Bad news for the president Russia Vladimir Putin: After trying several times to use the oil pipeline from Kazakhstan to increase the lever of energy pressure on the European Union, the administration of Nur-Sultan decided to respond in a painful way for Moscow – diverting part of the exportoil to Azerbaijan since September. This is according to reports in Reuters and the Azerbaijani media.
Kazakhstan’s oil corporation “Kazmoneygaz” (KMG) is in advanced negotiations with its counterpart in Azerbaijan “Sukar” to export 1.5 million tons of oil annually through the Baku-Tbilisi-Ceyhan pipeline, the same route that Azerbaijani oil reaches Israel through Mediterranean Sea In the longer term, 3.5 million tons a year are expected to pass through the Baku-Supsa pipeline, which terminates in the Georgian port city on the Black Sea, starting in 2023.
Against the big loser Putin, the significant step has four immediate beneficiaries: first and foremost, Kazakhstan. The oil and natural gas sector accounts for 35% of the GDP and 75% of the exports of the country that is ranked 12th in the world in black gold reserves (1.8% of the world’s reserves). In 2019, no less than 63.2 million tons of Kazakh oil, according to an analysis by Ernst & Young. Nur-Sultan uses two other pipelines: between Atasu and Alashenko in western China and between Atyrau and Samara in Russia. In the same period, these two pipelines transported 16 and 13.3 million tons of oil, respectively, which Which indicates the importance of CPC in the eyes of the Kazakhs.
Equally big beneficiaries are the European Union, which has to deal with natural gas prices that have jumped from about 62 euros per megawatt hour to about 205 euros today – due to dependence on Russia. Kazakhstan is a supplier of 6% of the EU’s oil consumption, with 70% of Nur-Sultan’s oil exports to Europe via the Novorossiysk terminal. Kazakhstan currently exports 1 million tons, or 250,000 barrels of Urals crude oil per day, through the Russian oil pipeline to Black Sea and Baltic Sea ports.
In general, Kazakh oil constitutes 1% of the world supply (or about 1.4 million barrels per day). Considering today’s drop of about 2% in the price of a barrel of Urals to about $74.27 per barrel, after a sequence of three consecutive increases (at the rate of 4.79%, 3.1% and 1.85%) – it can be understood that in Brussels they are benefiting from both the energy security of the continuity of the oil flow and better price.
The third beneficiary is Azerbaijan, which as a significant oil exporter manages to brand itself as an oil export hub. In Baku and Nur-Sultan, it will be necessary to find and create the most efficient work infrastructure for the transfer of oil in tankers in the Caspian Sea to Baku – however, if such a step is found to be successful, it is not impossible that Turkmenistan will also move forward in the examination procedures of exporting gas to Europe through Azerbaijan. The latest beneficiary is Turkey, whose Kazakh oil is expected to begin flowing through its existing oil pipeline to Ceyhan starting in September.
On the other hand, Russia loses, as mentioned, a significant lever of pressure, since Kazakhstan has been exporting most of its oil through the CPC pipeline for 20 years. Beyond that, Russia will directly lose revenues from reducing the volume of oil flowed, because among the companies that hold ownership in the CPC corporation are major Russian companies. The national oil pipeline company Transneft owns 24%, more than any other partnership. At the same time, the Lukaoil company owns 12.5%, and another 7.5% belongs to the Russian national oil company Rosneft together with the British Shell company.
Apparently with the goal of not leading to a real explosion in relations with Moscow and due to the constraints of Baku’s existing infrastructure, the oil expected to flow through Azerbaijan will be 30 thousand barrels per day, very little compared to 1.4-1.3 million barrels per day through CPC. However, if you add to this a 2.3-fold increase in oil through Sopsa in 2023 – this is the beginning of a process that will surely stress Moscow’s senior officials.
Brief history of the Russian-Kazakh oil conflict
The sequence of events that led Kazakhstan to the significant step reached its peak in July: a Russian court ordered on July 6 to stop the activity of exporting Kazakh oil through the terminal in the port of Novorossiysk for a month due to “environmental considerations”. Although within a few days the Krasnodar District Court overturned the decision and handed down a negligible penalty of a fine of 200,000 rubles (about $3,250) for environmental violations, but the President of Kazakhstan Kasim-Jomart Tokayev and his people are tired of depending on Russia.
Banur-Sultan did not understand the excuse of the Russian judicial system, that since the invasion of Ukraine it has been acting as a tool in the hands of President Putin. All the more considering that already on June 20, Russia stopped CPC activity until the end of that month due to “locating 50 mines”.