US sanctions on Russia’s two biggest oil companies Rosneft and Lukoil took over headlines last week, but not without raising concern over what it means for local production, as both companies hold stakes in some of the country’s biggest wells.

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Russian state-owned Rosneft owns 30% of the Zohr field in the Mediterranean. Zohr — operated by Italy’s Eni through a 50% stake — is the country’s largest natural gas field and a critical pillar of its domestic energy supply.

And in the desert: Lukoil, Russia’s second-largest oil producer, has also built a notable presence in Egypt’s oil fields, through a 24% interest in the Meleiha oil concession in the Western Desert, with Eni as operator holding the remaining 76%. And in the Eastern Desert, Lukoil operates the West Esh El Mallaha concession near Hurghada through a 50-50 partnership with state-owned EGPC. An adjacent block, WEEM Extension, is split equally between Lukoil and Tharwa Petroleum, with Lukoil as operator.

Washington went for full-blocking sanctions: Last week, the US Treasury’s Office of ForeignAssets Control (OFAC) added Rosneft, Lukoil, and dozens of their subsidiaries to the Specially Designated Nationals (SDN) blacklist as fully blocked parties, freezing any of their property or interests under US jurisdiction and barring US personnel from transacting with them or with entities they control at 50% or more.

The real choke point is secondary sanctions risk: Any bank that wants to keep access to the US financial system will think twice before touching Rosneft- or Lukoil-linked flows, AP reported.

Egypt is no exception: Banks will likely refuse to clear payments where the sanctioned Russian firms are in the chain to avoid losing USD market access. Even though Egypt is not legally bound by US law, most cross-border transactions ultimately transits a US-linked banking corridor.

To avoid immediate chaos, OFAC issued short-term “wind-down” general licenses that provide narrow windows to unpack existing arrangements. By late November companies globally are expected to have ceased or paused any dealings with Rosneft and Lukoil, or risk violations.

Could sanctions affect production? Eni has “very limited interaction” with the sanctioned companies, Eni’s CFO Francesco Gattei said in an earnings call just days after the sanctions were announced. The sanctions will accordingly have no material impact on operations, he added.

So what actually happens in practice? In a normal joint venture (JV), the operator (Eni) allocates each partner its share of volumes or funds from sales, and circulates cost calls and reimbursements across the partnership. That machinery is now legally blocked for the Russian stake. Delivering Rosneft’s 30% of Zohr gas — or wiring them their cash-equivalent — is prohibited. Same for cost-calls and reimbursements, Eni cannot invoice them, cannot pay on their behalf, and cannot remit anything to them without tripping sanctions.

Banking and USD flows could get messy: Even as a passive shareholder in Zohr, Rosneft’s involvement contaminates the payment chain. USD-denominated transfers — including EGPC’s offtake payments — typically allocate a portion to Rosneft’s equity, which can trigger secondary sanctions. To avoid that risk, domestic banks, or the CBE, would likely freeze or ring-fence any flows linked to sanctioned Russian equity rather than process them.

Can you remove a sanctioned partner from a JV? It depends on the contract. Joint Operating Agreements (JOA) rarely address sanctions, but usually have default or withdrawal triggers if a party can’t perform. But in modern JOAs — such as the 2023 Association of International Energy Negotiators (AIEN) model (pdf) — sanctions are hard-coded, letting the non-sanctioned partners isolate a blacklisted party to keep the JV compliant.

For older agreements signed before sanctions clauses became standard, like Zohr’s JOA or Meleiha’s, contracts may not explicitly address sanctions. In such cases, partners rely on generic default mechanics — if a party can’t fund its share or receive output due to legal incapacity, it may trigger a default event, allowing remedies like loss or transfer of equity.

But stripping or transferring a sanctioned share isn’t a private move; any change in concession ownership would still need sign-off from the Oil Ministry.

In the case of Lukoil’s assets, we already see movement toward an outright exit: Lukoil announced recently that it plans to sell off its international assets in response to the sanctions, confirming that it is reviewing bids from potential buyers, with the sale process being conducted under the US OFAC wind-down license.

In Egypt, this is a clear sign that Lukoil intends to pull the plug on projects like WEEM and Meleiha. Buyers likely could include existing partners or other international firms. Scenarios include Eni upping its stake in Meleiha by acquiring Lukoil’s 24%. In WEEM, EGPC/Tharwa could take over operations.

We are already making moves: In a recent tender document seen by Bloomberg, EGPC said it would not accept gas cargoes from Lukoil or Litasco — effectively cutting out the Geneva-based trader that functions as Lukoil’s international trading arm. Litasco wasn’t explicitly named in the sanctions round, but its ownership link to Lukoil has already made counterparties — including EGPC — unwilling to touch its cargoes.

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