Finance
Kazakhstan bypassing Russia in the Caspian Basin
April 2, 2025
Min
Astana’s decision to avoid Russia and export oil via Azerbaijan signals a major geopolitical shift away from Moscow.
At the end of January, Kazakhstan’s national oil and gas company, KazMunaiGas, announced it had dispatched a tanker loaded with oil from its Kashagan oil field in the northern Caspian Sea to Baku, Azerbaijan. To a casual observer, this might seem like a routine maritime announcement of little consequence. However, to those who track the fiercely contested energy politics of the Caspian Basin, it was big news, heralding the beginning of a process that could completely oust Russia from its control over Caspian energy resources.
The event signifies Kazakhstan’s emergence as an increasingly vital oil producer capable of routing its exports westward while completely bypassing Russia. This, in turn, further reduces Russia’s influence in the dynamic South Caucasus region.
Beginning with simple observations of relative output performance, the announcement from KazMunaiGas came at a time when oil output from fields within Russia was trending downward. Having reached an all-time high in January 2017, output was declining even before Moscow’s full-scale invasion of Ukraine commenced in 2022. Due to capacity constraints caused by Ukrainian bombings of Russian refineries and storage facilities, along with Western sanctions against the “shadow fleet” of sanctions-busting oil tankers, Russia’s output is expected to continue to decline. Although Russia will remain a major oil exporter, this will harm its export revenues.
Meanwhile, oil production in Kazakhstan has reached a record high and is projected to continue upward. Boosted by heavy investment in capacity expansion, expected to reach about $21 billion by 2030, the country’s oil production is projected to rise from 87.6 million tons in 2024 to 96.2 million tons in 2025 and then exceed 100 million tons in 2026. What makes the hydrocarbon boom in Kazakhstan so relevant to regional geopolitics is that it shines an unforgiving light on the elusive notion of “Russian oil.”
An important parallel can be drawn to the equally opaque concept of “Russian gas.” When Russia’s Gazprom was involved in repeated standoffs with Ukraine and other European neighbors over the sale of pipeline gas, the gas in question originated from Turkmenistan, imported to Russia and then re-exported to Europe via Ukraine. These dealings involved shady middlemen and corruption that negatively affected all parties involved.
The relevance of the current case concerning oil lies in much of the “Russian” oil exported via the Black Sea having actually come from Kazakhstan. The dealings involved in getting this oil to markets have been just as corrupt and debilitating as those surrounding “Russian” gas. These facts provide important background to the looming transformation of regional energy politics.
The birth of Kazakhstan as a major player in oil can be traced back to the collapse of the Soviet Union. Following Azerbaijan’s lead, Kazakhstan embarked on a search for foreign industrial partners. When Azeri President Heydar Aliyev struck a “deal of the century” with United Kingdom-based BP, which went on to be a major success, Kazakh President Nursultan Nazarbayev chose a consortium that included Russian, Kazakh and international partners. Although the arrangement promised spectacular growth in output, this roster of participants also faced substantial challenges.
What is relevant for current developments is not the historical operating consortium as such, but rather how they transported the oil to market.
The first step was taken in 1993, with the formation of a joint venture between Kazakhstan and the American oil major Chevron, which assumed operating responsibility. Named Tengizchevroil, the joint venture developed the supergiant onshore Tengiz field. At the outset, the two sides had equal shares, but over time, the company would add ExxonMobil with a 25 percent share and LukArco, a joint venture between Russian Lukoil and American ARCO, with a 5 percent share. Despite substantial internal friction, Chevron was so committed to getting it operational that some said it simply gambled the entire company on its success.
What is relevant for current developments is not the historical operating consortium itself but rather how they transported the oil to market. While some on the American side had advocated for going south across the Caspian to Azerbaijan, heavy Russian influence ensured that the oil would be pumped across southern Russia to a Black Sea export terminal at Novorossiysk.
In 1992, a Caspian Pipeline Consortium (CPC) was created to build and operate the pipeline. Initially owned by the governments of Russia, Kazakhstan and Oman, the CPC became the mainstay of Russian oil exports via the Black Sea. Following substantial friction, an ownership structure emerged that was composed of the three states together with a group of international oil companies from Russia, Europe and the United States. Although Chevron remained the largest shareholder, the Russian pipeline monopoly Transneft gradually increased its ownership and influence.
Then in 2013, Kazakhstan began production of oil from a second supergiant offshore field, Kashagan. Discovered in 2000, it was beset with management conflicts, and by 2012 development costs had risen to $116 billion, making it the most expensive energy project in the world. In the industry, Kashagan was colloquially known as “cash all gone.” In 2016, oil from Kashagan began flowing through the CPC.
Aside from a small flow of oil to China, which acquired just over 8 percent of the Kashagan field in 2013, Kazakhstan has been entirely reliant on exports through the CPC. Deepening this dependence, in 2023, it also concluded a transit deal with Russia’s Transneft to supply oil to Germany via its Druzhba pipeline. The primary motivation behind current developments that bypass Russia is Kazakhstan’s desire to finally break free from this dependency – a powerful driving force.
The announcement of oil being shipped from Kashagan to Baku may also be viewed as significant due to Russia’s war against Ukraine. Although Kazakhstan has long been Russia’s most important ally, Astana turned a noticeably cold shoulder to Moscow following the full-scale invasion that began in 2022. In its effort to distance itself from Russian influence, the Kazakhs doubled down on planning a new export route of the country’s growing oil output. This route has developed through Baku, where the oil is fed into the existing Baku-Tbilisi-Ceyhan (BTC) network of pipelines which connects to Mediterranean ports.
When KazMunaiGas announced at the start of this year that its first tanker had left Kashagan for Baku, it had already been in talks with the Azeri state oil company SOCAR about increasing its use of the BTC. Azeri interest comes as its own oil production is declining and the BTC has been operating at less than half of its capacity. Kazakhstan aims to dramatically increase oil exports through that route from 1.5 million tons in 2024 to 20 million tons annually over the coming years, in the process reducing its oil exports via Russia by around 80 percent. This is being planned even though the transportation cost via the BTC is more than three times higher than that via the CPC.
The core question looking forward is what Russia can do to protect its own interests. This calls attention to the “Ganja Gap,” a 60 kilometer-wide corridor that separates Russia and Armenia at the point where Georgia and Azerbaijan meet. Its importance lies in allowing travel from the Caspian Sea to the Black Sea without entering either Russia or its ally Armenia. It was through this gap the first pipelines were built to transport oil and gas from the Caspian Basin to Turkey and then onward to Europe and world markets.
One key route was the Baku-Tbilisi-Erzurum (BTE) pipeline for gas. Later known as the Southern Gas Corridor, it became a crucial part of the network of pipelines that cross Turkey and end in Europe. The other was the BTC pipeline for oil that leads to an export terminal at Ceyhan on the south coast of Turkey. Inaugurated in 2006, these pipelines established a since-then dominant trend of promoting transport infrastructure that runs along an east-west axis, bypassing Russia. If Kazakhstan is included in this pattern, it will be a decisive feature in excluding Russia from the geopolitics and geoeconomics of the Caspian Basin.
Assessments of future developments must take into account that Azerbaijan, currently in a close alliance with Turkey, is the key regional actor. Following its victory over Russia-aligned Armenia in the recent war for control over Nagorno-Karabakh, it has a clear regional upper hand against Russia. If Moscow is to succeed in retaining an important role in the South Caucasus and Caspian regions, it needs to strike a deal with Baku, which may prove elusive.
Following the sharp reduction in its natural gas imports from Russia since 2022, Europe has become increasingly focused on procuring gas from the Caspian Basin. In practice, this means relying on natural gas pumped through the Southern Gas Corridor that runs from Baku through Tbilisi in Georgia to Turkey, which is transforming itself into a regional energy hub.
Azerbaijan is currently investing heavily in development of its potentially lucrative partnership with Kazakhstan to pump Kazakh oil westward via the BTC pipeline. Looking forward, it is feasible that Baku may also succeed in implementing long-standing plans to build a Trans Caspian Pipeline linking Europe with Turkmenistan’s truly enormous gas fields.
Baku striking a deal with Russia would not bolster any of these opportunities. The question then becomes whether Moscow has another form of leverage that it might use to coerce the Azeris into acquiescing. This is where Georgia enters the picture.
The current standoff between the pro-Moscow government in Tbilisi and the westward-looking political opposition suggests two possible scenarios, both of which depart from who will control the Ganja Gap.
The least likely scenario has the opposition in Tbilisi finally prevailing in its struggle to topple the pro-Russian regime and forcing a rerun of what it claims was a grossly rigged election in October 2024. If it does succeed in this ambition, it will have substantial implications.
With a democratically elected government that assumes control over the police and the judiciary, it will be possible for Georgia to resume policies aimed at building the rule of law and seeking membership in the European Union. Linking its efforts with those of Armenia and Moldova may enhance its prospects for a European future. In turn, Russian cronies, including oligarch Bidzina Ivanishvili, may fear arrest and prosecution, causing them to leave the country.
The implications for Russia would be severe and not be limited to a reduced role in the Caspian Basin. Moscow would also lose access to the Georgian coastline, making its own port at Novorossiysk and thus its role in the Black Sea increasingly vulnerable. Despite well over 100 days of street protests, it does not look likely that the pro-Russian regime in Tbilisi will finally cave in.
In the more likely scenario where Russia successfully maintains its puppet regime in Tbilisi, the Ganja Gap will return to the forefront. An important implication in this scenario would be Moscow increasing its leverage over Azerbaijan, which is currently reliant on Georgia for the transit of oil and gas to Turkey and beyond.
Faced with a threat of interference in those vital flows, Baku may be cajoled not only into agreeing to pump Russian gas to Turkey, but also into accepting revitalizing pipelines that run from Baku to Supsa in Georgia and to Novorossiysk in Russia. Such moves would strengthen Russia’s role in the South Caucasus and greatly enhance Moscow’s presently flagging role in the Black Sea. Given that Kazakhstan’s decision to reroute its oil export from the CPC to the BTC greatly raises the stakes in the game, Russia may also be expected to apply heavy pressure for a reversal of such plans.
Although this is more likely than the scenario of an opposition victory in Georgia, it still has to consider the likelihood of Russia prevailing against the whole cluster of Kazakhstan, Azerbaijan and Turkey for control over the Caspian hydrocarbon resource flows. Given its documented readiness to resort to brute force, one cannot exclude that when and if Moscow has secured Georgia, it will be ready to move on to the greater game. But expecting success is a very long shot.
What may also upset regional developments is Russia making overtures to the U.S. on a possible return of American Big Oil to lucrative Russian ventures. If that happens, it might have ripple effects across the Caspian Basin, driving foreign oil companies to the Russian side and compelling Kazakhstan to resume pumping its oil via Russia. But assigning odds to such an outcome seems impossible.
