Areas: Kazakhstan-China Relations Are Growing For Energy Exports and Industrial Policies

Upstream published an in-depth report about Kazakhstan’s increased interest in developing partnerships with China National Petroleum Corporation (CNPC) on 7 June 2023.

This signals two parallel developments: 1.) Kazakhstan is not giving up on the economy power of its oil and gas trade; 2.) China is becoming the top player as opposed to Russia in the country’s oil and gas business.

I say this because the CNPC is China’s largest investment firm in the country’s oil and gas sector. It will undoubtedly be prepared to invest a lot of money in Kazkahstan’s oil and gas, and thus it will be a critical player in Kazakhstan’s energy exports, making the industrial policy more favorable to China’s geopolitical objectives.

In the fray of the Russia-Ukraine conflict narratives it was easy to miss what has been happening with Kazakhstan’s oil export crises during these tumultuous times for the oil & gas industry. I compiled a list of events about the Caspian Pipeline Consortium (CPC) below.

The CPC is a 1,500km pipeline beginning at the Tengiz field in Kazakhstan. Big international companies such as USA’s Chevron (15%) and ExxonMobil (7%) each have stakes in the crude oil capacity of the CPC.

Interestingly, Kazakhstan was seeking to sell exploration and production rights for 60 blocks to international investors on on 21 March 2022.

It isn’t a wild idea to assume that Russia used this moment after the Black Sea storm to ensure Kazakhstan its control over the Novorossiysk terminal was critical to the operation of the CPC oil exports.

Moreover, some of the most intense fighting in Ukraine occurred at Mariupol whereby oil tanker businesses at the Novorossiysk terminal were able to acquire a “war risk insurance premium” — a sign that the Russian war effort was indeed having an impact on the CPC and Kazakstan’s crude oil exports.

What does this mean for the future of the CPC?

Kazakhstan’s government understands that both Western oil interests and Russian oil exporters matter a great deal to the country’s own ability to export crude oil and increase oil production revenues. Just because Kazakhstan changed the name of its vital oil exports to Kazakhstan Export Blend Crude Oil (KEBCO) doesen’t mean it will be able to avoid the USA’s and Europe’s sanctions on oil originating from Russian sea ports.

The ultimate test of USA and Europe sanctions will be playing out in areas such as Kazakhstan and the wider Central Asia region, where those countries are the most susceptible to Russian influence, yet need Western oil imports and international investors to decrease reliance on Russia. I don’t see this problem getting solved in the near-term.

For Kazakhstan, the long-term problem is going to come down to the success of Russia’s political leverage and military strength to ensure that their economic interests, particularly crude oil exports from the CPC, stay intact in the future without any interruptions from USA and European sanctions.

As a result of the effects from the Russia-Ukraine war, the Caspian Pipeline Consortium (CPC) has been caught in the geopolitical crosshairs of Russia’s political agenda and the United States/EU sanctions on a broad base of Russian industries. Due to the issues of CPC, Kazakhstan has really had no choice but to look for other options, as the price of oil surged and they lost out on some high chances for profits from oil and gas revenues.

If you haven’t been following the energy markets this year, then you have missed out on a lot of content about market volatility and geopolitical trends, including how sanctions on Russia are bringing global commodities to the forefront of geopolitics, and thus revealing the changes to industrial polices among the world’s core areas and critical producers.

Read the full story: Russia Sanctions Dovetail With Industrial Policies & Energy Cooperation.

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