(Bloomberg) — On a recent sunny afternoon in New Jersey, dozens of gas station franchise owners filed into a Holiday Inn conference room to discuss some big geopolitical developments.
The Trump administration just weeks earlier had announced sanctions on two Russian oil giants, the latest measures designed to clamp down on Moscow’s crude sales and deprive the Kremlin of revenue it needs to wage its ongoing war in Ukraine.
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Yet the sanctions on one of those firms, Lukoil PJSC, isn’t just being felt in Moscow or the flashier international assets it holds, including an Iraqi oil field and a Bulgarian refinery. They’ve also ensnared small American business owners, with the operators of Lukoil-branded gas stations in the US caught up in the chaos.
While the White House has temporarily exempted the gas stations from the sanctions, banks and credit-card companies have been spooked, in some cases forcing operators to accept cash only. Many are wondering how they’ll stay afloat under a tarnished corporate name, while uncertainty surrounds Lukoil’s efforts to meet an April deadline to offload the outlets. An end to the nearly four-year war is another open question, with Ukrainian President Volodymyr Zelenskiy expected to meet on Sunday with US President Donald Trump about a potential peace deal.
The anxiety of the station owners was on display at the hotel meeting in Newark last month. Some franchisees delivered raw and passionate testimonials about their predicament. Others accused the US government of leaving them to fend for themselves. “We have to be united,” one franchisee told the meeting, while lawyers in attendance offered advice.
“Nearly 200 of these independent small business guys, American citizens, are facing the prospect of having their whole business destroyed on short notice,” said Eric Blomgren, executive director of the New Jersey Gasoline, C-Store, Automotive Association.
Lukoil North America did not respond to requests for comment.
How a group of small American business owners got caught up in such a fraught geopolitical situation can be traced to events more than two decades ago, when relations with Russia were different.
Entering the US Market
Lukoil arrived in the US in 2000 when it bought Getty Petroleum Marketing in what was the first purchase of a publicly traded US company by a Russian corporation.
Four years later, it acquired and rebranded a group of Mobil stations from ConocoPhillips that were scattered across New Jersey, New York and Pennsylvania. At one point it owned more than 1,000 sites, but whittled that number down to the current tally of fewer than 200.
The franchisees typically signed three-year contracts with Lukoil North America, under which they pay monthly rent and real estate taxes for their stations. The company supplied them with fuel, along with short-term financing.
The Lukoil name became a liability after Russia’s invasion of Ukraine in 2022. In the immediate aftermath, Lukoil stations in New Jersey faced state-endorsed boycotts. Some credit cards used by fleet customers stopped working at the stations.
Sales have fluctuated ever since, amid falling public sentiment toward the Kremlin, said Gagan Kehal. The 33-year-old New Jersey native manages a Morris County gas station his father purchased as a Mobil franchise the year Kehal was born. He said his employees are frequently questioned by customers about the business’s ties to Russia.
More recently, a few long-time patrons have stopped coming to the station.
The loss of customers comes just as conditions should be more favorable for retailers, with gas prices at multi-year lows. That typically spurs more driving, and more convenience-store spending, which carries higher profit margins than the fuel itself, according to Blomgren at the New Jersey trade group.
Things got worse for the franchisees with the latest round of sanctions. BCB Bancorp Inc. cut links with Lukoil, freezing owners out of revenue from payments made via credit, debit and prepaid cards. Amex cards briefly stopped operating at the pump for an unclear and unrelated reason. Lukoil is now working with two small regional banks, OceanFirst Bank NA and Parke Bancorp, to handle transactions.
Lukoil’s ties with refining giant Phillips 66 also ended and it turned to New-Jersey based distributor Gill Energy for its fuel supplies. Phillips 66 declined to comment.
In recent weeks, Lukoil North America representatives have visited stations to request payments on the outstanding balance on fuel loans, according to several gas-station employees.
The workers also report an interruption to electronic money transfers from Lukoil, which handles revenue and subtracts expenses before paying the franchisees. Instead, the company is making payments via check, according to the employees, who asked not to be identified discussing private financial details.
“We still have to pay our employees and continue operating the stations,” Kehal said. “That’s definitely hurting.”
Lukoil’s situation bears some similarities with that of Petróleos de Venezuela SA, the Venezuelan state-owned oil company whose Citgo Petroleum Corp. unit supplied several thousand branded gas stations across the US. Following US sanctions in 2019, regulators allowed Citgo to keep operating under a US-appointed board. The Citgo flag still flies over stations nationwide.
Whether the Lukoil brand ultimately lives on in the US remains unclear. The Russian company is also trying to divest major foreign assets. The size and political gravity of any transaction means it could take several months if not longer to be completed, according to Doug Jacobson, a sanctions lawyer at Jacobson Burton Kelley PLLC.
In the meantime, Kehal keeps in touch with fellow franchisees via a Whatsapp group. Many have little choice but to wait for a buyer for the chain, hoping it will allow them to rebrand and move on. For some, there’s the desire to buy their stations from the Russian-owned company, a possibility only if a third-party buyer emerges and triggers their right of first refusal — an attractive but expensive prospect.
New ownership would be a chance to be “in control of my own destiny,” said Roger Verma, who owns five Lukoil stations. “We’ve invested a lifetime of savings into these businesses.”
