Gunvor warns of fuel shock as $22 billion Lukoil deal prompts concern over Russia ties

Keystone / Martial Trezzini

The Swiss trader’s audacious swoop on Russian group’s overseas assets revives industry speculation over Kremlin links.

Europe faces job losses and disruption to its fuel supplies if Gunvor’s bold deal for $22 billion of overseas assets owned by Russia’s Lukoil is blocked, the head of the Swiss commodity trader has warned.

The move to snap up Lukoil’s Bulgarian and Romanian refineries, European and US petrol stations and oil and gasfields across the Middle East, central Asia and Africa will propel Gunvor to the top table of the secretive world of commodity trading alongside the likes of Vitol and Trafigura.

But as US, UK and Swiss regulators assess whether the deal can stand, Torbjörn Törnqvist, Gunvor’s chief executive, said permits urgently needed to be issued to ensure fuel supplies were not disrupted when new US sanctions on Rosneft and Lukoil kick in on November 21.

“The priority is to make sure the general operating licence is extended,” he told the Financial Times. “The magnitude of this deal needs regulatory work. It cannot be completed in two weeks. Lukoil’s whole international operations are paralysed. Nobody can transact with them. A lot of jobs are at stake and the refining capacity could be very disrupted.”

Lukoil’s Burgas refinery provides more than two-thirds of Bulgaria’s fuel supply, while its Petrotel facility in Romania accounts for about a third of the country’s refining capacity.

The deal’s speed and scope have stunned the trading sector and prompted questions over the deal’s affordability and transparency.

Some rivals ask how Gunvor, which had an equity value of only $6.6 billion at the end of the first half of the year, can secure the funds to finance such a purchase.

One possibility is that the transaction is paid for gradually using earnings from the newly acquired assets.

A person close to Gunvor said the deal could be organised with “an earnout structure, no upfront payment nor financing”, with money designated for Lukoil to be held in escrow until sanctions on the Russian group are eventually lifted.

Others have speculated that Gunvor may be acting as a temporary custodian of assets that Lukoil ultimately intends to reclaim once the war is over.

“There will be a buyback clause, though it may not be written into the official documents,” one senior consultant to Russian energy companies suggested.

A top manager at a Russian oil company agreed, saying he was “sure that is exactly how the deal is structured. Lukoil will keep running the assets operationally”.

A trader at a rival firm said: “Gunvor is the only company that could be trusted to play this role.”

Törnqvist declined to comment on how Gunvor would finance the deal, but said the firm was not “reckless” enough to take on such a transaction without thinking it through thoroughly.

“There is obviously the financial aspect. How would I explain it to my banks? They ask the same question,” he said. “But this is the panache and capability of our company. Lukoil would also not engage with us if they did not think we could do it.”

He also denied that the assets would eventually make their way back to Lukoil, saying the US and UK governments that have imposed sanctions need to be confident that it is a “complete break”. He said the deal would only proceed with the approval of the authorities.

“It is clearly stated that there is absolutely no way there can be a reversal of this transaction, even if sanctions are lifted. It is not possible,” he said. The US government and Lukoil declined to comment on the potential deal.

However, Törnqvist did raise the possibility that Gunvor may decide some of Lukoil’s assets would be better suited to other owners in the future.

Asked if this meant they could return to Russian hands, he said: “If sanctions are lifted, it is probably a sign that things are on good terms. Right now, we do not deal with Russian companies.”

Törnqvist said the two sides had been discussing specific Lukoil assets ahead of the imposition of new sanctions on Lukoil last month, and that the negotiations had evolved into a more ambitious deal.

People familiar with the situation said other major trading companies that might ordinarily have been interested in such assets, such as Vitol and Trafigura, were not part of any process.

But the deal has revived speculation about the Swiss trader’s historic ties to the Kremlin. The group was founded in the late 1990s by Törnqvist and Gennady Timchenko, one of Russian President Vladimir Putin’s closest allies.

Gunvor quickly became one of the world’s top oil traders, handling more than a quarter of all Russian seaborne crude exports, and was widely regarded as having close ties to Putin.

In 2014 after Russia’s annexation of Crimea, the US alleged that the Russian leader had personal financial interests in the trader — a claim Gunvor dismissed as “outrageous” — and imposed sanctions on Timchenko, who sold his stake in Gunvor to Törnqvist.

Since then, Gunvor has worked to distance itself from Russia, selling or withdrawing from almost all operations in the country, including a 30 per cent share in a large coal miner, Kolmar.

It only kept a 26 per cent, non-controlling stake in the Ust-Luga oil export terminal near Russia’s border with Estonia. The company told the Financial Times it had considered selling this too, “but so far it has not been practical or legally feasible”. At the time of the Kolmar deal the miner was led by Sergei Tsivilev, who is now Russia’s energy minister and married to Putin’s cousin. Over the years, Tsivilev gradually increased his stake in Kolmar to 70 per cent and later transferred it to his wife, although it is not clear if she still owns it.

Gunvor said Timchenko had not brokered the Lukoil deal, which is almost certain to have required Putin’s personal sign-off.

“Absolutely not, not in any way. Gennady Timchenko has had zero involvement with Gunvor in any way since he irrevocably divested his ownership in 2014,” said a spokesperson.

While stepping away from Russia, Gunvor has steadily built ties in America and now has a 200-employee US operation that makes up about 30 per cent of its sales and is financed by almost $3 billion of credit from international banks, led by Citibank. Last year it sold nearly $400 million of bonds to US institutions.

One energy banker said Gunvor could seek to win US approval for the Lukoil transaction by telling the White House it will “firewall off the business and use exclusively US banks and US law firms going forward”.

Lukoil International’s assets were worth more than $22 billion in 2023. Its network includes a 75 per cent operating stake in the West Qurna-2 oilfield in Iraq, which produces 480,000 barrels a day, and a 10 per cent share of Abu Dhabi’s Ghasha gasfield.

It is unclear whether Lukoil’s partners in those fields will be happy to accept the transfer to Gunvor or if they might exercise pre-emption clauses to buy out Lukoil themselves.

“Gunvor is not the natural owner of these assets,” said a second energy banker. “All of Lukoil’s partners will be looking at their rights.” But they added that since the Gunvor deal was for Lukoil’s holding company, rather than for individual assets, it may not trigger such clauses.

If Gunvor pulls off the deal, analysts at Welligence said it would establish the Swiss firm as a “top upstream player with an asset base spanning close to 20 countries”.

In 2022, Lukoil’s international assets produced the equivalent of roughly 300,000 b/d of gas and 80,000 b/d of oil. But Welligence believes it has the resources to increase production to up to 1mn b/d by 2040, roughly a quarter of Shell’s output.

While the cost of the deal is the revival of rumours linking Gunvor to the Kremlin, Törnqvist wants his critics to reflect on what the deal achieves.

“I am always concerned about my reputation but I can only speak to the facts,” he said. “We are decoupling assets around the world from a Russian owner to a western owner. Think about that.”

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