The UK’s asset freezes and strategic carve-out

The UK government was the first of the three to subject Lukoil and Rosneft to full asset freezes, prohibiting any dealings with their funds or economic resources by UK persons or within the UK. The restrictions came into force on October 15, 2025.

To mitigate immediate market disruption, the UK’s Office of Financial Sanctions Implementation (OFSI) issued several General Licences. Notably, General Licence INT/2025/7539056 authorizes a limited wind-down of transactions involving Rosneft, Lukoil, or any of their subsidiaries (as determined by the UK’s “owned or controlled” test). This wind-down license allows UK persons to conclude existing transactions with or divest of Rosneft or Lukoil (and entities they own 50% or more of or otherwise control) until November 28, 2025, after which all dealings must cease unless further licensed. Any payments owed to the sanctioned companies under such wind-down transactions must be made into frozen accounts in accordance with UK regulations, ensuring Rosneft and Lukoil cannot access the funds.

In addition, OFSI has tailored licenses to address specific scenarios. General Licence INT/2025/5635700 was amended to permit continued business operations involving Rosneft or Lukoil in connection with certain international oil projects. Similarly, General Licence INT/2025/5886860 was amended to allow UK nationals to continue purchasing fuel from Lukoil and Rosneft-branded petrol stations in Kyrgyzstan and Tajikistan, reflecting practical needs of individuals in those regions. Finally, OFSI issued a license authorizing business operations involving certain German subsidiaries of Rosneft until at least October 2027. This carve-out, understood to be closely coordinated with German authorities, aims to ensure that affected refineries in Germany can keep operating to preserve European fuel supplies despite the UK asset freeze on their ultimate parent.

Full blocking measures by the US and limited exit pathways

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) followed the UK’s suit on October 22, 2025, imposing blocking sanctions on Lukoil and Rosneft. While OFAC also authorized temporary general licenses to allow US persons to wind down their transactions involving these oil companies, some have been even shorter-lived than the UK licenses, with two expiring on November 21, 2025. However, others expire on December 13, 2025, and April 29, 2026.

Rosneft and Lukoil were both added to the list of Specially Designated Nationals and Blocked Persons (SDN List) under Executive Order (EO) 14024 for operating or having operated in the energy sector of the Russian economy. As a result, “all property and interests in property [of Rosneft or Lukoil] that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person … are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.” Prior to their designation, Rosneft and Lukoil were already subject to Directives 2 and 4 under EO 13662, which restrict dealings in certain new debt instruments issued by the companies, as well as restrict providing certain services related to deepwater, Arctic offshore, or shale oil projects, as the two companies remain on the Sectoral Sanctions Identification List. While the blocking sanctions now imposed on Rosneft and Lukoil are more restrictive than the EO 13662 Directives, the Directives remain effective, regardless of the companies’ status as SDNs.

In addition to adding Rosneft and Lukoil to the SDN List, OFAC expressly designated various subsidiaries of the two oil companies. OFAC has explained, however, that blocked persons have an interest in all property and interests in property of entities in which such blocked persons own, individually or in the aggregate, directly or indirectly, a 50% or greater interest. As a result, the property and interests in property of any subsidiaries that are owned 50% or more individually by Rosneft or Lukoil, or in the aggregate with any other SDN, are also blocked, whether specifically designated by OFAC or not.

Concurrently with its designation of Rosneft and Lukoil, OFAC issued three General Licenses (GLs) providing US persons with time to separate themselves from the oil companies:

• GL 126 temporarily authorized transactions ordinarily incident and necessary to the wind down of any transaction involving Rosneft, Lukoil, or their subsidiaries, so long as payments to blocked persons were made into blocked accounts pursuant to 31 CFR Part 587.
• GL 127 temporarily authorized three categories of transactions related to debt or equity issued or guaranteed by Rosneft, Lukoil, or their subsidiaries (Covered Debt or Equity):
  • First, it authorized transactions ordinarily incident and necessary to the divestment or transfer, or the facilitation of the divestment or transfer, of Covered Debt or Equity. However, US persons were still not permitted to sell Covered Debt or Equity to blocked persons or otherwise purchase or invest in Covered Debt or Equity unconnected to such divestment or transfer.
  • Second, it authorized transactions ordinarily incident and necessary to facilitating, clearing, and settling trades of Covered Debt or Equity that were placed prior to 4:00 p.m. EDT, October 22, 2025.
  • Third, it authorized transactions ordinarily incident and necessary to the winding down of derivative contracts entered into prior to 4:00 p.m. EDT, October 22, 2025, that included Rosneft, Lukoil, or one of their subsidiaries as a counterparty, or that were connected to Covered Debt or Equity.
  • GL 127 did not, however, authorize dealings with sanctioned persons other than Rosneft, Lukoil, or their subsidiaries (including SDNs such as Russia’s National Settlement Depository or the Moscow Exchange). Securities held at such blocked financial institutions remained prohibited despite GL 127.
• GL 128A (as amended on November 14, 2025) temporarily authorizes transactions ordinarily incident and necessary to the purchase of goods and services from, or the maintenance, operation, or wind down of Lukoil retail service stations located outside of Russia.

GLs 126 and 127 authorized transactions until November 21, 2025, while GL 128A authorizes transactions through 12:01 am EST, December 13, 2025. However, despite what remains allowed by GL 128A, transactions otherwise barred by Directives 2 or 4 under EO 14024 or the Russian Harmful Foreign Activities Sanctions Regulations (the RuHSR) remain prohibited. Under Directive 2, US financial institutions are prohibited from opening or maintaining correspondent accounts or payable-through accounts for, or from processing transactions involving, foreign financial institutions (FFIs) determined to be subject to Directive 2, or their property or interests in property. OFAC defines FFIs to include: any foreign entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, futures or options, or procuring purchasers and sellers thereof, as principal or agent. Directive 4 prohibits any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

In addition to these three GLs, OFAC amended GL 124 (and related guidance) to authorize transactions otherwise prohibited by EO 14024, or prohibited by the Prohibition on Petroleum Services determination of January 10, 2025 made pursuant to EO 14071, involving Rosneft, Lukoil, or one of their subsidiaries that are related to the operation of the Caspian Pipeline Consortium, Tengizchevroil, or Karachaganak projects. GL 124B does not have an expiration date. However, GL 124B does not authorize any transaction for the sale, disposition, or transfer of any interest in the Caspian Pipeline Consortium, Tengizchevroil, or Karachaganak projects, or any other transaction otherwise prohibited by the RuHSR.

Further, on October 29, 2025, OFAC issued GL 129 authorizing “all transactions prohibited by the Russian Harmful Foreign Activities Sanctions Regulations” involving Rosneft Deutschland GmbH, RN Refining & Marketing GmbH, or their subsidiaries. OFAC similarly issued GL 130 on November 14, 2025, authorizing transactions otherwise prohibited by EO 14024 involving certain Lukoil entities in Bulgaria and their subsidiaries. Both of these GLs authorize transactions through 12:01 am EDT, April 29, 2026.

Finally, in response to reports that Lukoil is aiming to sell off its non-Russian assets, OFAC issued GL 131 on November 14, 2025 authorizing “all transactions prohibited by [EO] 14024 that are ordinarily incident and necessary to the negotiation of and entry into contracts with [Lukoil] for the sale, disposition, or transfer of Lukoil International GmbH” (LIG) or its subsidiaries through 12:01 am EST, December 13, 2025. However, performance of any such contract must be expressly conditioned on OFAC’s separate authorization. Specifically, OFAC clarified that permitted activities include negotiating terms for definitive agreements and financial, legal, or operational due diligence. GL 131 additionally permits transactions “ordinarily incident and necessary to the maintenance or wind down of operations, contracts, or other agreements” of LIG or its subsidiaries through 12:01 am EST, December 13, 2025. This may include transactions related to pre-existing agreements, provided that such transactions are consistent with prior practices and support pre-existing projects or operations. Authorized transactions may also include (i) payments to employees, suppliers, landlords, lenders, and partners, (ii) the preservation and upkeep of pre-existing tangible property, (iii) or activities connected to maintaining pre-existing capital investments. But, importantly, all payments made to LIG or its subsidiaries must be made into a blocked account pursuant to 31 CFR Part 587. Further, GL 131 does not authorize the unblocking of any otherwise blocked property or any transaction otherwise prohibited by the RuHSR.

Comprehensive EU transaction ban and targeted designations

Coming on the heels of US and UK sanctions, the EU adopted its 19th sanctions package on October 23, 2025. The EU stopped short of full asset freezes on the parent companies, but imposed a “full transaction ban” on Rosneft, as well as fellow major oil company Gazprom Neft. In effect, EU operators are now prohibited from engaging in any transactions or business dealings with Rosneft or Gazprom Neft. This measure closed previous exemptions that had allowed certain dealings; for instance, the longstanding carve-out permitting imports of Rosneft’s oil into the EU has been eliminated. Rosneft is now effectively blacklisted for all trade and financial transactions in the EU, with only narrow exceptions explicitly allowed (e.g., for imports of oil from third countries like Kazakhstan or oil shipments under the G7 price cap scheme).

Unlike with the actions taken by the US and the UK, due to energy security concerns and political compromise among EU Member States (Member States), Lukoil narrowly escaped a blanket EU transaction ban or asset freeze on its global operations. Nevertheless, the latest EU sanctions package did single out part of Lukoil’s network. The EU designated Litasco Middle East DMCC, a Dubai-based Lukoil subsidiary integral to the so-called “shadow fleet” that transports Russian oil. Litasco Middle East is now listed under EU Council Regulation 269/2014 and all of its funds and economic resources within the EU’s reach must be frozen. This sends a clear signal that EU sanctions will target key Lukoil-owned intermediaries that facilitate sanctions evasion, even though Lukoil’s core business remains technically unlisted. While Lukoil’s EU-refining assets (e.g., in Bulgaria, Romania, and Italy) were previously allowed to operate under specific derogations, these facilities are now facing increased scrutiny. Bulgaria, for instance, moved to temporarily nationalize Lukoil’s refinery to ensure continued operation without breaching sanctions.

There are no EU-wide general licenses or exemptions for Rosneft or Lukoil; only narrow derogations may exist at the Member State level for critical energy supply continuity, subject to strict conditions. This reflects the EU’s policy of avoiding broad carve-outs and instead relying on targeted derogations under Article 6 of Regulation 833/2014, which require case-by-case approval by Member States.

Compliance takeaways

The coordinated sanctions regime launched by the US, UK, and EU against Rosneft and Lukoil, as well as their subsidiaries and affiliated entities, signals a clear shift in the risk landscape for asset managers and FFIs engaged with the Russian energy sector.

Under the US regime, blocking designations under EO 14024 mean that property or interests in property of Rosneft and Lukoil that come within the possession or control of a US person must be blocked and US persons must cease their dealings with these entities. Further, non-US persons that continue to engage with Rosneft or Lukoil may be separately designated as SDNs by OFAC, and FFIs may be subject to designation under EO 14114, which authorizes imposing secondary sanctions on FFIs that have “conducted or facilitated any significant transaction or transactions, or provided any service, involving Russia’s military-industrial base,” which OFAC defines as including all persons blocked under EO 14024. Additionally, the UK has imposed full asset freezes on both companies, and the EU has effected a full transaction ban on Rosneft and key affiliates of Lukoil. Across all three regimes, the space for lawful engagement is therefore now very narrow.

In practical terms, the next step for firms is to assess license availability in each jurisdiction and act quickly. The US regime offers only a small window via remaining general licenses to wind down dealings, meaning US persons (and those subject to the US’s jurisdiction) must review their exposure to these oil companies, determine whether divestment or restructuring is required, and complete any necessary winding down before the remaining GLs expire (or apply for a specific license). In the UK, the wind-down General Licence INT/2025/7539056 expires on November 28, 2025, and the key “designation by extension” rule means that any entity 50%-owned or controlled by Rosneft or Lukoil will fall within the freeze; therefore, UK-connected asset managers or FFIs should map not only direct holdings but also indirect, joint-venture or co-investment arrangements, and establish whether a license or exemption applies.

The EU’s 19th sanctions package tightens the transaction-ban framework (notably on Rosneft and select Lukoil affiliates) and introduces clarified definitions of “ownership” and “control” under Regulation 269/2014, meaning firms with an EU nexus must likewise evaluate their exposures and monitor for national-licensing routes or derogations in those Member States where they may apply.

For asset managers and financial institutions, these developments translate into an imperative to coordinate across jurisdictions. Any exposure – whether debt, equity, fund investment, joint venture, derivative, or service arrangement – should be evaluated in light of the US, UK, and EU regimes together rather than in isolation. Firms should document whether licenses exist (or can be sought), whether any wind-down period applies, and whether continuing involvement would still amount to providing an economic resource to a designated or controlled entity. In many cases the prudent strategic approach will be to begin the exit or restructuring process now, even if a narrow license exists, because compliance relief may not last or may be withdrawn.

If you have any questions concerning this client alert, please contact your McDermott Will & Schulte lawyer or one of the authors.