ArticlesRussia Could Stop the Transit of Kazakh Oil to...

Russia Could Stop the Transit of Kazakh Oil to Europe

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On July 5, a district court in the Russian city of Novorossiysk ruled to close the Caspian Consortium Pipeline for a month due to alleged oil spills. The decision comes just one day after Kazakh President Kasim Jomart Tokayev held a phone conversation with the President of the European Council, Charles Michel, during which he assured his counterpart of Kazakhstan’s support in overcoming the European Union’s energy crisis. However, the company that manages this pipeline appealed, and on July 11 a court in Krasnodar ruled to replace the sentence with a fine.

The effects of closing the pipeline for Kazakhstan and the European Union

Stopping the oil flow through the Caspian Pipeline Consortium is a major problem for the Nursultan administration, since 80% of Kazakhstan’s oil exports are made through this pipeline. Almost 90% of the oil transported through the pipeline is Kazakh, so Russia’s oil exports are not affected. This is the main export route for Kazakh oil to Europe, its most important market. About 70% of Kazakhstan’s total oil exports go to the European Union. In 2021, Kazakh oil exports to the European Union accounted for 8%, with Kazakhstan ranking 4th in the top of the most important suppliers. The Russian Federation came first, with 24% of the European Union’s total oil imports in the same period.

Kazakhstan has no alternative route for delivering oil through the Black Sea and then to Europe. To reduce economic losses, Kazakhstan could increase oil exports to Europe through the Caspian Sea. The oil would reach the port of Baku, where it can be sent to Europe via three routes: via the Baku-Tbilisi-Ceyhan pipeline, by train to the Georgian ports of Batumi and Kulevi, or via the Baku-Supsa pipeline. However, these alternatives would lead to an increase in transportation prices. On July 7, the president of Kazakhstan called for a study on the possibility of building an oil pipeline under the Caspian Sea to bypass the Russian Federation.

After the war in Ukraine began, the European Union started to look for alternatives to Russian oil, and the Kazakh oil seemed to be a solution. Blocking the transit of Kazakh oil to Europe could lead to an even greater increase in fuel prices. Europe is already facing high prices for gasoline and diesel. Therefore, the Russian Federation could block the export of Kazakh oil in response to the sanctions imposed on it by the European Union.

The map shows another possible route for Kazakh oil to Europe with red lines, that passes through the Caucasus, source: https://www.dw.com/en/russia-targets-eu-cutting-off-kazakhstans-oil-exports/a-62408644

Russia decided to close the port of Novorossiysk in March, as well as in June

This is not the first time when Russia has blocked the transport of Kazakh oil to Europe. The port of Novorossiysk was closed for a month in March and in June. On June 20, the Russian Federation halted oil transit through the Caspian Pipeline Consortium for the second time in less than two months. The pipeline connects the oil fields in Kazakhstan to the Russian port of Novorossiysk at the Black Sea. The oil transiting the pipeline accounts for about 1.2% of global demand. According to Kommersant, Russian authorities have found around 50 unexploded World War II pieces of ordnance near the port’s waters. The port administration stated that the de-mining process could take a month. Kazakhstan exports most of its oil to Western markets through this pipeline and then through the Black Sea. On the same day, Nexta reported on its Twitter account that Kazakh authorities had blocked 1.700 coal wagons slated for Russia in response to the closure of the Novorossiysk port. Shortly after, the Transport Committee of Kazakhstan’s Ministry of Industry and Infrastructure Development denied blocking the coal wagons, adding that there were no Russian coal wagons slated to exit or enter Kazakhstan.

On March 22, about a month into the invasion of Ukraine, when Russia was facing problems due to Ukrainian resistance, the Russian administration announced that the berths of the port of Novorossiysk were affected due to a storm. For this reason, the oil flow through the Caspian Pipeline Consortium was stopped, and the repairs lasted for almost a month. The oil transit through the pipeline was resumed on April 22, but was stopped again after just two months.

Following this incident, in early April, Deutsche Welle (citing Handelsblatt) published the article “Oil Blackmail on Europe and Kazakhstan in the Port of Novorossiysk”. This investigation presents a different version of the reason for closing the pipeline than the one stated by the Russian authorities. According to Handelsblatt, Russia intentionally closed the port of Novorossiysk to stop the flow of oil through the pipeline. This decision was allegedly taken to keep the oil price high and to undermine the European Union’s economy. The newspaper requested the point of view of “Deutscher Wetterdienst” (the German meteorological service) regarding the weather conditions of the region around that period. The experts stated that there were no unusual weather conditions on that day that would have damaged the infrastructure of the port of Novorossiysk. The March incident led to a nearly 5% increase in the price of a barrel of Brent oil for a short time, from about $115 to $121. Due to that incident, Kazakhstan was forced to reduce its oil production by 20%.

Increasingly strained relations between Russia and Kazakhstan

The decision of the Russian administration to close the port of Novorossiysk comes days after the Kazakh president’s statements regarding the separatist republics of South Ossetia, Abkhazia, Luhansk and Donetsk. On June 17, when attending the St. Petersburg Economic Forum, the President of Kazakhstan was asked what he and the Kazakh citizens think about the Russian Federation “special operation” in Ukraine. He said there were different views in Kazakh society and that his country does not recognize the separatist republics of Luhansk and Donetsk.

“There are different opinions on it in Kazakhstan (…) But I would like to note the following: the current international law is outlined in the UN Charter. The two main principles of the Charter have come into contradiction with each other: the territorial integrity of a state and the right of a nation to self-determination. (…) Some say that the territorial integrity of a state is sacred, while others believe that any people that are part of a state have the right to form their own state and can break away from the main state in accordance with their wishes. (…) there will be over 500 or 600 states instead of 193 that are members of the UN today. That would be chaos. And for that reason, we do not recognise Taiwan, Kosovo, South Ossetia and Abkhazia. And this principle will be used towards the quasi-state territories such as Lugansk and Donetsk, as we believe them to be.”

This statement placed Vladimir Putin, who was on stage with Tokayev, in a delicate position. Russia has recognized the independence of the separatist republics of Abkhazia, South Ossetia, Luhansk and Donetsk, to which it offers political, military and financial support. Tokayev is the only leader within the Eurasian Union and the Collective Security Treaty Organization (CSTO) who has expressed opposing views in the presence of Vladimir Putin on sensitive issues.

On June 15, shortly after arriving in St. Petersburg, Tokayev stated in an interview that his country would not violate the sanctions imposed on Russia by the West. At the same time, he hinted that Moscow should not expect Kazakhstan’s gratitude for the January intervention of the CSTO states.

“In Russia, some people misinterpret this situation, claiming that Russia saved Kazakhstan, and Kazakhstan should now forever serve and bow at the feet of Russia. I believe that this is completely an unjustified argument that is far from reality”.

Thus, Tokayev conveyed to the Russian public and the Kremlin administration that Kazakhstan will not serve the interests of the Russian Federation and that it will not submit to its foreign policy. Just a few months ago, in January, Vladimir Putin helped his Kazakh counterpart stop the wave of protests facing the former Soviet republic. At that time, a CSTO mission consisting of about 2,000 soldiers, mostly Russians, helped stop protests in Kazakhstan that threatened the country’s political stability and Tokayev’s presidency. Following this operation, Russia hoped to gain more influence over Kazakhstan as a result of its aid.

Despite the statements mentioned above, Kazakhstan did not condemn the Russian invasion of Ukraine and abstained in the March 2022 UN General Assembly vote on condemning the Russian invasion. At that time, 141 states voted in favour, 35 abstained and 5 (North Korea, Syria, the Russian Federation, Belarus, Eritrea) voted against. Tokayev is trying to continue his predecessor’s foreign policy of balancing Russia, China and the West, but is also trying to reduce Moscow’s influence in Kazakhstan.

Alternatives for transporting Kazakh oil to Europe

In recent months, Kazakhstan has sought solutions to reduce its dependence on Russia’s railway and energy infrastructure. In May, at a meeting of the Supreme Council for Reforms, the Kazakh President presented the country’s new economic policy plan. It provides for the diversification of energy and economic corridors, linking Kazakhstan with foreign markets. In addition to the study commissioned on July 7, the Nursultan administration wants to redirect most of the country’s oil exports to Europe to transit through Azerbaijan, Georgia and Turkey via the Baku-Tbilisi-Ceyhan pipeline.

Kazakhstan also wants to redirect its exports of goods to Europe via Iran and avoid Russian infrastructure. Following the memorandum signed by Iran and Kazakhstan in May, a part of the transport of Kazakh goods to Europe will pass through the China-Kazakhstan-Iran-Europe railway corridor, reducing the volume transiting Russia. During Tokayev’s visit to Tehran on June 21, he expressed his intention to strengthen cooperation between Iran and Kazakhstan for the transport of goods, as well as energy. Kazakhstan wants to open an energy corridor through Iran as well.

Until then, halting the Kazakh oil flow to Europe can cause significant financial losses to Kazakhstan, given that energy resources account for 75% of its exports. At the same time, this could lead to an increase in oil prices and create difficulties for the European Union regarding oil supply.

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