Morgan Stanley and Rosneft announced on Monday that they had to terminate the sale of Morgan Stanley's Global Oil Merchanting business to Rosneft Oil Co. due to likely regulatory refusal.
Both firms said they had invested "substantial efforts in the deal" and regret that they cannot complete it.
The firms will still continue to work together in other areas, the release said.
Earlier in the morning, Russia's top oil producer Rosneft said it had met a $7 billion loan repayment, partially easing fears among investors that Western sanctions banning major Russian firms from access to European and U.S. capital could prompt mass defaults.
The Russian firm produces more oil than Iraq or Iran and has asked for 2.5 trillion rubles ($44.07 billion) from the government to help it weather sanctions and refinance its debts.
The Russian government has yet to decide how much money to give the company from the National Wealth Fund, resulting in speculation last week—denied by Rosneft—that it was buying foreign currency on the domestic foreign exchange market.
—Reuters contributed to this report.