Lukoil Faces Production Halt in Iraq Amid Sanctions and Force Majeure Declaration

Lukoil has announced a force majeure situation at a significant oilfield in southern Iraq due to disruptions in its operations caused by Western sanctions, as reported by Reuters on Monday, citing sources with knowledge of the situation.

The West Qurna-2 oilfield, which is among the largest in the world and represents Lukoil’s most important foreign asset, is situated 65 kilometers (40 miles) northwest of Basra and has a production capacity of roughly 480,000 barrels per day, constituting about 9% of Iraq’s total oil production.

As reported by Reuters, Iraq’s state oil authorities have halted all cash and crude payments to Lukoil in line with U.S. and British sanctions imposed the previous month. An Iraqi official indicated that the payments owed to Lukoil would stay frozen until officials in Baghdad devise a method to proceed without violating sanctions.

Lukoil reportedly informed Iraq’s oil ministry last Tuesday that “force majeure conditions” were hindering its ability to maintain normal operations at the West Qurna-2 oilfield. An Iraqi official mentioned that such a declaration is permissible under the contract, thus providing the company with legal protection against penalties.

A senior official in the Iraqi industry suggested that Lukoil could completely cease production and withdraw from the project if the situation remains unresolved within a six-month timeframe, according to Reuters. The agency did not specify the potential options available for addressing the causes of the force majeure.

Moreover, the sanctions have compelled Iraq’s national oil company, SOMO, to cancel three crude shipments that were part of Lukoil’s production share last week. Reports indicate that approximately 4 million barrels of crude, originally earmarked for Lukoil as payment in kind for November, have also been canceled.

In a separate development, Lukoil allegedly terminated all contracts with foreign personnel at the field last Friday, leaving only Russian and Iraqi staff on-site.

Lukoil commenced production at West Qurna-2 in 2014, initially acquiring a 75% stake in the project, with plans to invest over $30 billion.

As of now, Lukoil, Russia’s largest privately-owned oil company, has not publicly addressed the force majeure situation in Iraq.