Russian oil giant Lukoil seeks budget aid due to oil price collapse
Lukoil, Russia's largest private oil company, has been forced to seek government support amid a collapse in prices for Russian oil, which is being sold at a discount of almost 50% to global benchmarks.
Source: The Moscow Times, an independent Amsterdam-based news outlet, citing a letter sent by Lukoil to the Russian government
Details: Lukoil, which has been placed under US sanctions, has asked Russia's Ministry of Energy to change taxation rules in order to receive payments from the federal budget.
The company wants to revise the formula of a damping mechanism introduced in 2018 to stabilise petrol prices. Under this mechanism, the state compensates oil companies from the budget if domestic fuel prices remain below global levels. If the situation is reversed, the companies are charged an additional tax.
Discounts on Russian oil have exceeded US$20 per barrel, meaning oil companies will be required to pay up to RUB 13 billion (around US$170 million) into the budget under the mechanism in December 2025.
Lukoil has proposed capping the discount used for tax calculations at US$10-15 per barrel, which would eliminate payments by oil companies and instead allow them to receive budget compensation.
Last year, the budget paid oil companies RUB 881 billion (around US$11.5 billion) under the mechanism, following RUB 1.8 trillion (about US$23.5 billion) the year before. However, amid the low price of Urals crude – Russia's benchmark oil – oil companies will now have to transfer RUB 47 billion (around US$614 million) to the budget in December and January, according to estimates by Dmitry Kasatkin, managing partner of Kasatkin Consulting.
This will further strain oil companies' finances at a time when they are already seeing a sharp fall in profits. In the first half of 2025, Lukoil's profit halved to RUB 287 billion (around US$3.7 billion), down from RUB 590 billion (about US$7.7 billion) a year earlier.
Rosneft, which ranks first in terms of production and exports, reported a threefold drop in profit for January-September, to RUB 277 billion (about US$3.6 billion).
Background:
- On 22 October, the United States imposed sanctions on Russia's largest oil companies, Rosneft and Lukoil, as well as their subsidiaries.
- Gunvor, a Swiss-based trading house, wanted but failed to buy Lukoil's foreign assets after the US Treasury described the company as a "Kremlin puppet" and stressed that it would "never" approve the deal, prompting the company to immediately withdraw its offer.
- US company Exxon Mobil approached Iraq's oil ministry with a proposal to buy a controlling stake in Lukoil's share of the West Qurna-2 oil field.
- Hungarian company MOL told US officials that it is interested in purchasing the international assets of Russian oil giant Lukoil.
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