Weekly Brief: 11/18/25
Sanctions fallout, Ukrainian drones, and failed UK wind projects
With the overarching presence of fresh US sanctions, the major events in global energy revolved around Russia. Lukoil declares force majeure and has its assets seized. Moscow may be willing to divest certain foreign stakes, and Ukraine continues to attack Russian energy export infrastructure. Plus, Shell withdraws from UK offshore wind projects, signaling continued trouble in the sector.
Shell Exits UK Offshore Wind Projects
Shell has withdrawn from two planned offshore wind farms in Scotland, citing rising costs and increasing opposition. The leases for the CampionWind farm and MarramWind farm were bought in 2022. The announcement comes as challenges mount for the offshore wind sector.
The offshore wind sector has been struggling for several years, especially in the UK and US, after a wave of project announcements have crashed into rising costs, political opposition, and high regulatory hurdles. In the US, energy developers Orsted and Equinor have abandoned several projects, suffering billions in losses, while in the UK, few projects have left the planning phase. High regulatory burdens and limited expertise and capabilities reduce the economic viability of offshore wind in the US, while in the UK, many prime sites are barred from development entirely. While both the US East Coast and UK share the geography which allowed offshore wind to succeed in Norway, Denmark, and the Netherlands, the politics have not been as favorable. This highlights the importance of creating a predictable, consistent, and rational regulatory regime if one wants to promote investment. In many of these cases, numerous legal challenges made further investment too uncertain to continue. Without offshore wind, these areas will have to rely more on conventional sources of electricity. The UK natural gas demand will be greater than it would otherwise be, leading to a tighter natural gas market, reduced energy security, and higher electricity prices.
Given the challenges the sector is facing, new projects are unlikely to be announced until the structural challenges are eased, or until conventional electricity sources become uneconomical. Keep an eye on the few remaining developments, including the three phases of the large Dogger Bank wind project. Watch if they are delayed or scaled back in the coming years.
Lukoil Declares Force Majeure for Iraqi Oil Deliveries
Lukoil has declared force majeure for its Iraqi oil production following US pressure. This comes after the US blocked the sale of Lukoil’s foreign assets to Swiss energy trader Gunvor. While the move has no immediate effect on production or deliveries, it grants Lukoil the right to skip contracted shipments. Lukoil owns 75% of the West Qurna 2 field, which produces approximately 480,000 bpd.
This demonstrates the impact of US sanctions and influence over international business. By withholding operating licensing, Washington forced Gunvor to withdraw its offer to acquire Lukoil’s assets. This will deprive Lukoil, and through it, the Russian government, both the revenue from operations and any sale revenues. Beyond this, it is leading to operational disruptions at Lukoil facilities. The company operates or has stakes in numerous facilities throughout the upstream, midstream, and downstream sectors. Given the absence of a sale, many may cease operating or be expropriated by host states. While a production disruption may not occur in Iraq, refining and distribution are likely to be impacted more severely given the greater logistics and technical requirements. If Lukoil fails to deliver contracted supplies, it will have ripple effects throughout the wider energy sector, but overall supply remains robust enough to absorb any major impacts.
Look to see how the Iraqi government responds. If they expropriate the asset in an attempt to maintain production or if they request Lukoil staff to remain to continue operating the field. Beyond Iraq, other states will face similar choices regarding Lukoil energy infrastructure critical to their states.
Bulgaria and Romania move of Seize Lukoil Assets
The Romanian and Bulgarian governments moved to seize and take control of Lukoil’s assets within their borders. These include two refineries and several hundred retail gas stations. The Romanian Energy Minister said in a statement that he ‘fully supported’ applying US sanctions on Lukoil throughout the EU. The Bulgarian Parliament overruled a presidential veto in order seize the assets. At this point, it is unclear how Lukoil’s assets will be managed and operated, whether under state control or divested to a private entity.
Given the importance of Lukoil’s assets to both countries’ energy systems, some form of expropriation was probable given Washington’s refusal to endorse a sale. A large portion of Bulgaria and Romania’s fuel production and distribution has been handled by Lukoil; if that were to cease, the fuel shortages and high prices would cause significant economic and political problems for their governments. Given the severity of the acute shortages, however, operational disruption may still occur given the logistical and technical complexity of refining and distribution. The future operator, whether that governmental or private, will likely need time to operate these assets optimally. This will put marginal upward pressure on downstream prices within the region. Politically, they set a precedent for other states dealing with Russian ownership over critical infrastructure. If they cooperate easily and with minimal disruption to fuel supplies, then other states may seek to expropriate similar assets to avoid US economic pressure. If, however, there are significant operational, legal, or political challenges, then it will disincentivize other states from attempting it.
Look to see how Romania and Bulgaria structure this expropriation and how it unfolds. Whether it remains government property or is sold to private interests, who operates the facilities, and how much of the legacy Lukoil staff is retained, and any security challenges which may emerge. Given the loss of these assets is assured, Moscow now has an incentive to sabotage their operations while there is still Russian personnel on the ground.
Russia Willing to Divest Serbian Refiner
Moscow signals that it is willing to let Gazprom Neft and Gazprom to cede their control of the Serbian Refiner NIS. NIS is facing pressure from US sanctions seeking to remove its Russian ownership. The Refiner claims it will be forced to cease operations by November 25th unless sanctions are lifted and new crude is delivered. NIS supplies the majority of Serbia’s fuel and is partially owned by the Serbian government.
This concession comes as US pressure is causing the wholesale collapse of another Russian energy giant’s, Lukoil, international operations. Lukoil had arranged a sale with Swiss energy trader Gunvor, but Washington blocked it. This likely will force host states to expropriate the assets in order to maintain operations. Something is happening in Romania and Bulgaria. Such an outcome was likely in Serbia regardless of Gazprom and Gazprom Neft’s say. NIS remains critical to the Serbian economy, supplying most fuel used within the country. If its operations ceased, fuel shortages and high prices would be assured without government intervention. Given the political sensitivity of fuel prices, such intervention was always probable. This raises questions about Serbia’s stance vis a vi Russia and the West. Belgrade has historically maintained close ties with Moscow and has been reluctant to oppose Russia. But the material interest in this relationship is deteriorating quickly. Serbia does not source oil from Russia and has a viable alternative source of natural gas. Serbia’s ties with Russia have held it back economically and helped prevent its ascension into the EU, preventing economic integration along the Danube. If the costs rise sufficiently, Belgrade may consider a political realignment.
With Russian energy companies’ foreign assets removed from their control, look to see their contributions to the Russian tax base. Also expect to see less effective energy leverage among the few European states still importing Russian energy. Assuming any divestiture occurs quickly, crude supplies can be sourced via Croatia, averting acute fuel shortages. Although operation disruption and transition challenges may weigh on total output.
Indian Oil Imports from Russia Surge Ahead of US Sanctions
Indian imports of Russian crude jump as refiners seek supplies before US restrictions go into effect on November 21st. Indian imports of Russian crude rose 50,000 bpd from September to October and are expected to rise further in the first half of November. India currently sources 36% of crude imports from Russia and enjoys a $2.95 discount compared to alternative Middle Eastern crudes.
The surge in imports suggests Indian purchasers expect US sanctions on Russian firms to materially impact their ability to source crude supplies. Lukoil and Rosneft supply the majority of the Russian-sourced crudes. US sanctions have already forced the companies to wind down foreign operations, leading to a flurry of government action to maintain critical energy infrastructure. With Indian refiners and importers filling storage capacity in anticipation of a supply shock, they are indicating that direct Russian exports are likely to be affected as well. This signals both a shift from New Delhi, which has been willing to maintain trade ties with Russia despite the Ukraine War, and a decline in Moscow’s financial position. If Russian crude cannot find buyers in India, then its market is exceptionally limited. This will force steeper discounts, hurting Russian finances while providing a boon to the few states (namely China) willing to import their crudes. With Indian buyers forced to source legal crude supplies, this will put upward pressure on international benchmarks while oil flows find a new steady state. Long term, however, oil previously flowing to China will likely be displaced by discounted Russian crudes, reequilibrating the market.
Look to see any directions New Delhi provides to Indian refiners. New Delhi has signaled it will comply with US sanctions but has moved slowly to do so. November import numbers will be misleading due to the rush to import Russian crude before the Nov. 21st deadline. But December import numbers will reflect the full effect of the sanctions. If India still imports significant quantities of Russian crude, look to Washington for a response.
Ukrainian Drones Strike Oil Infrastructure at Novorossiysk
A Ukrainian drone attack temporarily halted oil exports from the Sheskharis oil terminal at the port of Novorossiysk. The attack damaged both the port’s container terminal and oil loading point. Sheskharis primarily exports crude oil sourced from Kazakhstan as part of the Caspian Pipeline Consortium.
The attack is the latest in Ukraine’s campaign against Russian energy infrastructure. With the goal of preventing Russian oil exports to permanently curtail Russian production, it has the potential to significantly alter the global energy map. But this attack also highlights the vulnerability Kazakhstan has to the Ukraine War. Despite being a non-belligerent, Kazakh energy is nearly as exposed to the impacts of the War as Russian energy. The country relies on Russian pipelines and terminals to export the majority of its energy. This exposes it to Ukrainian attacks, a reliance on the shadow fleet, and the potential to be collateral damage to Western sanctions given the fungibility of Kazakh oil with Russian crudes. Given this, Astana has sought to diversify its international ties. Astana has kept relations with Moscow at a distance and failed to endorse the Ukraine War. But geographical restrictions limit Astana’s options. New pipelines which bypass Russia would be expensive and require new construction through hundreds of miles of virgin terrain. Such projects, while being discussed, would take a decade and tens of billions in investments, providing no strategic utility now.
As long as Kazakhstan relies on Russian infrastructure, then events like this have the potential to disrupt Kazakh production, exports, and earnings. Such events have happened numerous times, including an attack on a gas processing plant in October, which forced significant reductions in Kazakh gas production. Look to see the impact of future Ukrainian attacks and how Astana responds. Whether they move more decisively away from Russia politically or accept the current status quo as unavoidable in the short run.
Key Take Aways
The past week was dominated by the fallout of the Lukoil and Rosneft sanctions. States rushed to secure crude supplies, ensure critical infrastructure will continue to operate, and protect their material interests. Beyond this, continued Ukrainian attacks on Russian energy infrastructure highlight the continued risk to both Russian and Kazakh energy. While the campaign hasn’t yet reached a critical threshold, it retains the potential to seriously curtail oil exports and reshape global supplies. Finally, Shell’s exit from two British offshore wind developments demonstrates the political, legal, and regulatory challenges the offshore wind sector is facing in both the US and UK. This is limiting adoption and forcing a greater reliance on natural gas, degrading UK energy security.