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Eurasianet is an independent news organization that covers news from and about the South Caucasus and Central Asia, providing on-the-ground reporting and critical perspectives on…

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SOCAR And Lukoil Seal Unique Oil Deal Despite Western Sanctions

  • SOCAR faces challenges purchasing Russian crude oil for its STAR refinery due to Western sanctions on Russia, leading to a unique agreement with Lukoil.
  • Lukoil will supply up to 200,000 barrels per day of Russian crude to SOCAR's STAR refinery.
  • The loan structure and integration of the agreement remain unclear, but SOCAR and Lukoil have a history of cooperation in various energy projects.
Oil Pipeline

Azerbaijan's state oil company SOCAR has concluded a wide-ranging agreement with Russia's Lukoil under which the Russian oil company will lend SOCAR $1.5 billion and supply SOCAR's STAR oil refinery in Turkey with up to 200,000 barrels per day of Russian crude oil.

The unusual agreement is apparently structured to overcome the problems SOCAR was facing in purchasing Russian crude oil for its STAR refinery due to the sanctions imposed by the West on Russia over its invasion of Ukraine.

The sanctions prevent Western companies from both buying and trading in Russian crude and petroleum products and transferring payments to Russia.

Neither Azerbaijan nor Turkey has imposed any sanctions against Russia.

However, SOCAR's trading arm, which is one of the suppliers of crude oil to the STAR refinery and is based in Geneva would be obliged to observe the sanctions regime.

Reports claim that SOCAR halted purchases of Russian crude oil during the summer. This claim appears to be borne out by official Turkish data that show imports by both of Turkey's refiners also fell sharply in July. 

During July the STAR refinery imported just 835,435 tons of crude - from all sources - down 22 percent on June.

And Turkey's imports of Russian crude during July were 706,396 tonnes, down 44 percent on June. 

Turkey's other oil refiner Tupras, which operates four refineries in the country, does not appear to have been impacted directly by the Western sanctions.

SOCAR's head office in Baku did not respond to a query about its agreement with Lukoil and it is unclear how the loan from Lukoil will be structured, or how it is integrated with the agreement to supply crude oil to SOCAR's STAR refinery. 

Commissioned in 2018, SOCAR's STAR refinery in Turkey has the capacity to process 11.0 million tons of crude oil a year, producing mainly diesel and jet fuel for Turkey's domestic transport market, and naphtha for SOCAR's Petkim petrochemicals plant, adjacent to the refinery.

The STAR refinery was developed by Azerbaijan's SOCAR. It uses crude oil both from fields SOCAR owns and operates itself, and from Azerbaijan's main ACG oil field, which is operated by a consortium led by BP. 

These Azerbaijani crudes are "light" ones, and command a higher price on global oil markets from refineries designed to take advantage of its special properties and produce a different range of products from that required by the Turkish market.

As such, the STAR refinery was designed to process all types of crude oil available in the east Mediterranean region, including Russia's heavier Urals crude which is exported by tanker through the Black Sea. 

Long-standing relationship

SOCAR and Lukoil have a long history of cooperation.

The Russian company is the second largest shareholder in Azerbaijan's main Shah Deniz gas field, having last year doubled its stake to 19.9 percent. Lukoil also formerly owned a stake in Azerbaijan's ACG oil field, in which SOCAR holds a 25 percent stake. 


In 2017 the two companies announced that they were planning joint investments in Turkey, and in 2020 Lukoil announced that it was in discussions with SOCAR over possible investment in a number of offshore Caspian oil and gas fields. On both occasions no final agreements appear to have been concluded, however. 

News of SOCAR's unusual arrangement with Lukoil came just a few days before Azerbaijan's minister for energy, Parviz Shahbazov, visited Moscow for the 6th International Russian Energy Week. 

While there he held wide-ranging meetings with Russia's deputy prime minister Alexander Novak, and meetings on energy system integration with Russian energy minister Nikolay Shulginov and officials from Iran. 

By David O’Byrne via Eurasianet.org

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