Ukraine Refinery Halts Amid Tensions with Russia

Russia’s Lukoil has reportedly halted all oil supplies to Ukraine’s Kherson refinery in Odessa ostensibly over unpaid debts as political chaos engulfs the country with the refinery’s director and top executives walking out.

Lukoil sold the refinery last year to Ukrainian group VETEK, owned by a multi-millionaire whose fortunes grew under President Viktor Yanukovych until he was ousted from power in February.

Now, Russia’s largest oil company, Rosneft, is said to be considering the acquisition of the troubled refinery, which is hostage to a Russian-state bank for outstanding debts owed by VETEK head Serhiy Kurchenko.

With Yanukovych ousted and on the run, Kurchenko has left the country and according to Russian media reports, transferred the refinery to the Russian bank.

According to Russia’s Kommersant, an agreement with Rosneft over the sale of the 3.6-million-ton-per-year refinery was reached last week.

In the meantime, Ukrainian media reports that as of 25 February, police have blocked all entrance and exit from the Odessa refinery.

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Last week, refinery Director Valery Chakheyev tendered his resignation.

Last month, Ukrainian press reported that a preliminary investigation had been launched by the authorities over suspicions that the plant was processing illicit oil products.

Rosneft controls another refinery, the second largest in Ukraine, at Lisichansk, and the acquisition of the Odessa refinery would have significant political implications.

The crisis intensified with the ouster last month of President Yanukovych, while Ukraine has mobilized its armed forces and is calling for foreign observers to step in after Russian forces took steps to control the Crimea.

Russia is strengthening its presences in Ukraine’s Crimea as a tense standoff between the two countries ensues. On 2 and 3 March, Russian troops confronted Ukrainian troops in the Black Sea are, with Russian fighter jets and warships challenging Ukraine’s sovereignty.

By James Burgess of Oilprice.com