formally has no connection with the Russian oil company, this may allow Litasco to carry out the operations necessary to supply LUKOIL’s European assets with oil.

According to Kommersant’s interlocutors, opening an office in the UAE has become a common option for maintaining a global presence for Russian business. According to Kommersant’s sources, Russian oil companies, in theory, can use port terminals in the UAE, including a large hub in Fujairah, to mix Russian oil with Middle Eastern oil, in order to then freely trade the resulting blend.

The division of Litasco SA is due to the need to comply with EU sanctions restrictions, says Artem Kasumyan, a lawyer at the Delcredere Bar Association. He recalls that in June, as part of the “sixth package” of European sanctions Was installed a ban on the purchase, import and transportation of oil exported from Russia, and the “eighth package” were introduced novelties regarding the establishment of a legal mechanism for the introduction of “ceiling prices” for Russian oil. The strengthening of sanctions regulation in relation to the Russian oil industry cannot but influence the behavior of Litasco’s European counterparties, the lawyer believes. In his opinion, in this regard, the underlined disidentification looks like a reasonable action, it is aimed at reducing the sanctions “toxicity” of Litasco.

Dmitry Kozlov