Central Asia Is a U.S. strategic priority: Oil and beyond

OPINION:

As oil prices shoot up above $90/barrel, endangering the Fed’s anti-inflation fight, President Joe Biden is met with Central Asian leaders at the margin of the U.N. General Assembly this month for a high-level diplomatic conference known as C5+1.

Washington is seeking alternative crude oil export routes as Russia’s war against Ukraine has threatened civilian navigation in the Black Sea. While Biden wants to diversify the world oil supply, Central Asian heads of state are doing their best to diversify their foreign engagements dominated by their neighbors: China and Russia.

The safety of oil tankers near the conflict zone has worsened since Moscow withdrew from the United Nations-facilitated grain deal and declared a naval blockade on Ukrainian ports. In response, Ukraine warned it could target all shipping out of Russian ports, meaning tankers with Kazakh oil could be at risk too.

Two countries are exporting oil from the Caspian Sea region: Kazakhstan and Azerbaijan. Kazakhstan is the only non-Russian oil exporter using Novorossiysk, a Russian Black Seaport. The 1,500-kilometer Tengiz-Novorossiysk pipeline, managed by the Caspian Pipeline Consortium (CPC), transits more than 80% of the country’s crude oil. The pipeline connects the oil fields of western Kazakhstan with Russia’s Black Sea coast.

Kazakhstan’s oil and gas industry has been one of the great successes in Eurasia, not only because of the country’s vast natural resources but also because of its astute investment policy.

The country’s first President Nursultan Nazarbayev saw the oil and gas industry potential to elevate the country’s struggling economy in the 1990s and attract foreign direct investment from Western oil majors that would secure access to international markets. Oil exports were only one of the aspects of the multi-vector foreign policy developed by Nazarbayev to ensure the independence of his nascent state. Until the Ukraine conflagration, it worked well.

Today, the risky situation in the Black Sea is affecting not only Kazakh oil producers but also several Western oil companies that have invested billions in the Central Asian country’s oil fields since the 1990s. Chevron, Exxon Mobil, Shell, TotalEnergies and Italy’s Eni are among international companies with significant stakes in Kazakhstan’s booming hydrocarbon industry.

Kazakhstan’s oil reserves make 3% of the world’s oil reserves, placing it among the top 15 countries in the world. It currently produces 1.8 million barrels of oil per day, or almost 90 million tons, which is projected to increase to 107 million tons in the near future.

To offset frequent halts at Novorossiysk, Astana is pursuing additional shipping routes, such as the Druzhba pipeline through Russia and the Trans-Caspian International Transportation Route(the Middle Corridor) to Azerbaijan, Georgia and Turkey, which bypasses both sanction-stricken Russia and the Black Sea conflict zone.

Astana is increasingly using the Russian Druzhba pipeline to deliver oil directly to Germany. The northern part of the Druzhba pipeline has come to a halt as Western sanctions hit Russian oil exports to Europe, decreasing them by 90 %.

To ensure sanctions on Russian oil will not affect Kazakhstan’s transmission through Russian pipelines, Kazakhstan has upgraded the Atyrau–Samara link to the Russian pipeline and built a new metering station for correctly measuring the Kazakh oil entering Russian pipelines for transmission to Germany. In February and July, the country delivered an estimated 2.9 million barrels of its oil to Germany, compared to zero such volumes in 2022.

The Middle Corridor is not new to Kazakh oil producers. It was first developed in the 1990s when tankers sent oil from the Tengiz-Chevron field via the Caspian Sea to Azerbaijan. Nazarbayev brought American companies Chevron and Mobil as strategic investors in Kazakhstan’s fast-developing oil sector in the mid-1990s while also cooperating with the Clinton administration on the “Eurasian Transportation Corridor,” which was designed to bypass Russia altogether with oil and gas pipelines running from the Caspian to European markets. 

Eventually, the CPC pipeline became the preferred option by foreign investors (and Russian Rosneft and Lukoilhad to be brought on board to secure Moscow’s cooperation) – until Russia’s war against Ukraine endangered not only oil exports from Kazakhstan but also all civilian navigation in the Black Sea.

Kazakhstan is now increasing oil exports through non-Russian routes under an agreement with Azerbaijan to use the Baku–Tbilisi–Ceyhan (BTC) oil pipeline. In 2022, President Kassym-Jomart Tokayev ordered his cabinet to boost oil exports via the Trans-Caspian Corridor. Transit through this pipeline has increased 18 times from 19,200 tons in the first quarter of 2023 to 347,100 tons in the second quarter. .

The Middle Corridor, now supported by the European Union and the United States, is quickly becoming a valuable alternative to trade routes running through Russia. The Trans-Caspian route is the practical realization of the multi-vector foreign and investment policy Nazarbayev and his successor President Kasym-Zhomart Tokayev envisioned and implemented since independence.

This route will be even more valuable as an alternative track for another energy resource— uranium ore from Kazakhstan and Uzbekistan. Shortages in uranium are expected in Europe and other parts of the world in the next three years, enough time to allow Kazakhstan to develop its own conversion and enrichment facilities with the help of foreign investors.

Both China and Russia are targeting Kazakhstan’s uranium production sector, trying to build stronger shares in uranium mines, as well as conversion and enrichment plants.

Similar to the oil deals in the 1990s, Astana is once again looking for Western investors in the uranium sector to balance the influence of its two large neighbors. This may be an exciting opportunity that American businesses should examine carefully. The Biden Administration should keep both energy and geo-strategy in mind when looking at the heart of Eurasia.

• Margarita Assenova is a senior fellow at the Jamestown Foundation. Her latest book with Janusz Bugajski is titled Eurasian Disunion: Russia’s Vulnerable Flanks.