Crossroads Asia † Economy † Central Asia
The timing of the decision has certainly raised eyebrows, but of greater concern is the lack of diversification of export routes for Kazakh oil.
On July 6, a Russian court ordered the Caspian Pipeline Consortium (CPC) to suspend operations for 30 days. CPC transports oil from Kazakhstan to Russia and to the edge of the Black Sea. Although it processes just over 1 percent of global oil, CPC is critical to Kazakhstan; about 80 percent of Kazakhstan’s oil exports go through the Novorossiysk oil terminal.
The timing of the decision has of course raised eyebrows, just two days after Kazakh President Kassym-Jomart Tokayev said the President of the European Council Charles Michel over the phone that Nur-Sultan was “ready to use its hydrocarbon potential to stabilize global and European markets”.
Beginning of last month, the European Union has imposed a partial ban on Russian oil imports as part of a sixth package of sanctions in response to Russia’s invasion of Ukraine. But the ban on Russian crude oil by sea will not go into effect until December. As a Bloomberg article noted in late June, Russian oil exports to Europe had started to creep up again, largely due to shipments to Russian refineries in Italy and increased purchases from Turkey. Anyway, Europe’s goal is to reduce Russian oil imports and Kazakhstan is an option – but Kazakh exports to Europe depend on Russian pipelines.
The series of events does not necessarily suggest tensions between Kazakhstan and Russia, although some certainly draw that conclusion. On the contrary, the dirty work of transporting oil and the limitations Kazakhstan faces due to a lack of diversification of export routes are at the heart of the problem. With regard to the latter, Kazakhstan faces a geographical conundrum: with Russia or China as the main available channels for oil exports, diversification is not so easy.
A CPC press release explains that Rostransnadzor, the Russian federal agency that oversees transportation, including pipelines, ordered an audit at the end of April of the company that operates the Russian part of the pipeline, CPC-R. After the audit was completed in May, “it revealed a number of documentary violations under the Oil Spill Response (OSR) Plan.”
On June 6, CPC was subpoenaed, mandating that the violations be addressed by the end of November 2022. But Rostransnadzor appealed to the court on July 5 for an immediate 90-day halt to operations in Novorossiysk. The court ruled for a 30-day suspension, which CPC said it will appeal.
While some will pay special attention to political timing, as discussed above, this is far from the first issue in Novorossiysk. As Euractiv noted:†
Novorossiysk’s terminal is often closed and was closed earlier in June due to the reported discovery of 50 World War II explosives in the waters of the port. It was also shut down in March due to damage sustained during a storm. During the three-week shutdown, the world market lost about a million barrels of oil.
Indeed, the audit revealing problems with the oil spill action plan is not necessarily a shock. In August 2021, there was a spill at Novorossiysk while loading a Greek tanker. Although CPC said the spill was quickly brought under control, analysis of satellite images by the Space Research Institute of the Russian Academy of Sciences suggested the spill was larger than the company had indicated. Evgeny Lupyan, the institute’s deputy director, reportedly said, “Estimates show it’s about 40, 60, 80 tons of oil. It is in every way much more than the 12 tons declared by the company. A spill of this magnitude is certainly unprecedented for the Black Sea.”
on June 29, 2022 CPC paid Russia 5.282 billion rubles ($83.6 million) in compensation for damages from the spill in August 2021.