Page 73 - bneMagazine March 2023 oil discount

bne March 2023
Opinion 73
his desired conquest, even after Ukrainian forces retook significant swathes of territory in the second half of 2022. The full impacts of the war on Russia’s geopolitical position have yet to be fully felt. Fighting continues and sanctions will further constrain Russian state capacity the longer they remain in place.
However, certain conclusions can already be drawn.
In Central Asia, Russia is no longer a regional hegemon. China’s rise had already displaced it as the premier economic power in the region, but as the January 2022 events in Kazakhstan showed, Beijing was happy to let Russia remain the preeminent political actor. Yet just 13 months on from his effectively unchallenged intervention in Kazakhstan
– an event that Putin cast as the death knell for alleged pro-Western colour revolutions – Russian influence has diminished dramatically.
Nowhere is this more evident than in Kazakhstan itself. Although Tokayev praised Putin for intervening to save his administration in January 2022, just six months later Tokayev rebuked him, and refused a decoration Putin had planned to award him. The Kazakh government has spent the last year actively reaching out to the West, keen to put a line between itself and the Kremlin. Tokayev also openly welcomed Russians fleeing Putin’s September 2022 conscription, while his government also pressured broadcasters to limit the distribution of Russian state media channels.
The most significant changes in Kazakhstan’s relationship with Russia have, however, been economic. The country
is the second largest member of the Russian-led Eurasian Economic Union (EEU), far larger than any of its constituent
“The most significant changes in Kazakhstan’s relationship with Russia have, however, been economic. The country is the second largest member of the Russian-led Eurasian Economic Union (EEU)”
members other than Russia. But the Kremlin’s longstanding tool of using trade relations to push Kazakhstan to pursue its desired course of action is no longer effective. In response
to Kazakhstan’s unwillingness to openly support its invasion of Ukraine, Russia in 2022 repeatedly cut supplies on the Caspian Pipeline Consortium (CPC) – the key export route for Kazakh oil to international markets. Tokayev’s government, however, was not swayed. It moved to increase exports via Azerbaijan, shipping oil over the Caspian Sea for distribution to Turkish ports via the Baku-Tbilisi-Ceyhan (BTC) pipeline.
Although that route cannot replace the capacity of the CPC, Astana recognised that Moscow’s ability to pressure it was limited. Sanctions on Russian crude exports in the form
of the G7 price cap that came into effect in December 2022 meant Russia had to find new markets for its own exports, primarily India and China, which also received record discounts on the sanctions-tainted Russian crude.
Kazakhstan is by no means abandoning Russia. Its pipelines have helped ship additional Russian crude to China. But with Russia’s own pipelines to Europe constrained by the oil price cap, the Kremlin had to turn to Astana to help keep them filled. By January 2023, the Kremlin abandoned its strategy of throttling Kazakh CPC exports, and granted Kazakhstan’s Kaztransoil permission to use its Druzhba pipeline to deliver oil to Germany and Poland. Kazakh Energy Minister Bolat Akchulakov claimed that such deliveries could reach 1.5mn tonnes this year – and eventually reach 7mn tonnes per annum, more than a third
of Russia’s pre-February 2022 annual exports to Berlin. While Kazakhstan’s oil exports via non-Russian routes grew 50% to 1.8mn tonnes in 2022, the reality is that its geography and China’s ability to buy more discounted Russian crude mean that its prospects for further such growth are limited. But the balance of power in the relationship is far less tilted in Russia’s favour as a consequence of Putin’s invasion of Ukraine.
Russia’s influence is also waning in Uzbekistan, Central
Asia’s most populous state. Led by Shavkat Mirziyoyev since the death of Islam Karimov in 2016, Tashkent had spent the years preceding the invasion of Ukraine turning the country from a hermit state into one with a more liberal economy, welcoming foreign investors from Russia but also the West. Uzbekistan experienced its own surprise unrest last year when Mirziyoyev’s effort to overhaul the constitution in order to extend his own time in power sparked mass protests in
its western Karakalpakstan region over proposed changes that would have removed its nominal autonomy. Rumours spread locally that Russia may have played a role in stoking the unrest after appeals for it to intervene appeared online. But Mirziyoyev’s crackdown proceeded without Russian action (unlike Kazakhstan, Uzbekistan is not a member of the CSTO). And although Uzbekistan is still happy to welcome Russian investment, it has used its observer status in the EEU to rebuke Putin’s own attempts to use energy leverage in the region. In December 2022, Uzbek Energy Minister Zhurabek Mirzamakmudov said that Uzbekistan would “never agree to political conditions in exchange for gas” in response to Russian proposals to create a Kazakh-Uzbek-Russian gas “alliance”.
Russia has also faced new limits to its influence in Tajikistan and Kyrgyzstan, traditionally the two countries in the region most dependent on Moscow. The economies of
both countries rely on remittances from Russia and while Kyrgyzstan in the past has sought to balance Russian influence by developing ties with the West, it was very much on a course for closer Russian alignment before Putin’s February 2022 escalation in Ukraine. The rise to power of
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