Why Kazakh oil sector suffers as Ukraine strikes Russia

Ukraine's drone strikes on Russian energy infrastructure have significantly hit Moscow's export operations in recent months, but they are also impacting other countries, notablyKazakhstan.

In late November, Ukrainian drone strikes knocked out one of the three main tanker loading facilities at the Black Sea port of Novorossiysk in Russia

It's at that export terminal where the Caspian Pipeline Consortium (CPC) oil pipeline ends up, carrying crude oil all the way from Kazakhstan's massive Tengiz oil field more than 1,600 kilometers (994 miles) away.

On Tuesday (January 13), news agency Reuters reported that three Greek-managed oil tankers were hit by unidentified drones in the Black Sea as they were on their way to load crude at the Novorossiysk terminal.

It was not immediately clear who was behind Tuesday's strikes, Reuters said, because Ukraine did not immediately comment and terminal operator CPC declined to comment on the attack.

Oil and gas condensate output in Kazakhstan plunged by 35% between January 1 and January 12 compared to December's average, a source familiar with the data told Reuters, adding that the drop was mainly due to export constraints via the Black Sea terminal.

Kazakhstan's energy ministry said on Tuesday that CPC was continuing to export oil via one mooring.

While Ukraine's president, Volodymyr Zelenskyy, has described drone attacks on Russian energy infrastructure as "the sanctions that work the fastest," the November attack at the CPC terminal prompted a sharp rebuke from Kazakhstan.

"We view what has occurred as an action harming the bilateral relations of the Republic of Kazakhstan and Ukraine, and we expect the Ukrainian side to take effective measures to prevent similar incidents in the future," a statement from Kazakhstan's Ministry of Foreign Affairs said.

The blunt response from the Kazakh government reflects how important the CPC pipeline is to their entire economy.

The pipeline brings the vast bulk of Kazakhstan's crude oil exports to the global market. Although most of its journey passes through Russian territory, it is primarily an economic asset of Kazakhstan. Only about 15% of the oil it carried in 2024 was Russian oil.

The central Asian country — which has a population of 20 million and is the ninth largest country in the world by area — has largely built its economy around its oil sector.

Carole Nakhle, CEO of London, UK-based energy consultancy Crystol Energy, says Kazakhstan is a key player in the global oil market. "The Tengiz field, in particular, is one of the largest in the world and is a critical part of Kazakhstan's oil output," Nakhle told DW.

Being the world's 12th largest oil producer, Kazakhstan accounts for just over 2% of global supplies. However, oil output from its Tengiz and Kashagan fields account for between 15% and 20% of the country's gross domestic product (GDP).

For three decades, the Tengiz oil field has proven to be one of the world's most prolific oil fields, anchoring the Kazakh economy since independence from the former Soviet Union in 1991.

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Kazakh oil has drawn billions of investment from US oil majors such as Chevron and Exxon Mobil.

Chevron just completed a massive $48 billion (€41 billion) expansion of Tengiz as part of a plan to dramatically ramp up production at the oil field by about one third to one million barrels per day (bpd).

However, that plan has been hit — at least in the short term — by the Ukrainian attacks. Exports from Tengiz are heavily reliant on the Novorossiysk terminal, with few other options available.

"While Kazakhstan has sought to increase exports via alternative routes, the volumes remain limited," Muyu Xu, from commodity data provider Kpler in Brussels, Belgium, told DW.

This damage to Kazakhstan's export capacity has drawn criticism of Ukraine's tactics.

After the drone attack in November, Sergey Vakulenko argued that it has had a far greater material impact on Kazakhstan and Ukraine's allies, rather than Russia.

"For Ukrainian commanders tasked with reducing Russia's oil export revenue, the CPC might appear to be just another part of Russia's oil infrastructure," the senior fellow at the Carnegie Russia Eurasia Center wrote in a statement, adding that most of the shareholders of the CPC were, however, Western companies, because the pipeline is to "ensure that oil from landlocked Kazakhstan can reach global markets."

Russia has already previously identified how problems with the CPC could be used strategically.

Moscow forced several stoppages of the pipeline in 2022 to indicate that it could easily prevent Kazakh oil reaching global markets. Further stoppages to the export of Kazakh oil would clearly not help Ukraine, given that it would likely make Russian oil more attractive to purchase.

Several experts think the November attack has underlined the risks to the Kazakh oil sector of dependence on Russian infrastructure and transit.

Carole Nakhle said the attack had "further highlighted the weakness of relying on one route," and underscorded the need to intensify Kazakh attempts to export to Azerbaijan via the Baku-Tbilisi-Ceyhan pipeline and to China, via a smaller pipeline.

Currently the two options would, however, offer only limited potential to replace the massive volumes the CPC, she added, meaning that for now Kazakhstan would remain "highly dependent on Russian routes for the majority of its exports."