The current geopolitical situation and the worldwide impact of war in Ukraine makes it increasingly important to seek out alternative sources of oil for the global market.
In its August 3 filing to the United States Securities and Exchange Commission (SEC), Houston-based corporation ExxonMobil stated that “in the event that existing sanctions related to Russia’s military actions in Ukraine expand, new sanctions are imposed, countermeasures are employed by the Russian Federation or other direct or indirect impacts arise, it is possible that the transportation of Kazakhstan oil through the CPC pipeline could be disrupted, curtailed, temporarily suspended or otherwise restricted. In such a case, the Corporation could experience a loss of cash flows of uncertain duration.”
The SEC report shows that Kazakhstan’s Caspian Pipeline Consortium (CPC) cannot be relied upon for more volume of non-Russian oil. Roughly 80% of Kazakhstan’s oil exports travel through the CPC, a pipeline that ships 1.2% of the world’s oil from Kazakhstan through Russian territory to the Black Sea port of Novorossiysk and, finally, out to European markets.
Transneft, Rosneft and Lukoil International are all Russian companies subject to US sanctions and collectively account for 44% of shareholders, while Chevron and ExxonMobil hold 15% and 7.5%, respectively. Rosneft’s CEO, Igor Sechin, previously served as Putin’s deputy chief of staff and remains his close ally of 30 years.
KazMunayGas, Kazakhstan’s 19% shareholder of the CPC, has recently hired one of Washington’s top lobby firms, Brownstein Hyatt Farber Schreck, for a six-month, $660,000 (NIS 2.1 million) contract in an effort to influence US policy-makers and business leaders on Kazakhstan’s position with respect to its independence and investment opportunities.
In June, Kazakhstan changed the name of the oil it exports to Kazakhstan Export Blend Crude Oil (KEBCO) to better differentiate it on the market from Russia’s Urals. What can be lost in the technical details of Kazakhstan’s oil export in the West is that it is always blended with its Russian counterpart at the point of export. For Russia, the change to KEBCO provides another opportunity for greater profits, as well as increased volumes of export to bypass oil sanctions.
Russian companies are not only shareholders of the infrastructure of oil export, but also oil fields in Kazakhstan. They benefit from both transit revenue from the CPC, as well as production from oil fields in Kazakhstan. Sanctioned Russian energy companies have sizeable ownership shares in key oil fields, including 13.5% in the Karachaganak field and 5% in the massive Tengiz field.
CPC’s flow, subject to Putin’s whims, has been ceased three times since March 2022, which is unprecedented in its 20 years of operation. Other options for Kazakh export leave much to be desired. In 2021, the Atyrau-Samara pipeline moved through 12 million tons of oil to the Russian Federation, and its key shareholder is Russia’s sanctioned company Transneft. The Atasu-Alashankou pipeline to China has exported low volumes and only 2 million tonnes were brought to Baku by tanker from the port of Aktau on Kazakhstan’s Caspian Coast.
In a recent government meeting, Kazakh President Kassym-Jomart Tokayev called for a study to consider constructing a pipeline across the Caspian Sea to transport Kazakh oil to Europe, bypassing Russia. This solution is one that has been advocated for by the US since the early 2000s, yet there has been no substantial progress made. A Trans-Caspian pipeline to supplement Baku’s oil and gas volume while desirable, requires a multi-year, multi-billion-dollar project, where the political courage of Tokayev is too questionable, given resistance from Moscow and Tehran.
There is no reason to believe that Tokayev would stand up to Putin and cut Russia out of their oil deal. The current geopolitical situation and the worldwide impact of Russia’s invasion of Ukraine makes it increasingly important to seek out alternative sources of oil for the global market. Regrettably, Kazakh oil is not a viable option in the quest for oil outside of Moscow’s sphere of influence.
The China Trail
Ex-US national security chief: Karabakh liberation clears path to regional stability
