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The European oil market just received another supply shock ahead of the looming EU embargo on seaborne Russian oil imports. A Russian court has ordered the closure of a key Russian Black Sea export route, through which most of Kazakhstan’s crude oil passes to Europe.
The Russian court ruling further complicates Europe’s efforts to procure non-Russian oil in a tight physical market. It also highlights the fact that Moscow could go to any lengths to stifle oil supply to “unfriendly” countries which are banning imports of its oil, analysts say.
The move from Russia is a threat to Europe that the Kremlin will continue using oil and gas as a weapon as it looks to destabilize European economies and the EU’s unity in imposing and enforcing sanctions on Moscow for the invasion of Ukraine.
Targeting Kazakhstan’s oil is “Putin’s new weapon of mass disruption,” Bloomberg oil strategist Julian Lee says. But how did that new disruption in the global oil market happen?
Last week, a Russian court ordered the Caspian Pipeline Consortium (CPC), which operates the key export route for two-thirds of Kazakhstan’s crude oil, to suspend activities for 30 days, citing environmental violations.
The exports take place from the Russian port of Novorossiysk on the Black Sea, and although it’s in Russia, its exports consist of 90 percent crude from Kazakhstan and just 10 percent of Russian oil.
The 1,500-km CPC pipeline from the giant Kazakh oilfields to Novorossiysk moves over two-thirds of all Kazakhstan export oil along with crude from Russian fields, including those in the Caspian region, CPC says. The consortium said in response to the court ruling that it “acts within the legal framework of the Russian Federation and is forced to execute the court Ruling.”
An appeal was heard on Monday, and the court overturned the ruling for a 30-day ban on oil deliveries from Kazakhstan.
Analysts also say it’s no coincidence that last week’s ruling of the Russian court came days after Kazakhstan’s President Kassym-Jomart Tokayev offered the EU the chance to buy more oil from Kazakhstan instead of Russia.
The Kazakh president “expressed concern about the risks to global energy security and emphasized Kazakhstan’s readiness to use its hydrocarbon potential to stabilize the situation in the world and European markets,” according to the website of the president, who had a telephone conversation with the President of the European Council, Charles Michel, last week.
On Thursday, after the Russian court ruling suspending CPC, Tokayev said Kazakhstan needed to diversify its oil export routes. The president ordered a study into a project for bypassing Russia by building a pipeline across the Caspian Sea.
“The Trans-Caspian route is a priority. I instruct KazMunayGas [national oil and gas company] to work out the best option for its implementation, including the possibility of attracting investors to the Tengiz project,” Tokayev said as carried by The Astana Times.
While Kazakhstan is looking to diversify its crude export routes away from Russia, the European Union is scrambling for non-Russian oil supply as its embargo on Russian seaborne oil and product imports will enter into force at the end of the year.
Per tanker-tracking data that Bloomberg has compiled, crude exports from major suppliers to Europe, including the North Sea, Kazakhstan, Azerbaijan, West Africa, and Libya, declined by over 1 million bpd in June compared to May. With Libya’s oil supply expected to further decline amid protests and political bickering over who should control and distribute its vital oil revenues, a loss of another 1 million bpd supply from Kazakhstan due to the Russian court order is another blow to European and global oil supply.
