The US Treasury on Wednesday sanctioned Rosneft and Lukoil—Russia’s largest and third-largest oil exporters—citing “Moscow’s serious non-compliance with the peace process to end the war in Ukraine.” The EU followed with measures against Russian firms and the “shadow fleet” moving sanctioned barrels. Markets were caught off guard: US crude jumped nearly 6% above $60 a barrel, later topping $61, while Brent touched $64 and neared $66.

Context: Rosneft and Lukoil sit at the core of Russia’s oil machine and a significant slice of global supply. Together they account for nearly 6% of world output and more than half of Russia’s production; by shipment, they move over half of Russia’s more than 5 million barrels a day of exports that help major consumers such as China and India close their demand gap. Rosneft produces about 3.7 million barrels a day—more than many Western majors—while Lukoil exceeds 1.6 million. It is this scale, rather than market valuations, that gives the sanctions real bite.

Analysis: Three major Russian companies have material footprints in Iraq’s upstream and transport. In the Kurdistan Region, Rosneft produces about 4,500 barrels a day at the Bijil–Harir field and holds a 60% stake in the Kurdistan crude export pipeline, while Gazprom produces roughly 8,500 barrels a day at the Garmian (Sarqala) field. In southern Iraq, Lukoil owns 75% of West Qurna-2, which produced 480,000 barrels a day in 2024, with plans to lift output to 800,000.

The sanctions cut off access to the US financial system and the use of the dollar for any transaction involving Rosneft or Lukoil. They also restrict US technology, insurance and services, complicating ventures that rely on Western finance or providers. Washington has not announced any Iraq-specific exemption; a one-month wind-down allows completion of transactions initiated before the measures.

Baghdad has two practical ways to limit exposure. It can channel oil produced by the sanctioned firms to domestic use—refineries and power plants—keeping flows onshore. And it can continue settling some obligations in crude rather than cash, a practice already used in the Kurdistan Region, which may in effect sit outside the sanctions’ main choke points.

As in recent years, major disruption to Russian-linked projects in Iraq is not expected unless enforcement tightens markedly. The overall impact—on Iraq and on prices—will hinge on how strictly the rules are applied; rigorous enforcement would raise operational risks and support prices, while looser application would contain the fallout.