Sicilian Defense

The risk of stopping Lukoil’s ISAB refinery in Sicily could force the Italian authorities to ask the EU to postpone the imposition of an embargo on Russian oil supplies for this enterprise. Last week, union demonstrations took place in Syracuse against the closure of the plant. In the event of an embargo, ISAB will lose oil from the Russian Federation, while banks do not want to finance oil supplies to the LUKOIL plant from other countries. The situation may require emergency measures from the Italian authorities up to nationalization. Experts consider the option of postponing the embargo for ISAB unlikely.

The Italian authorities may apply to the EU with a request to postpone the embargo on oil from Russia for the LUKOIL ISAB refinery in Sicily, Reuters quotes the Minister of Economic Development of this country, Adolfo Urso. The ban on oil supplies from the Russian Federation, entering in force from December 5, may lead to a shutdown of the plant, which is now supplied with Russian raw materials.

The EU is still at the stage of discussing the embargo gave postponement of Bulgaria, where LUKOIL owns a refinery in Burgas, as well as Hungary.

ISAB can also consume Middle Eastern oil, but counterparties refuse to provide financing for alternative supplies, although Lukoil and its subsidiary Swiss trader Litasco are not under sanctions.

The risks of plant closures led several thousand people to protest against the ISAB shutdown last week. LUKOIL declined to comment.

Also, Mr. Urso is going to discuss with banks crediting supplies under the guarantees of the Italian export credit agency SACE. This measure would make it possible to purchase oil from non-Russian suppliers. Previously, LUKOIL tried to find a buyer for the plant, but the application of the American Crossbridge fund was rejected.

So far, the most radical was the decision of the German authorities, who in September have taken under control of the oil refining assets of Rosneft in the country. However, Rosneft, unlike LUKOIL, in May hit under EU sanctions.

The Italian government is not yet ready for nationalization in relation to ISAB.

Experts interviewed by Kommersant almost do not believe in the possibility of obtaining an exemption from the embargo for the LUKOIL plant. According to Sergei Kondratiev of the Institute of Energy and Finance, it will not be easy for the Italian government to achieve a delay – this could set a precedent for other refineries, such as Lukoil’s refinery in Romania. The EU is likely to try to avoid granting individual exemptions, the expert believes, believing that a possible way out of the situation could be the transfer of the plant under state control.

The expert notes that ISAB was built in the mid-1970s and uses not only Urals as raw material, but also oil supplied from the countries of the Middle East and North Africa. In recent years, the loading of refineries has been 10-11 million tons (in the pandemic 2020 – 8 million tons), ISAB accounts for 22% of all fuel supplies to the Italian market, while more than 95% of oil products produced by refineries are sold through Lukoil Italia and Litasco.

Ekaterina Makeeva, a partner at the A-Pro law firm, recalls that Bulgaria received a deferment until the end of 2024 in order to develop alternative supply routes. Deferring the ISAB embargo would require changes to EU regulation 833/2014, but this is unlikely given the overall strategy to move away from Russian oil, she explains. In her opinion, it is more likely that national authorities will be given the right to grant licenses for certain activities and within the time limits set by the EU, as happened in the case of interaction with the Russian National Settlement Depository. Delcredere lawyer Artem Kasumyan clarifies that the decision to postpone must be unanimously adopted by all EU members, which now looks unlikely.

Dmitry Kozlov