Kazakhstan Seeks Alternative Transport Route as Russian Relations Weaken
Sep 7, 2022
On August 24, Kazakhstan’s President Kassym-Jomart Tokayev met with Azerbaijan’s President Ilham Aliyev in Baku to discuss key security issues The two leaders signed a declaration on strengthening strategic relations which enumerated on trade and economic cooperation, cooperation between their Ministries of Foreign Affairs for 2023-2024, a program of cultural cooperation, establishing sister cities relations between Shusha and Turkestan, and most notably on plans that will strengthen ties, and possibly help facilitate greater use of the Trans-Caspian International Transport Route, also known as the Middle Corridor. Additionally, Kazakhstan’s national gas company, QazaqGaz, and Azerbaijan’s state-owned SOCAR signed a memorandum of understanding covering new joint gas projects. The two energy firms agreed to work together on the exploration and development of hydrocarbon deposits in Kazakhstan, advancing gas transport, developing the countries’ gas-fed chemical industries, and modernizing extraction technologies as well as cooperation in other energy related areas.
These agreements will help meet Kazakhstan's need for alternative routes to transport its gas west given strains in its relations with Russia and European and global energy needs following Russia’s invasion of Ukraine. The two presidents signed the agreements only days after the Caspian Pipeline Consortium (CPC) announced its fourth pipeline disruption this year. The consortium stated that due to damage in the underwater equipment, three marine loading berths at Novorossiysk would be temporarily taken out of commission, greatly reducing the pipeline’s capacity. Many suspect these disruptions are Russia’s deliberate response to Kazakhstan’s attempts to distance itself from the Kremlin over the war in Ukraine.
Because oil revenues accounted for 44% of Kazakhstan’s budget in 2021, and 80% of its export oil traveled through the CPC, the disruptions -- and threat of further disruptions -- have the potential to seriously damage Kazakhstan’s economy as well as factor into the rises in global energy prices and international efforts to address energy security needs.
Kazakhstan has historically been one of Russia’s most reliable partners in the former Soviet space and many thought Kazakhstan would become even closer, following Russia’s actions to help put down the January 2022 coup attempt and public disruptions in Kazakhstan. Tokayev, however, has demonstrated Kazakhstan’s independent foreign policy through repeated, but indirect, disapproval of Russia’s actions in Ukraine, most notably with his refusal to recognize the breakaway entities in Donbas.
The agreements Aliyev and Tokayev signed August 24 showcased Kazakhstan’s ongoing efforts to create and establish alternative transport routes for its oil, ones that can promise more consistency and predictability than the CPC has displayed in 2022. Following their discussion, Aliyev and Tokayev expressed confidence in the alternative transport route in their joint press statement, stating they “have also identified future cooperation directions to increase the Middle Corridor's capacity further.” Although the CPC is still Kazakhstan’s most efficient means to transport oil, both Presidents are hopeful in utilizing the Caspian trade route to mitigate the CPC disruptions. Furthermore, given Russia’s international standing due to its invasion of Ukraine and its actions towards other neighboring countries, decreasing Russia’s role in Kazakhstan’s energy sector has become vital to its economic security.
Given this situation, there has been speculation Kazakhstan will use small oil tankers to transport crude oil across the Caspian to Baku. From there, it would flow to European and other markets through the Baku-Tbilisi-Ceyhan pipeline, but Kazakhstan’s Minister of Energy has dismissed these rumors. However, even if such a plan were put into action, transporting crude oil via tankers is more costly and less efficient. On increasing the use of tankers to export oil through the Caspian, Kazakhstan's Minister of Energy, Bolat Akchulakov, stated “Shipping some oil through the Caspian Sea to Azerbaijan is a technical issue. This case is not so much about huge volumes but more about some of the excess quantities that we may have.” The Minister added that Kazakhstan plans to ramp up its oil production in the coming year, stating Kazakhstan will exceed its expected 85.7 million tons and instead it will produce 103-107 million tons. While the current ability to ship Kazakhstan’s oil west via Azerbaijan is constrained, and could transport a just fraction of the Caspian Pipeline Consortium’s volume, the Minister said Kazakhstan will “nevertheless consider it.”