In the global energy landscape, Russia is reportedly contemplating a merger between its top oil producers: state-backed Rosneft, Gazprom Neft, and the privately-held Lukoil. If realized, the consolidation would create an oil production powerhouse, second only to Saudi Aramco in size and influence, with output levels nearly triple those of U.S. energy giant ExxonMobil. This strategic consolidation highlights President Vladimir Putin’s intent to harness Russia’s energy resources to fortify its economy amidst Western sanctions and support Russia’s ongoing military engagements.
The potential merger of these three energy giants, all of whom are subject to U.S. sanctions, has drawn widespread attention among global stakeholders and could reverberate throughout the oil markets in ways that may significantly impact both consumers and countries reliant on Russian oil exports.
If Rosneft, Gazprom Neft, and Lukoil combine into a single entity, Russia would wield substantial influence over global energy markets, directly bolstering Putin’s control over a sector critical to the Russian economy. Together, the combined output of these companies would create a behemoth capable of exerting influence over oil prices globally, especially with major importers such as India and China. This concentration of power could potentially grant Russia the leverage to negotiate for higher prices on its oil exports, which remains a crucial revenue stream amid rising military expenditures and a heavily sanctioned economy.
According to a report by The Wall Street Journal, insiders suggest that high-ranking Russian officials, including Igor Sechin, head of Rosneft and a close ally of President Putin, are driving the discussion. Sechin, long known as a formidable figure in Russia’s energy sector, is reportedly instrumental in steering the merger talks to secure a more favorable economic position for Russia.
As Russia repositions its energy assets, countries worldwide—particularly Saudi Arabia, the U.S., China, and India—are monitoring these developments closely. For Russia’s two largest importers, China and India, a merged Russian oil giant could mean higher costs, as Russia could further consolidate its bargaining power and leverage any supply chain dependencies that arise from the global energy landscape’s shifting tides.
The potential merger underscores Russia’s response to economic isolation from the West, enabling Moscow to deepen ties with other nations less bound by sanctions. Through such a consolidation, Russia seeks to create an economic strategy that is resilient to sanctions, aligning its energy diplomacy with new, diversified markets in the East. Notably, Moscow’s strategic pivot toward China and India showcases a long-term plan to mitigate the impacts of EU and U.S. sanctions and further solidify ties with non-Western allies.
In December 2022, the European Union, in conjunction with the G7, imposed a cap on the price of Russian crude oil. Designed to deprive Moscow of revenues that could support its military operations in Ukraine, the cap prevents Western firms from transporting or insuring Russian oil sold above $60 per barrel. This embargo has curtailed Russia’s access to European markets, further pressuring its oil exports to seek alternative destinations like India and China, which remain outside the scope of these sanctions.
However, a loophole in the sanctions framework has allowed Russia to continue accessing certain Western markets indirectly. The absence of restrictions on refined oil products derived from Russian crude means that countries like India can import discounted Russian oil, refine it, and export the finished products to the EU. This process has created a backdoor for Russian oil revenues, sustaining Russia’s crude exports despite the sanctions.
India has emerged as the second-largest importer of Russian oil, benefiting from Russia’s hefty discounts. Russian oil exports now constitute close to 40% of India’s total imports—a stark increase from less than 1% before the Ukraine conflict. India’s refinery industry has capitalized on these reduced prices, with its fuel exports to Europe surging by 58% in the first three quarters of 2024. This surge primarily consists of refined products originating from Russian crude, thus inadvertently aiding Russia’s revenue streams by circumventing the Western oil cap.
A recent report by the Centre for Research on Energy and Clean Air (CREA) highlights that India is now the EU’s top supplier of refined oil products. Much of this supply comes from key refineries, including Jamnagar and Vadinar (operated by Reliance Industries and Rosneft-backed Nayara Energy) and Mangalore Refinery and Petrochemicals Ltd. This dynamic underscores the unintended consequences of the EU’s sanctions framework, which permits indirect revenue flows back to Russia.
China has similarly restructured its energy imports, taking advantage of Russia’s oil price cuts. In 2023 alone, China purchased nearly half of Russia’s oil and fuel exports, securing favorable prices that contributed to lower overall energy costs for the nation. From December 2022 through 2024, China accounted for almost half of Russia’s coal exports, further illustrating the strengthening of Sino-Russian energy ties in response to Western sanctions.
China’s growing dependency on Russian energy imports reflects a mutually beneficial relationship, where Beijing benefits from reduced energy costs while Moscow secures a dependable buyer for its oil. However, this also positions China as a key player in determining the stability of Russia’s energy revenues, which could have implications for how Russia negotiates future oil and gas prices.
One major concern surrounding the proposed merger is the unprecedented concentration of power that would result. Rosneft, Gazprom Neft, and Lukoil are already dominant players in the Russian market, and their unification could potentially disrupt the balance of power within Russia’s energy sector. Critics argue that such centralization might endow leaders like Igor Sechin with disproportionate influence, leading to governance challenges and heightened internal competition within Russia’s oil industry.
Additionally, the merger could meet resistance from Lukoil’s shareholders, as their buyout would require substantial capital. Reports from The Moscow Times suggest that securing enough funds to compensate these shareholders could be a significant barrier, casting doubt on the feasibility of the consolidation.
Russia’s capacity to finance this massive consolidation amidst an already strained economy is uncertain. Western sanctions have limited Russia’s access to international finance, forcing the country to rely more heavily on China and domestic revenue streams. If completed, the merger may also invite additional retaliatory sanctions from the West, further isolating Russia’s economy and potentially pushing it closer to economic dependency on its Eastern allies.
Furthermore, a consolidated Russian oil giant could prompt concerns in the Organization of the Petroleum Exporting Countries (OPEC). With a greater share of the global oil supply under a single Russian entity, the balance of supply and demand might shift in unforeseen ways, potentially disrupting OPEC’s pricing power and raising new diplomatic concerns between Russia and other oil-exporting nations, including Saudi Arabia.
If the merger proceeds, Russia’s enlarged oil entity would have a considerable ability to influence oil prices worldwide. A single Russian oil giant could enable Moscow to further control the supply and pricing of crude, creating opportunities to exert greater pressure on large buyers like India and China. This potential shift may not only raise oil costs for these countries but also spark broader price increases that ripple through the global economy.
Such a scenario aligns with Putin’s long-standing vision to wield energy resources as both an economic lifeline and a tool for geopolitical influence. The formation of a Russian oil powerhouse could help offset revenue losses from the Western market and provide Moscow with more leverage to secure higher prices from Eastern markets.
At the geopolitical level, this consolidation could symbolize Russia’s pivot away from the West, firmly aligning with Asian markets that have shown resilience to Western sanctions. With Europe seeking alternatives to Russian oil and gas, Moscow is positioning itself to deepen ties with nations like India and China, whose energy demands and import levels have increased significantly. In particular, Russia’s attempts to secure long-term oil and gas contracts with China reflect its broader strategy of shifting its economic center of gravity eastward.
However, while the merger may offer Russia a means to circumvent Western restrictions and strengthen its economic base, the ultimate feasibility of this endeavor remains uncertain. Reports suggest that talks between the Kremlin, Rosneft, Gazprom Neft, and Lukoil executives are still ongoing, with no official confirmations regarding the consolidation plans.
