Italy secures US guarantees to unlock funding for Lukoil refinery

ROME: US authorities have reassured Italy that its banks are not at risk of fines for breaching sanctions against Moscow if they help a Lukoil-owned refinery buy non-Russian oil, Italian Industry Minister Adolfo Urso said on Saturday (Dec 3).

The reassurance should help the Sicily-based ISAB plant, which the government may put in the hands of trustees, remain afloat after an EU embargo on seaborne Russian oil kicks in on Dec 5, safeguarding local jobs and national fuel supplies.

“We received a letter from US authorities with guarantees that banks funding bridging transactions [to support ISAB] will not be subject to US sanctions,” Urso told reporters on the sidelines of an event in the Sicilian city of Catania.

The letter, seen by Reuters , is signed by the head of the Office of Foreign Assets Control (OFAC) at the US Treasury, and mentions a loan provided by some Italian banks and state lender Cassa Depositi e Prestiti (CDP).

“The provision of a ‘bridging loan’ by Italian entities to ISAB would not involve prohibited activities under OFAC’s Russia-related sanctions authorities,” the letter said.

Urso hailed it as “a historic step that can allow banks to operate with absolute confidence,” adding that financing would be backed by 100% guarantees from the Treasury-owned credit export agency SACE and Sicily’s regional administration.

Following Russia’s invasion of Ukraine, ISAB has been forced to rely solely on Russian crude after creditor banks halted financing and stopped providing guarantees needed to buy oil from alternative suppliers.

Lukoil is not affected by sanctions in Europe but banks were still reluctant to deal with a Russia-related company, as they feared being targeted by possible future fines in the United States, where the company has been subject to sectoral sanctions since 2014.

The Italian government adopted on Thursday a scheme allowing ISAB to be placed under trusteeship, while Lukoil continues talks on selling the asset. A similar move was taken by Germany, when in September it took control of a refinery owned by Rosneft.

Urso said that state-controlled Italian energy group Eni could be asked to support the trusteeship.

The government could call on “an oil company that operates in the sector, and it is obvious to everyone that this (company) could be Eni, and this will ensure continuity of production,” he said.

Asked whether the government could avoid putting the refinery under trusteeship if bank financing is unlocked, the minister told Reuters that he thought it would be “more credible” to still proceed in such a direction.

On Friday, the Lukoil division that owns ISAB said the refinery could keep going despite the looming Russian oil embargo, relying on raw materials stored for the coming months and future deliveries of oil from countries other than Russia.