How Sanctions Work in Three Moves
The coordinated sanctions offensive operates across three dimensions, each carrying distinct legal implications.
The first move is the direct designation of oil producers. When Lukoil was designated on 15 October 2025, any UK person or entity became prohibited from dealing with frozen Lukoil assets without specific authorisation from OFSI. The US followed on 22 October with OFAC blocking sanctions, whilst the EU imposed transaction bans. Wind-down general licences provided breathing room, but these have now expired (although some specific, tailored general licenses have been issued or extended for certain operations (e.g., specific oil projects, non-Russian retail stations, and certain EU-based subsidiaries) and these remain active into 2026 and, in some cases, beyond). December’s designation of Tatneft and other mid-tier producers extended the sanctions net further, signalling systematic targeting of Russia’s entire oil export infrastructure.
The second move weaponises market access. The January 2026 refining loophole ban prohibits the import of refined petroleum products from any refinery that processes Russian crude oil. Indian refiners have become major buyers of Russian crude since 2022, purchasing at steep discounts and exporting refined products to Europe. The ban presents these refiners with a binary choice: continue processing Russian crude and lose European markets or abandon Russian supply chains to preserve EU and UK access.
The third move targets logistics. Over six months, the UK has sanctioned 133 oil tankers that form Russia’s shadow fleet, the largest such action in Europe. Without access to insurance, port services, and mainstream maritime infrastructure, Russia’s export capacity is constrained by physical limitations.
Together, these measures create what one analyst described as a “strategic vice.” Direct company sanctions cut demand. The refining ban closes third-country workarounds. Maritime sanctions restrict physical transport. For Russian oil producers, the result is seaborne storage of stranded crude, discounts of $25 or more per barrel against the Brent benchmark, and potential shut-ins of 1.6 to 2.8 million barrels per day.
When Contracts Collide with Sanctions
The High Court’s decision in Litasco SA v Der Mond Oil and Gas Ltd [2023] EWHC 2866 (Comm) provides a starting point in relation to contractual disputes, though the case predates Lukoil’s own designation. Litasco, a Swiss oil trading company wholly owned by Lukoil, sued Der Mond for non-payment under an oil supply contract. Der Mond invoked sanctions and force majeure defences, arguing that Litasco should be treated as an extension of its designated parent.
The court rejected this reasoning. Mere ownership by a designated person does not, by itself, render a subsidiary designated by extension. There must be evidence that the designated person exercises routine control over the use of funds. This became known as the “control test.”
Now that Lukoil itself is designated, the calculus shifts. Subsidiaries fall squarely within the asset freeze provisions unless covered by a specific general licence. OFSI has issued such licences for certain Lukoil entities: one covering Lukoil’s Bulgarian subsidiaries (valid for three months and renewable), and another for Lukoil International GmbH and its subsidiaries. These licences permit “continuation of business as normal” regarding UK financial sanctions, providing temporary relief whilst sales negotiations proceed.
Yet the licences create their own complications. The three-month validity period introduces uncertainty. Parties negotiating long-term supply contracts face the risk that licences will expire mid-transaction. Renewal is not automatic. Each OFSI quarterly renewal decision becomes a pressure point.
Wind-down licences have expired. Transactions initiated under those licences but not completed before expiry dates now require specific OFSI authorisation. This has left “stranded contracts,” agreements caught mid-performance when licences lapsed.
Force majeure clauses face immediate pressure. Suppliers refuse delivery, citing illegality or sanctions-related impossibility. Buyers refuse payment, claiming sanctions prohibit processing payments to designated entities. The legal analysis turns on the precise wording of the clause and whether sanctions render performance illegal or merely more difficult and expensive.
Price adjustment provisions are being tested with equal intensity. Many long-term oil supply contracts link pricing to benchmark rates, typically Brent crude. With Russian Urals crude trading at discounts of more than $25 per barrel to Brent, existing contracts are under severe pressure. Material adverse change clauses, renegotiation provisions, and hardship doctrines are all invoked.
Arbitration Becomes the Terrain of Conflict
Dubai Arbitration Week 2025 featured extensive discussion of how major oil company designations reshape arbitration strategy. Tribunals seated in Dubai can hear both sides, maintain procedural integrity, and preserve potential enforceability whilst dealing with sanctions restrictions that might complicate access to London or Paris seats.
Yet UK practitioners must recognise that a Dubai seat does not eliminate UK sanctions risks. If a UK national serves as an Arbitrator or if a UK law firm represents a party, a UK nexus arises. The Arbitration Costs General Licence permits payments up to £500,000 per arbitration for Arbitrator and institution fees involving designated persons, but it does not cover legal services costs. These are governed by a separate “Legal Services” cap (often £1 million or a percentage of the dispute value), beyond which a specific OFSI licence is mandatory.
The £500,000 cap creates planning challenges. Complex energy disputes routinely exceed this threshold in terms of costs. Once reached, parties require specific OFSI licences for additional payments.
Barclays Bank plc v VEB.RF [2024] EWHC 2981 (Comm) illustrates how enforcement can be challenged. Barclays obtained an LCIA arbitration award against VEB.RF, a Russian state development bank, for $147.7 million. However, VEB.RF was designated under UK sanctions, so Barclays could not collect. VEB.RF subsequently breached the Arbitration Agreement by pursuing parallel Russian court proceedings.
Sanctioned Russian entities, facing arbitration awards they cannot satisfy due to frozen assets, increasingly resort to Russian court proceedings in defiance of Arbitration Agreements. Russia’s Article 248.1 of the Arbitration Procedural Code claims exclusive jurisdiction over disputes involving Russian entities subject to “unfriendly state” sanctions.
In Linde GmbH v RusChemAlliance LLC [2023] HKCFI 2409 and Renaissance Securities (Cyprus) Ltd v PJSC Prominvestbank [2023] EWHC 2816 (Comm), the courts upheld the Arbitration agreements and granted anti-suit injunctions restraining Russian court proceedings. For practitioners, when a sanctioned counterparty threatens or initiates Russian court proceedings in breach of an arbitration clause, the best route is to seek anti-suit injunctions promptly in arbitration-friendly jurisdictions.
The Refining Ban and Cascade Disputes
The January 2026 refining loophole ban introduces disputes rooted not in direct designation but in market exclusion. Indian refiners like Bharat Petroleum, Indian Oil Corporation, and Reliance Industries became significant buyers of Russian crude after 2022. The refining ban disrupts this equilibrium. Refiners importing refined products into the EU or UK must certify that the products were not derived from Russian crude oil.
Supply contracts with Russian oil exporters are at risk of termination or renegotiation. Force majeure provisions are invoked, with refiners claiming that EU and UK bans constitute supervening events preventing performance. Russian exporters counter that the bans target refinery operations, not crude oil purchases.
Buyers of refined products may pursue claims based on misrepresentation or breach of origin warranties. Trade finance disputes will follow: letters of credit involving misrepresented cargo origins, insurance claims, and documentary credit discrepancies will all lead to arbitration and/or litigation.
Sanctions analysts predict that Russian oil exporters will attempt to disguise the origin of their oil through ship-to-ship transfers, forged documentation, and complex trading chains. Disputes over certificates of origin, cargo inspection reports, and chain-of-custody documentation will proliferate.
Pricing disputes add another layer. With Russian Urals crude trading at discounts of more than $25 per barrel to Brent, existing long-term contracts are under pressure. Sellers receiving Urals-linked prices argue that the spread represents market reality. Buyers resist price adjustments, pointing to contractual terms.
What Practitioners Must Do Now
- Due diligence now extends beyond direct counterparties to entire supply chains. Lawyers must screen against the OFAC Specially Designated Nationals List, the EU Consolidated List, and the UK OFSI Consolidated List. For energy transactions, it is vital to examine shippers, insurers, refiners, and storage providers.
- For existing contracts, sanctions clauses must address the designation of counterparties themselves, not merely underlying transactions. Build in payment alternatives, recognising that traditional USD-denominated, SWIFT-routed payments may become unavailable.
- Arbitration clauses demand fresh analysis. Seat selection carries sanctions implications. Dubai offers procedural accessibility but may complicate enforcement in Western jurisdictions. London provides robust enforcement mechanisms but introduces UK sanctions compliance obligations.
- For existing disputes, verify whether wind-down licences have been applied and confirm their expiry dates. If a counterparty is Lukoil or Tatneft, check whether specific general licences exist. These provide temporary safe harbours but introduce quarterly uncertainty.
The October and December 2025 designations, combined with the January 2026 refining ban, mark a shift in enforcement strategy. Previous sanctions targeted specific transactions or individuals. Current measures dismantle the infrastructure of the Russian oil trade itself. For dispute resolution practitioners, this is not a future risk. The instructions are arriving now, reflecting contract breakdowns, arbitration triggers, and enforcement challenges across jurisdictions. Understanding the interplay between asset freezes, general licences, arbitration frameworks, and enforcement strategies has become an essential practice.
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