Today the world economy is being tested. The list of challenges includes the special military operation in Ukraine, large-scale anti-Russian sanctions, a deepening food crisis, disruptions in global supply chains and rising global inflation. The changes have not spared Kazakhstan, a country forced to find its place amid the new, ever-changing conditions of the world economy. To understand how integrated the country is into the global economy, it is worth taking a look at Kazakhstan’s foreign trade in 2021. On the one hand, the data suggests that its foreign trade is distributed fairly evenly across the three major regions, namely Europe (31%), Asia (32.6%) and CIS (32.7%). On the other hand, it looks very different if you analyze the structure of exports and imports. Almost 80% of goods are exported from Kazakhstan to countries outside the former Soviet Union, ie to Europe and Asia. At the same time, about 50% of imports come from the former Soviet republics – mainly Russia – while another 20% of imports come from China. In fact, Kazakhstan sells minerals to global markets, and with the currency it earns, the country buys consumer goods, electronics, machinery, equipment, food, and building materials from its nearest neighbors. In other words, such imports contain everything necessary for life. This model appeared more than 20 years ago as the basis of the “Kazakh economic miracle” that made the nation the second economy of the post-Soviet space. Within this model, the engines of economic growth are exports of minerals and services, which redistribute imports and financial flows, and create the bulk of jobs in the formal and informal sectors of the economy.
Over the past 10 years, Russia’s share in Kazakhstan’s foreign trade has steadily increased, while that of the EU has declined. In 2011, Russia and the European Union accounted for 18.4% and 40.8%, respectively. By 2021, Russia’s share increased to 24.2%, while the same indicator for the EU shrank to 29.6%. Today, Russia is Kazakhstan’s most important trading partner. It accounts for more than 40% of Kazakhstan’s imports. In 2021, more than 70% of wood and forest products, pulp and paper products, metals and goods from them, more than half of building materials and food, more than 40% of chemical products and a quarter of machinery and equipment and imported to Kazakhstan Vehicles came from Russia.
Under these conditions, Kazakhstan’s main interest is to maintain and diversify exports as much as possible, as well as to secure sustainable imports of food and essential consumer goods.
Let’s take a closer look at Kazakhstan’s exports. Raw materials, especially crude oil, form the basis of exports. According to the Kazakh Energy Ministry, in 2021 oil exports from the republic amounted to 67.6 million tons. Almost 80% of Kazakh oil is exported through the Caspian Pipeline Consortium (CPC). The consortium links the fields of Kazakhstan to the port of Novorossiysk, from where the oil is loaded onto tankers for delivery to consumers in Europe, the Middle East and South and East Asia. In 2021, the pipeline transported 53.1 million tons of oil from Kazakhstan’s largest field, Tengiz (26.6 million tons), as well as from Kashagan (15.7 million tons) and Karachaganak (10.3 million tons).
Kazakhstan is one of the top five oil suppliers to Europe. At the same time, Kazakhstan’s oil is shipped mainly to southern European countries, namely Italy, Greece and Spain. In the first half of 2022, amid Russia’s special military operation in Ukraine, Kazakhstan’s exports to Europe increased to $18.8 billion, compared to just $11.6 billion in the same period last year.
Kazakh oil is also transported through Transneft’s pipeline system, mixing it with Russian oil for loading onto tankers in Novorossiysk and the Baltic port of Ust-Luga. According to the Central Shipping Center of the Fuel and Energy Complex of the Russian Ministry of Energy, the volume of Kazakh oil shipped in 2021 in Novorossiysk was 7.1 million tons and in Ust-Luga – 5.9 million tons.
Another export route for Kazakh oil is delivery by tankers from the port of Aktau (the planned capacity is 11.6 million tons per year, but in fact much less is exported) to Baku, and then pumping raw materials through the Baku-Tbilisi pipeline – Ceyhan to Turkey and subsequent delivery by tanker to customers. Kazakhstan also supplies oil to China. Transportation is possible through the main oil pipeline Atasu – Alashankou with a capacity of 20 million tons per year. According to KazMunayGas, shipments through them in 2021 amounted to 12 million tons, of which 10 million tons were transported as part of the back-up circuit, when Russia supplies oil to the Pavlodar refinery in Kazakhstan, and the Kazakh side sends the same amount of oil to China .
Kazakhstan is trying to find alternative routes for oil exports through Azerbaijan and Russia in the face of numerous CPC disruptions in 2022. On July 7, 2022, a meeting on the development of the country’s transport and transit capacity was held under the chairmanship of the President of Kazakhstan Tokayev. The meeting was attended by government leaders, heads of relevant ministries and agencies, and national companies. President Tokayev said it was necessary to take a number of measures to ensure safe and uninterrupted exports of Kazakh products. At the same time, the head of state called the diversification of oil supplies the most important task. In addition, the Trans-Caspian route has priority. KazMunayGas was tasked with working out the best option for implementation, including the possible involvement of investors in the Tengiz project. While the government of Kazakhstan has been mandated to take action, jointly with Kazakhstan holding company Samruk-Kazyna, to increase the capacity of the Atyrau-Kenkiyak and Kenkiyak-Kumkol oil pipelines to expand eastbound supplies.
On August 24, 2022, Kassym-Jomart Tokayev visited Azerbaijan to meet with President Ilham Aliyev. The meeting took place against the background of negotiations of the Kazakh state-owned oil company KazMunayGas with the trading arm of the Azerbaijani state-owned company SOCAR on the sale of another 1.5 million tons of Kazakh oil through the pipeline from Baku to Ceyhan (port in Turkey) 3.5 million tons through the pipeline to Supsa (port in Georgia). This agreement will be signed shortly.
It is obvious that due to the limited capacity of the existing infrastructure, the volume of oil transport in other directions cannot be increased significantly in the short term. The port infrastructure of Aktau and the neighboring port of Kuryk on the Caspian Sea would have to be rebuilt to transport such a volume of oil. Nonetheless, a strategic decision was made to gradually reduce supplies through the CPC and increase oil exports by using the infrastructure in other ways. In addition, it becomes clear that the potential for non-commodity exports, which can at least partially compensate for the losses from the unstable operation of the consortium, needs to be increased.
On the other hand, the strong restrictions imposed by international sanctions against Russia and mutual restrictions by Russia on Kazakhstan’s main source of imports are threatening stable economic growth.
The military operation in Ukraine and the anti-Russian sanctions imposed since the beginning of the year have disrupted supply chains and exacerbated the global food crisis. Food prices are skyrocketing worldwide. Climate change is no less a threat to food security – heat wave and prolonged drought in Europe and China, floods in Pakistan.
The external environment has a rather serious impact on the economy of Kazakhstan. In addition to difficulties with exports, the country has problems purchasing basic commodities, especially groceries. One of the main problems is the global food crisis, followed by global price increases and shortages of goods. This summer, the deficit of some, such as B. sugar, remarkable. Export restrictions on sugar, wheat, flour, sunflowers, large and small livestock, which were imposed in spring and summer 2022, are only effective for the short term. A systemic solution to food security in Kazakhstan requires comprehensive development of the country’s agro-industrial complex and its productivity. However, reliance on supplies of seeds and mineral fertilizers from Russia, which accounts for 80% of all imports of these products, stands in the way of the transformation of Kazakhstan’s agriculture.
After Russia imposed a temporary crop export ban from March 15, 2022, the sowing campaign in Kazakhstan was in jeopardy as seeds were needed by Kazakh farmers for cultivar renewal and cultivar change. Only after the issue was raised at the level of deputy prime ministers in early April 2022 did Russia lift the temporary ban on exports of wheat, rye, barley and corn seeds to the EAEU countries.
The fact that Russia imposed quotas on the export of mineral fertilizers and later suspended their shipment for export in the first half of 2022 due to logistical problems also had a negative effect on agriculture in Kazakhstan. At an expanded government meeting on July 14, 2022, President Kassym-Jomart Tokayev pointed to the critical dependency on imported mineral fertilizers and noted that the country needs to engage in the production of phosphate and potash fertilizers. This reduces their import from abroad, especially from Russia.
The key economic contradiction between Russia and Kazakhstan is that Moscow wants to use the EAEU in general, and Kazakhstan in particular, to expand parallel imports and financial transactions amid international sanctions. At the same time, Nur-Sultan is not interested in expanding re-exports of sanctioned goods and equipment to Russia for fear of secondary sanctions. It is more important for the country to maintain the existing volume of purchases of Russian goods and food and build stable supply channels for minerals on world markets.
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Kazakhstan will have to face several challenges simultaneously for the time being and in the short term. First, there is the instability of the Caspian Pipeline Consortium as a major export channel, technological disruptions in its operation, real problems with safe navigation in the Black Sea, as well as the planned increase in Turkey’s side tolls for transit through the Bosphorus and Dardanelles from October 7, 2022 Secondly, the restrictions imposed by Russia and other countries on the export of grain, mineral fertilizers, fuel and some commodities will further push up prices. Thirdly, payment problems with imports from Russia cannot be ruled out. Finally, the country wants major investments in rebuilding and expanding the transport and logistics infrastructure needed to diversify its exports and improve transit opportunities. All of this is happening against the background of the political transition, which is expected to end with early elections of the President of Kazakhstan in autumn 2022 and the country’s parliament (the Majilis) in mid-2023. In a situation where the events of January 2022 are still fresh in people’s minds and the decline in economic growth and living standards is acutely noticeable, the chances of the outlined plans being implemented successfully are highly questionable.
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