Arbitration plays a vital role in resolving disputes within the global energy industry, where high financial stakes and geopolitical complexities often collide. This note examines several major Lukoil arbitration cases, showcasing how international arbitration mechanisms handle cross-border energy disputes involving sanctions and enforcement challenges. As one of Russia’s leading multinational energy corporations, Lukoil operates across oil exploration, production, refining, and distribution, which has led to numerous arbitration proceedings in London, Stockholm, and Moscow. These cases reveal whether arbitration ensures neutrality, enforceability, and commercial certainty in an increasingly fragmented global energy market.
Lukoil Marine Lubricants DMCC v. Natal Energy Resources and Commodities (Pty) Ltd
The parties, LUKOIL Marine Lubricants DMCC, a Dubai-based subsidiary of PJSC Lukoil, and Natal Energy Resources & Commodities (Pty) Ltd, a South African company, had a long-standing commercial relationship dating back to 2010.[1] This relationship was formalized through a 2016 Distributor and Sales Agreement for Marine Lubricants,[2] followed by a 2019 Marine Lubricant Service Provider Agreement.[3] Both agreements provided for arbitration in London under the LMAA Rules, with English law as the governing law.[4]
A dispute later arose between the parties concerning alleged stock losses, audit obligations, insurance coverage, and payment terms.[5] These issues led to a 2019 settlement agreement intended to resolve all potential claims relating to stock discrepancies, on the condition that the parties would continue their commercial cooperation.[6] However, further disputes emerged over unaccounted quantities of oil and related products, reigniting the conflict. The arbitration clause required that disputes unresolved after 30 days of consultation be referred to arbitration in London.
However, the story did not end there. The matter also reached the courts in South Africa when LUKOIL Marine Lubricants applied to the High Court of South Africa seeking the return of goods and payment of approximately USD 500,000.[7] In March 2023, the KwaZulu-Natal Division of the High Court stayed the proceedings, holding that the dispute should be resolved through arbitration in London, in accordance with the parties’ contractual agreement.[8]
Implications
Although no further public information is available regarding the arbitration’s outcome, the case remains a significant illustration of international commercial arbitration in the energy sector. It demonstrates the use of specialized arbitral rules to resolve complex supply chain and distribution disputes involving major oil companies. Moreover, it underscores the interplay between ongoing commercial relationships, settlement arrangements, and the enforcement of contractual obligations in cross-border energy trade. The inclusion and enforcement of robust arbitration clauses highlight the crucial role of arbitration in ensuring efficient dispute resolution, risk management, and business continuity in global energy markets.
NS Bank v. PJSC Lukoil
The dispute concerns NS Bank’s claim against PJSC Lukoil as guarantor for coupon payments on bonds issued by LUKOIL Securities B.V. The coupon payments were blocked due to sanctions affecting Russian financial institutions and assets held in Euroclear. The case involves the enforceability of the guarantee and the impact of international sanctions on payment obligations under bonds related to the energy sector. The dispute was subject to an LCIA arbitration clause, with London as the seat, and also involved parallel proceedings in Russian courts regarding jurisdiction and enforceability.
Background
LUKOIL Securities B.V. made a coupon payment of USD 19,375 under its bond obligations, which was transferred to the Russian depository, JSC National Settlement Depository, in May 2022. Nevertheless, after the EU sanctioned the National Settlement Depository in June 2022, NS Bank lost access to the funds.[9]
NS Bank subsequently initiated legal proceedings before the Moscow City Arbitrazh Court against PJSC Lukoil, acting in its capacity as guarantor of the bonds, seeking repayment of the coupon. It asserted that the arbitration clause included in the bond documentation should be disregarded. Additionally, it maintained that Russian courts ought to have exclusive jurisdiction given the sanctions imposed by “unfriendly” states on Russia and its nationals.[10]
Lukoil sought dismissal based on an arbitration agreement, and the lower courts ruled in its favour. They found the bond prospectus contained a valid arbitration clause and that Russian arbitrazh courts lacked exclusive jurisdiction, as both parties were Russian and not under sanctions.[11]
The Supreme Court’s Ruling
The Russian Supreme Court ruled that when a dispute involves a foreign element, arbitrazh courts must assess whether exclusive Russian jurisdiction is required to safeguard a party’s constitutional right to judicial protection. Referring to the Lugovoy Law, the Court reaffirmed that Russian courts may assert jurisdiction where foreign sanctions either give rise to the dispute or render an arbitration agreement unenforceable, thereby creating clear obstacles to access to justice.[12]
The Court also raised concerns about the impartiality of foreign arbitral institutions, such as the LCIA, in disputes arising from sanctions imposed by their own states, suggesting that such tribunals may not guarantee equality or independence. It further observed that practical impediments, including prohibitive costs, restrictions on legal representation due to sanctions, and the inability to attend hearings abroad, could deprive Russian parties of effective access to justice.[13]
Applying these principles, the Court determined that NS Bank’s inability to participate in LCIA arbitration, due to sanctions and financial barriers, rendered the arbitration clause ineffective. It ruled that the dispute stemmed directly from foreign restrictive measures, making arbitration impractical. Consequently, the Supreme Court overturned the lower courts’ decisions and returned the case to the Moscow Arbitrazh Court, establishing a key precedent for handling sanctions-related disputes in Russia.[14]
Implications
The Russian Supreme Court’s decision to assert domestic jurisdiction despite the existence of a valid arbitration clause carries broad and lasting implications. It underscores the venue risks inherent in transactions involving Russian counterparties, illustrating that even a carefully drafted arbitration agreement and a foreign seat may be superseded by domestic law under certain circumstances. The ruling also reinforces the importance of careful jurisdictional and enforcement analysis in cross-border dealings. Parties must evaluate not only the theoretical forum for dispute resolution but also the practical likelihood of domestic court intervention, particularly in an environment shaped by sanctions, geopolitical tensions, and evolving public policy considerations.
KNM Process Systems Sdn Bhd v. Lukoil Uzbekistan Operating Company LLC
The dispute in KNM Process Systems Sdn Bhd v. Lukoil Uzbekistan Operating Company LLC arose from a 2010 contract for the supply of technical documentation and equipment to develop the Adamtash, Gumbulak, and Djarkuduk-Yangi Kyzylcha gas-condensate fields in Uzbekistan. KNM, a Malaysian contractor, claimed over USD 96 million for unpaid works, while Lukoil’s subsidiary counterclaimed for delays and defects.[15] The arbitration was administered by the Stockholm Chamber of Commerce (SCC), culminating in a final award on 29 September 2022. The tribunal dealt with claims and counterclaims totalling around USD 350 million and ultimately awarded less than USD 2 million in favour of Lukoil.[16]
LUKOIL vs. Sinopec
In April 2014, Lukoil signed a sale and purchase agreement to sell a 50% stake in Caspian Investment Resources Ltd. (holding interests in four Kazakh hydrocarbon-production projects) to Sinopec, with a price of approximately USD 1.2 billion.[17]
Sinopec allegedly refused to complete the transaction, therefore breaching the contract. Thus, in February 2015, Lukoil announced it had commenced arbitration under the London Court of International Arbitration (LCIA) Rules against Sinopec for substantial damages.[18]
No further public information has emerged regarding the outcome or progress of the arbitration, leaving the subsequent developments and resolution of the dispute unknown.
Sanctions and Geopolitical Risk
While not purely arbitration-specific, the broader business environment surrounding LUKOIL is today significantly shaped by sanctions and geopolitical risk. In light of US and EU sanctions, Lukoil has announced plans to divest or wind down certain international operations to ensure compliance and mitigate exposure.[19] These developments are likely to influence both ongoing and future arbitrations involving the company. From a dispute resolution perspective, sanctions introduce a crucial layer of complexity. Even if a claimant succeeds on the merits, the practical enforcement of an arbitral award may be impeded by asset freezes, payment restrictions, or transfer prohibitions arising from sanctions regimes.
Conclusion
The series of disputes involving Lukoil underscores the intricate intersection between international arbitration, geopolitical dynamics, and the evolving landscape of sanctions compliance. As one of Russia’s largest energy conglomerates, Lukoil operates in jurisdictions where commercial, political, and regulatory risks are deeply intertwined. The cases discussed demonstrate both the global reach of Lukoil’s operations and the diverse forums in which it must defend its interests. They highlight how arbitration remains a vital tool for managing cross-border energy conflicts, providing neutrality and enforceability in an increasingly fragmented world.
Yet, these proceedings also reveal the growing tension between legal rights and real-world enforceability. Sanctions, asset freezes, and shifting geopolitical alliances can undermine even the most carefully drafted arbitration agreements. For companies contracting with sanctioned entities, the practical value of an arbitral victory now hinges as much on enforcement strategy and jurisdictional foresight as on legal merit. As the Lukoil cases illustrate, success in arbitration today requires not only sound advocacy but also a deep understanding of the political and economic forces shaping global energy disputes.
[1] Judgment of the High Court of South Africa dated 16 March 2023, para. 3.
[2] Id., para. 4.
[3] Id., para. 5.
[4] Id., para. 7.
[5] Judgment of the High Court of South Africa dated 16 March 2023, para. 9.
[6] Id., para. 8.
[7] Id., para. 10.
[8] Id., para. 19.
[9] R. Kats, S. Sultanov, A. Ryabova, Russian Courts Claim Exclusive Jurisdiction Over Disputes Between Russian-Domiciled Companies: Another Blow to International Arbitration (29 January 2025), available at: https://legalblogs.wolterskluwer.com/arbitration-blog/russian-courts-claim-exclusive-jurisdiction-over-disputes-between-russian-domiciled-companies-another-blow-to-international-arbitration/.
[10] Ibid.
[11] Ibid.
[12] S. Lodhi Rajput, Sanctions and Sovereignty: Russia’s Legal Retreat from International Arbitration (15 July 2025), available at: https://dailyjus.com/world/2025/07/sanctions-and-sovereignty-russia-legal-retreat-from-international-arbitration. See also Decision of the Supreme Court of Russia dated 28 Nov 2024.
[13] R. Kats, S. Sultanov, A. Ryabova, Russian Courts Claim Exclusive Jurisdiction Over Disputes Between Russian-Domiciled Companies: Another Blow to International Arbitration (29 January 2025), available at: https://legalblogs.wolterskluwer.com/arbitration-blog/russian-courts-claim-exclusive-jurisdiction-over-disputes-between-russian-domiciled-companies-another-blow-to-international-arbitration/.
[14] Ibid. See also S. Lodhi Rajput, Sanctions and Sovereignty: Russia’s Legal Retreat from International Arbitration (15 July 2025), available at: https://dailyjus.com/world/2025/07/sanctions-and-sovereignty-russia-legal-retreat-from-international-arbitration.
[15] The Edge Malaysia, KNM seeks over US$96m from Lukoil Uzbekistan for unpaid works and costs (11 March 2019), available at: https://theedgemalaysia.com/article/knm-seeks-over-us96m-lukoil-uzbekistan-unpaid-works-and-costs.
[16] GAR, Stockholm panel decides Uzbek gas dispute (28 November 2022), available at: https://globalarbitrationreview.com/article/stockholm-panel-decides-uzbek-gas-dispute.
[17] Arbitration against Sinopec (9 February 2015), available at: https://www.lukoil.com/InvestorAndShareholderCenter/RegulatoryDisclosure/2015/09022015ArbitrationagainstSinopec.
[18] Joseph Hage Aaronson & Bermen LLP, Lukoil v Sinopec: arbitration in the LCIA (10 February 2015), available at: https://uk.jha.com/insights/lukoil-v-sinopec-arbitration-in-the-lcia. See also Arbitration against Sinopec (9 February 2015), available at: https://www.lukoil.com/InvestorAndShareholderCenter/RegulatoryDisclosure/2015/09022015ArbitrationagainstSinopec.
[19] Reuters, Russia’s Lukoil says it plans to sell international assets due to Western sanctions (28 October 2025), available at: https://www.reuters.com/business/energy/russias-lukoil-says-it-intends-sell-international-assets-due-western-sanctions-2025-10-27/. See also G. Gavin, V. Jack, Russia’s Lukoil to sell off foreign assets as US sanctions bite (28 October 2025), available at: https://subscriber.politicopro.com/article/eenews/2025/10/28/russias-lukoil-to-sell-off-foreign-assets-as-us-sanctions-bite-ee-00624062.
