Kazakh oil industry in danger of disruption thanks to Crimea

Pipelines passing through Ukraine to markets in Europe are in danger of being disrupted by the annexation of Crimea. Russia’s Gazprom raised prices on natural gas entering Ukraine from Russia by 37% in the past month, putting pressure on the EU to back off. Kazakhstan, whose economy is almost entirely dependent on the export of oil and gas, has been hit hard by the supply disruption. In 2013, Kazakhstan’s oil production totaled almost 1.64 million barrels per day, and conservative estimates on their reserve capacity are about 40 billion barrels which combined total 2% of global production.

The Customs Union framework, which binds together Belarus, Russia, and Kazakhstan in economic union is supposed to give way to Putin’s EEU, or Eurasian Economic Union. A March 5 summit between the three countries reaffirmed their commitments to sign a treaty that establishes the EEU as the successor framework to the CU. Sanctions against Russia in punishment of their annexation of Crimea could have a heavy cost for Kazakh exports, whose Caspian Pipeline Consortium (CPC) reached record-level exports in Februrary.

Meanwhile, exploitations of other supergiants like the Kashagan oil field have faltered significantly. Consistent violence between managers of Eni, an Italian E&P firm, and Kazakh oilfield workers have placed a strain on relations between the two governments, and projected costs to fix engineering problems in the supergiant have cost Western oil companies like Royal Dutch Shell several hundred million dollars. Despite this, investors are concerned that if sanctions are placed on Kazakh oil flowing through Russia, the cost of the exploitation projects will rise to extreme levels and permanently shut down the project.

News Briefs:

  • As Afghanistan edges closer to elections on April 5, Karzai has made almost-daily public denouncements of Pakistan as the agent behind attacks on election workers and Afghan National Army. He made public the transcript of his recent phone call with John Kerry, stating that the attacks were stage-managed by “foreign intelligence agencies.”
  • According to a new report from the Institute of War and Peace reporting, southern Tajiks are protesting ongoing land reform efforts. Plans to redistribute more than 8,000 square kilometers of land to 44,000 impoverished families have been completed, according to statements released by the government. But many of those interviewed for the report have noted that corruption was widespread.
  • The UN General Assembly condemned Russia for the annexation of Crimea, but former Soviet states like Kazakhstan, Turkmenistan, and Uzbekistan all abstained from the vote to prevent fracturing with Moscow over the issue.
  • US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov met in Paris yesterday to discuss the annexation of Crimea. Kerry has publically stated he hopes to stabilize Ukraine’s politics and finances, and remove the threat of Russian encroachment of more Ukrainian territory.
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