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Kazakhstan boosts oil industry with fuel import suspension

Kazakhstan's recent announcement that it would be suspending fuel imports from Russia has turned many heads in the oil and gas industry. Magzum Mirzagaliyev, the Kazakh deputy minister for energy, announced that the ban will last 45 days from March 5th, meaning that imports should resume around April 19th.

This may seem like an extreme step to take, but Kazakhstan needs to make sure its own oil industry isn't hurt by a surplus of cheap Russian fuel caused by the fall in global oil prices. This is still having wide-reaching effects on nations like Kazakhstan and has the potential to cause economic harm.

At the moment, suspending imports seems like the best method of avoiding this. Of course, while it seems like a good idea at face value, there are still significant questions that need answering.


Why has Kazakhstan suspended imports?

Kazakhstan's Energy Ministry has already made plans to import 1.1 million tons of petrol and 760,000 tons of diesel from Russia in 2015, so why stop so suddenly at the beginning of the year? This is partly to do with fears of creating a surplus of fuel, which would reduce the profits of Kazakhstan's own oil refineries.

The nation usually gets around two-thirds of its fuel from its own oil industry. However, in January alone Kazakhstan imported 182,000 tons of petrol from Russia - roughly 16 per cent of the total for the year, when an even split would see it importing around eight per cent per month.

This is largely due to the drop in oil prices, which caused the ruble to fall in value, making Russian exports much cheaper. Many central Asian countries have taken advantage of this, but it has caused their markets to flood with cheap goods. In Kazakhstan's case, it has been oversupplied with fuel from Russia's oil industry.


How will it help?

The decision to suspend imports was taken in order to prevent profits from falling at Kazakhstan's oil refineries, which would harm oil production in general and have serious knock-on effects on the nation's economy in general. A surplus of cheap Russian fuel would reduce the need for the Kazakh refineries, therefore, shrinking their income.

KazMunayGas - Kazakhstan’s state-run oil and gas company - hinted that the effects could be even more severe. It said that the country's three oil refineries may even have to suspend production if the flow of cheap Russian imports was not stopped.

Of course, the nation also needs to think about ensuring a constant supply of oil products throughout the year. While it is rich in resources and can generally supply most of its needs itself, there is still a need for imports. If it purchases an overabundance of Russian fuel now, it could lead to shortages later in the year as the market changes.


How will Russia be affected?

This move will affect Russia's oil industry as well as Kazakhstan's, however the effects will be very different. First of all, this comes at a time of heightened tensions between the two nations, after Kazakh president Nursultan Nazarbayev talked about leaving the Eurasian Economic Union if it did not serve the country's long-term interests.

However, the import suspension might actually be beneficial to the Russian people. Eduard Poletaev, director of the Kazakhstan-based World of Eurasia think tank, said: "Wholesale oil traders in Russia are finding it more profitable to go to Kazakhstan and sell there at the government price, so towns in Russia close to the border are also experiencing shortages."

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