Every day, Russia receives $1 billion from energy exports, and in the 100 days since launching its full-scale invasion of Ukraine, the aggressor has raked in $93 billion to fund its war. In particular, the sales of oil and petroleum products brought the Russians $59 billion, natural gas brought them $29.1 billion, and coal $4.8 billion.

The world is trying to use its collective efforts to put a lid on these ultra-profits: the United States has banned imports of Russian oil, coal, and LNG, while the EU has imposed a full embargo on coal and a partial embargo on oil imports, and is to direct efforts to overcoming its dependence on Russian energy under REPowerEU plan.

However, Russian energy companies continue to make money to fuel the war in Ukraine. How can this be stopped? DiXi Group has traced the foreign ties of five Russian energy companies and analyzed how they make money even after the full-scale invasion, and how these channels of funding the war could be closed.

Rosneft: Tighter restrictions needed due to high oil prices

State-owned Rosneft is the largest oil producer in Russia and one of the largest in the world (6% of annual production output). This company is the largest taxpayer in Russia ($29 billion in 2020), generating profits, in particular, out of its foreign assets (Rosneft operates in 23 countries of the world and owns stakes in five oil refineries in Germany, India, and Belarus).

Despite the company going public and undergoing partial privatization, the Russian government retains the ownership of a major stake in it, and under the rule of Russian dictator Vladimir Putin, Rosneft’s position has significantly strengthened. From 2012, the office of the company’s CEO has been held by one of Putin’s closest cronies, Igor Sechin.

The Russian invasion of Ukraine and the Western sanctions have seriously impacted Rosneft’s operations, which have been affected both by the sanctions against the company and its management, and by the bans on oil imports and technological cooperation. Nevertheless, the situation remains controllable because of high oil prices, which suggests that restrictions against the company must be tightened. In particular, sanctions must be imposed on its subsidiary Rosnefteflot, restrictions on other Russian shipping companies must be placed or expanded to prevent their dealings with Western companies; secondary U.S. sanctions against Russian oil trade must be applied in any form; the transfer of Western oil production technologies via third parties must not be allowed; and the acquisition of Rosneft’s assets in Western jurisdictions (by nationalizing or purchasing them) should be considered.

Novatek: Russian LNG must be placed under embargo

Novatek is the largest Russian private gas trader. It was founded in 1994 as a gas production company. After Gazprom’s monopoly on LNG exports from Russia ended in 2013, it became an essential player in the global LNG market. Such a political preference, the abolition of export tax obligations, and support from the Russian National Wealth Fund indicate the company's continuous support from the Russian political elite.

Most of the company’s gas fields are located on the Yamal and the Gyda Peninsulas, and to increase its export potential, the company will launch three lines of the Arctic LNG 2 project next to the Yamal LNG plant. In 2021, the company sold 75.81 bcm of natural gas, which generated almost $1.5 billion in revenues for the Russian state budget.

In 2014, Novatek was included on the U.S. sanctions list, but it didn’t prevent the company from establishing many new business ties in Asia and Europe. That’s why DiXi Group experts suggest, in particular, the imposition of sanctions against Novatek’s largest shareholder Leonid Mikhelson (as it has already been done against another shareholder, Gennady Timchenko) and restrictions rendering impossible the transfer of technologies (to thwart the company’s ability to enter hydrogen power markets and to catch and store carbon) and cooperation with Western companies (first of all, with Total Energies with which it has common assets). In addition, procurements of Russian LNG must be banned, sanctions against its existing joint ventures registered in the EU must be tightened, and the company’s operations in Asia must be restricted through cooperation with the governments of Japan and South Korea.

Lukoil: Foreign assets help circumvent sanctions

Lukoil is the largest private oil producer in Russia and a company with a broad portfolio of foreign assets: the company is represented in 35 countries. Lukoil is one of the largest taxpayers in Russia (paying $20.34 billion in taxes in 2020), and a substantial portion of its revenues are generated abroad (the foreign segment is responsible for approximately 8% of its oil and 34% of its gas production).

Despite close ties of the company’s management with the Kremlin and the critical role that Lukoil plays in the international trade of Russian oil, the company was not subjected to new sanctions in the wake of the full-scale Russian invasion of Ukraine. The company is expanding its foreign network almost unhindered, being especially active in increasing the number of its projects in Central Asia / the Caspian region, Sub-Saharan Africa, and Mexico.

To restrict Lukoil’s operations, our analysts suggest including the company and its management (together with the subsidiaries Litasco and Eiger Shipping SA, registered in Switzerland and already helping the company circumvent sanctions) to the EU and U.S. sanctions lists and applying secondary sanctions. Also, the seizure of Lukoil’s assets in Europe and the United States (through nationalization or forcible sale) should be considered.

In addition, officials in charge of developing further sanctions packages should look closely at Lukoil’s agreements on technological cooperation with certain oilfield service companies (U.S. Baker Hughes Co. and France’s Schlumberger), which provide services to the Russian company’s foreign assets. This cooperation can circumvent the existing sanctions, which prohibit technical services to oil and gas production facilities located in the Russian territory.

Rosatom: Nuclear terrorism continues

International cooperation and access to global markets are essential for Rosatom: for example, the corporation’s 10-year portfolio of foreign orders is valued at $138.3 billion. In 2020, Rosatom was ranked first in the global uranium enrichment market (36%), the world’s second-largest uranium producer (with a 15% market share), and third in the global nuclear fuel market (17%). In 2020, Rosatom’s portfolio of foreign projects included 36 reactors.

Despite the significant scope of sanctions slapped on Russia, the country’s nuclear power sector and its energy giant Rosatom have managed to avoid restrictions, and still supply the Russian military budget with revenues from international cooperation. Foreign projects and contracts are the company’s most significant sources of income ($7.5 billion out of its total income of $16.7 billion in 2020), and the taxes paid on that income – amounting to $3.5 billion in 2020 – were used to fund the Russian war machine.

So far, Rosatom has not received a proper response for its involvement in Russian nuclear terrorism, particularly for participation in the takeover of Zaporizhia NPP. That’s why our analysis recommends expulsing Rosatom from international organizations and treaties (such as the United Nations Global Compact, IAEA, Euratom), imposing sanctions on its subsidiaries (TENEX, Uranium One, TVEL, European Power Services Ltd, Rosatom Service, and DZHET), placing restrictions on its active projects and blocking Rosatom’s potential projects abroad. It is crucial to prevent Rosatom’s access to the global market of critical materials (via its projects in Africa and South America) and limit technological cooperation with this company.

Inter RAO: Pursuing the Kremlin’s political goals in the electricity market

Inter RAO is ranked second in the Russian energy market in terms of installed capacity and third in power generation: the company is responsible for over 9.6% of electricity production output and holds an 18.2% share of the retail electricity market. Although Inter RAO is one of the most significant Russian energy market players, international sanctions have bypassed it.

The most probable reason for that is the fact that 83% of the company’s revenues are generated by electricity production and generation solely within Russia.

However, this company is the sole participant in export-import operations. Thanks to this unique license, it holds a special market and political status, playing the role of Russian energy “envoy” on the regional and, to a lesser degree, global stage. The Kremlin’s political influence is the biggest motivation for the company’s activity, which poses a threat to the countries in which it operates: a vivid example of that is the halt of electricity deliveries to Finland after this country announced its intention to join NATO.

Experts point out that it is critically essential to blunt Russia’s ability to exert political influence through Inter RAO’s assets in Moldova (Kuchurgan power plant) and Georgia (subsidiary company Telasi), prevent the company from gaining a foothold in South American, African, and Central Asian markets, and thwart its efforts to use parallel import of General Electric turbines or take advantage of other loopholes in the sanctions regime.

Despite the partially imposed restrictions, Russian energy companies continue to effectively help their Kremlin masters to fund the war in Ukraine. The sanctions regime must be further tightened and improved to take this critical source of financial income away from the Russian war machine.

The recipe in almost all cases is the same: additional Western sanctions against Russian companies and their foreign subsidiaries, personal sanctions against their management, abolition of technological cooperation, and limitation of their activity in Asian, African, and Latin American markets.

This story was co-authored by analysts with the DiXi Group think tank.