Russia is considering a merger of state-backed giant Rosneft Oil with Gazprom Neft, a subsidiary of majority state-owned Gazprom, and Lukoil, a private petroleum company, reported the Wall Street Journal.

Rosneft would absorb both Gazprom Neft and Lukoil in the proposed merger, indicated sources familiar with the negotiation.

This move would create the world's second-largest crude oil producer, trailing only behind Saudi Arabia's Aramco, and potentially pump approximately three-times the output of US oil giant Exxon.

The merger could also enable Russia to secure higher prices for Russian oil from key customers in India and China.

The Wall Street Journal reported that discussions between executives and government officials have been ongoing over the past few months, citing anonymous sources. However, the outcome remains uncertain, with a deal being possible but not guaranteed.

Despite the potential for such a significant consolidation, there are notable hurdles including resistance from certain executives at Rosneft and Lukoil, as well as the challenge of securing funds to compensate Lukoil shareholders.

Igor Sechin, the head of Rosneft and a close associate of Russian President Vladimir Putin, is a central figure in the ongoing discussions.

There is no clarity on whether Sechin will lead any potential merged entity, as representatives from the government, Gazprom Neft, Lukoil and Rosneft have denied involvement in merger talks.

The Kremlin has expressed no knowledge of such a deal, and last month it could not confirm reports of a proposal to nationalise the energy sector.

Gazprom has faced significant revenue losses since Russia's large-scale invasion in 2022, largely due to reduced energy sales, reported the Institute for the Study of War, a US-based non-profit research group.

Additionally, long-time Gazprom CEO Alexey Miller failed to secure an agreement with China in early 2024 over the proposed Power of Siberia-2 gas pipeline due to unresolved disputes.