As a landlocked country with rapidly growing oil output and exports, Kazakhstan faces a seri-
ous potential challenge when shipping its crude to foreign markets. While Russia appears headed
toward an excess export capacity, Kazakhstan is in an increasingly urgent need to ﬁnd new capacity
to handle its crude shipments abroad. The International Energy Agency (IEA) estimates that its cur-
rent export capacity stands at roughly 75 million tons a year, while actual exports stood at 67 mil-
lion tons in 2009. If new capacity is not added, Kazakh oil producers are likely to soon face growing
bottlenecks, which could undermine Kazakhstan’s oil prospects.
Currently, more than three-quarters of Kazakh crude is exported through Russian territory.
Two pipelines crossing Russia constitute the core of Kazakhstan’s oil export network: the Atyrau–
Samara pipeline and the Caspian Pipeline Consortium’s network. The pipeline to Samara was the
principal export route for Kazakh oil producers throughout the 1990s. It is connected to Transneft’s
network, which naturally leads to risks related to Russia’s tariff policy. It currently operates at nearly
maximum annual capacity of 17 million tons, with plans to expand to 25 million tons during the
The pipeline belonging to the Caspian Pipeline Consortium was launched in 2001 and quickly
emerged as the primary outlet for Kazakh crude. Unlike the pipeline to Samara, it is not part of the
Transneft network, though it crosses Russia. Instead, it has a very diverse set of owners, including
the Russian and Kazakh governments and several private companies. In 2009, it shipped 34.5 mil-
lion tons of crude primarily from Kazakhstan. But it already operates at maximum capacity. At the
end of 2009, consortium members decided to expand its capacity to 67 million tons; however, a
ﬁnal decision by investors is pending.
Given that the pipeline ends at Russia’s Black Sea port Novorossiysk, such an expansion un-
doubtedly raises an important question: where will the oil go from Novorossiysk? While an answer
to this question has yet to be given, the Russian leadership is vying to maintain further control over
Kazakh crude shipments through involvement in pipeline projects bypassing the Turkish Straits.
Growing Kazakh crude exports and the dependence on outlets through Russia has prompted
Kazakhstan to focus its attention on alternative routes. One of them is through the South Caucasus.
In 2009, about 17 percent of Kazakh oil exports was transported from the Kazakh port Aktau
across the Caspian Sea to Baku in Azerbaijan. Once oil reaches Azerbaijan, it has two main options
for further shipment—the Baku–Tblisi–Ceyhan (BTC) pipeline or Georgia’s Black Sea ports.
Kazakh authorities have widely discussed prospects about further expanding shipments in this
direction. To do so, they have developed a project, the Kazakhstan Caspian Transportation System
(KCTS), which will allow Kazakh oil exporters a major new outlet. However, because this is a very
complex project that requires balancing the interests of a highly diverse set of players, competing
companies, and states, its prospects—particularly the pace of its expansion—remain unclear.
Finally, China has emerged as another important export outlet. This is not surprising, as Chinese
companies have been actively investing in Kazakh oil ﬁelds in recent years. In 2009, they accounted
for 19 percent of Kazakhstan’s oil output. In 2006, China National Petroleum Corporation’s (CNPC)
involvement in Kazakhstan culminated in the construction of an oil pipeline between Atasu
(Northeast Kazakhstan) and Alashankou in China’s northwestern Xinjiang region.
Currently, the capacity of the pipeline is about 10 million tons, but there are plans to expand it to
20 million tons by the middle of the decade. This pipeline is Kazakhstan’s only outlet that does not
require paying transit fees to other countries. However, due to the long distance needed to reach
markets, it has been estimated to be one of the most costly options for exporting Kazakh crude.
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20 | Russia’s Oil Exports: Economic Rationale Versus Strategic Gains
Implications for the United States
and Its Allies
Given that Russia might well be headed toward having an excess oil export
capacity and facing a possible reorientation of its oil exports, there could be
signiﬁcant implications for the United States and its allies. Various countries
in the crude oil value chain will feel the effects differently.
The Global Oil Markets
The global oil markets will beneﬁt from greater certainty about the total vol-
umes of crude oil ﬂowing from Russia. With its new export capacity, Russia
will have more ﬂexibility to respond to the potential disruptions caused by the
countries across which Russia transports oil (transit countries).
What is less certain is Russia’s ability to have an impact on international
oil prices. Such an ability would be highly contingent on its relations with
the oil cartel OPEC. So far, its reluctance, and occasionally its inability, to
cooperate with OPEC has been a stabilizing factor for global oil markets. But
as Moscow faces growing difﬁculties in expanding its oil output, while its oil
production costs are rising, it may reevaluate its relations with OPEC in pur-
suit of higher oil prices. Thus the possibility of a potential improvement in its
ability to cooperate with OPEC cannot be overlooked.
However, even in the context of redeﬁned Russian–OPEC relations, Russia’s
role in international oil markets will face signiﬁcant constraints. First, having
the power to set global oil prices and acquiring a leading role in the cartel
requires possessing excess production capacity, not necessarily excess export
capacity. What matters is the total volume that a country can supply or with-
hold from the oil markets with relative ease. Unlike Saudi Arabia, Russia pos-
sesses no excess production capacity, and given its production prospects, it is
not likely to attain one in the future. Second, Russia’s economy and federal
budget are heavily dependent on oil revenues, and it will take time to move
away from this economic model. Russia does not have an interest in limiting
its own crude oil exports.
The United States
Growing volumes of crude oil from Russia’s eastern region have already started
reaching the U.S. West Coast. Once the ESPO Pipeline is complete, even more
oil is likely to be headed toward the U.S. market. As Russia is the largest non-
OPEC oil producer and is likely to remain so during the next decade, it has the
potential to secure a signiﬁcant portion of the non-OPEC oil supplies sent to
the United States.
Could Russian oil enhance U.S. energy security? Every so often, there have
been proponents of the idea that Russian oil could displace a portion of Middle
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Eastern crude oil imports. Such a displacement is indeed possible to some
degree. The United States could acquire a greater diversity in its oil import
portfolio as a result of imports from Russia, which could potentially strengthen
business relations between American and Russian companies.
However, shifting toward Russian crude oil will be of limited value in
enhancing U.S. energy security. First, crude oil is a fungible commodity
transported with relative ease and traded on a highly liquid global market.
This is what distinguishes it from natural gas. An importer ready to pay the
international price (or at least a small premium over that price) could obtain
the needed oil from the global markets. Second, even if
Russian oil were to displace the bulk of U.S. oil imports
from OPEC countries, the United States would still be
affected by political instability and by a potential oil sup-
ply disruption in the Middle East or in other major oil-
producing regions. A major disruption would raise the
international (including Russian) oil price to a level that
could have substantial economic repercussions. Replacing
one supplier with another will not allow the United States
to secure its oil at prices that are below the international price. Thus, a gradual
shift away from oil altogether is the most optimal, though also the most chal-
lenging, solution to the United States’ energy security problem. Finally, in the
case of short-term supply disruptions, their impact on the United States’ ability
to meet its need for oil would be minimal, thanks to its substantial strategic
Although a redirection of Russian oil supplies is not likely to enhance U.S.
energy security, it does have the potential to indirectly affect U.S. interests by
having an impact on U.S. allies in Europe, which are either oil importers or
potential transit countries. The direction and volume of Russian oil exports will
also be a signiﬁcant factor for the existing transit countries, such as Ukraine and
Belarus, with possible implications for U.S. policy makers. Finally, Russia’s new
export capacity opens up new possibilities for Caspian Sea exporters, increasing
the uncertainty about the direction of their future exports.
Owing to Russia’s new export routes, competition over its crude oil will get
more intense. As Russia exports more oil to the Asian and the U.S. markets,
its deliveries to Europe are likely to decline. Traditionally, Russian companies
have had to sell part of their crude oil in Europe, their principal market, at a
minor discount—$1 to $2 per barrel. Due to Russia’s newly acquired ﬂexibil-
ity, more importers will need to pay the world price.
Meanwhile, the ability to redirect crude oil ﬂows away from Europe will
give Russia some leverage. After all, more than one quarter (27 percent) of
Europe’s oil imports currently come from Russia. But this leverage will be
A gradual shift away from oil altogether
is the most optimal, though also the most
challenging, solution to the United States’
energy security problem.
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22 | Russia’s Oil Exports: Economic Rationale Versus Strategic Gains
limited in scope and duration. Those countries in Central and Eastern Europe
that receive the bulk of their crude imports through the Druzhba Pipeline are
likely to feel most of the impact. Their current pipeline infrastructure allows
switching to new sources of supply in case of minor disruptions, and they have
demonstrated their capacity to do so during periods of tension in Russian–
Belarusan oil diplomacy. But these countries need to be prepared to invest in
additional infrastructure to accommodate imports from alternative sources if
Russia decides to substantially reduce shipments through the Druzhba Pipeline.
For the rest of Europe, the main challenge will be meeting its growing need
for oil imports due to a projected decline in indigenous production. Redirecting
Russian crude oil ﬂows toward Asia and the United States will magnify the
challenge. However, Europe in general is less likely to have difﬁculty ﬁnding
alternative suppliers, albeit possibly at some extra transportation cost.
Current Transit Countries
Russia’s current transit countries will feel the heat of its growing ability to shift
its crude oil exports to alternative destinations. This is already a familiar pat-
tern for the Baltic republics, which have seen Russian oil shipments being redi-
rected to its own port at Primorsk. The countries crossed
by the Druzhba Pipeline are likely to be the next potential
candidates to lose part of the volumes transiting their terri-
tory. Yet shifting away from the Druzhba Pipeline has cer-
tain limits for Russian oil exporters. For decades, this pipe-
line has served as a highly cost-effective means for shipping
crude oil to foreign markets. A crisis between Russia and
Ukraine or Belarus, however, could change the calculus, prompting a redirec-
tion of crude ﬂows mostly toward Russia’s own terminals on the Baltic coast.
Prospective Transit Countries
Russia’s prospective transit countries—Bulgaria, Greece, and Turkey—are
in the midst of negotiations for crude oil pipeline projects that would allow
Russia to ship crude through their territory. It is highly unlikely that both pro-
posed projects, the BAP and the Samsun–Ceyhan Pipeline, will materialize at
once. If either pipeline is to be built, it will need guaranteed crude deliveries.
But given Russia’s potential surplus in export capacity and its crude oil growth
prospects, its companies will face difﬁculty in ﬁlling the pipelines alone. It
is most likely that Kazakh crude will be needed for the pipelines to operate.
Without Kazakh crude, ﬁlling either pipeline would require an unusual reori-
entation of Russian crude ﬂows, which could not be justiﬁed by the resources
invested in the BPS-II and ESPO. As a result, negotiations with Russia may
lead to disappointment for these countries.
Russia’s current transit countries will feel
the heat of its growing ability to shift its
crude oil exports to alternative destinations.
Yet, as Russia’s negotiations for oil transit have generally been part of a
much larger bargain, its repercussions might be far broader. A case in point is
Turkey’s intensifying energy partnership with Russia. If Turkey were to decide
to provide its ﬁnal consent for the construction for the South Stream Gas
Pipeline in exchange for Russian support for the Samsun–Ceyhan project, this
would jeopardize the proposed Nabucco Pipeline—a project supported by the
European Union’s governments and the U.S. administration. As a result, the
impact on Europe’s energy security could be substantial.
Caspian Sea Exporters
Kazakhstan could beneﬁt from Russia’s growing export capacity in the Baltic
Sea. Its crude oil could also partially replace Russian crude going through
the Druzhba Pipeline. Meanwhile, Caspian Sea exporters will face fewer risks
related to congestion at the Turkish Straits if at least one of the proposed bypass
projects is built. But, overall, Kazakh oil exports will be subject to uncertain-
ties related to Moscow’s policy on crude oil transiting its own territory and/or
pipelines. Azerbaijan’s own oil exports, however, will hardly be affected as long
as the Baku–Tbilisi–Ceyhan Pipeline continues to operate.
In these circumstances, Washington’s interest argues for promoting transpar-
ency, stability, and predictability. These goals could be advanced through active
diplomacy in three speciﬁc areas. First, Washington could initiate the estab-
lishment of a platform for information sharing between Russia and the former
Soviet republics in the Caspian Sea region. This is necessitated by the signiﬁ-
cant degree of uncertainty about the longer-term direction of Russian crude
oil ﬂows. It is also needed in order to better inform prospective stakeholders
about potential crude ﬂows. Currently, regional governments have indicated
a substantial lack of preparedness for dealing with this uncertainty and have
generally shown a lack of awareness about Russia’s impending excess oil export
capacity. For instance, ofﬁcials in Ankara have been involved in energy nego-
tiations with Moscow with excessive hopes for Russian crude deliveries for the
proposed Samsun–Ceyhan project.
The proposed platform should focus on exchanging detailed information on
crude oil development in the former Soviet space and on export capacity. Other
stakeholders—such as current and prospective transit countries, the EU mem-
ber states, and China—could also beneﬁt from participating in the platform.
But broadening the platform should not come at the expense of effective and
timely exchanges of information.
Russia will need to be convinced that maintaining uncertainty will not
be in its long-term interest. For this purpose, the platform could serve a role
24 | Russia’s Oil Exports: Economic Rationale Versus Strategic Gains
in developing coherent regional scenarios for crude oil exports. Moscow and
Astana in particular will need to coordinate efforts in developing such sce-
narios. This will help to minimize investment risks in new upstream and
transportation projects, while assuring that incremental
volumes of crude will be accommodated at minimal costs.
Second, Washington’s diplomacy should expand its
focus on Kazakhstan, which has prospects of emerging as
a major global oil supplier. Most of the future growth in oil
supplies from the former Soviet republics will come from
this country. By the IEA’s estimates, Kazakhstan will be
producing about 200 million tons in 2030, up from 76 million tons in 2009.
The bulk of incremental volumes will go for exports.
As Kazakhstan’s oil supplies continue to grow, it will need greater access to
new outlets. Currently, most Kazakh crude oil is exported via Black Sea ports,
mainly through the pipeline belonging to the Caspian Pipeline Consortium.
This trend is expected to carry on as the partners in the consortium continue
expanding the pipeline’s capacity. If there is ever congestion at the Turkish
Straits, it will most likely be Kazakh crude that will suffer most of the conse-
quences, paying prohibitive charges for delays.
Potential bottlenecks for Kazakh crude oil call for more active involvement
by Astana in international pipeline negotiations. However, Kazakh companies
have acquired no role in the proposed BAP or the Samsun–Ceyhan project,
while the Kazakh government has been equally absent from Black Sea energy
diplomacy. Even though mostly Kazakh crude will ﬁll these pipelines, Moscow
and Russian companies have been the principal players vying for a role in their
construction and operation.
Washington should support Astana in its pursuit of stable export outlets
for Kazakh crude oil. As Kazakhstan is heading toward becoming one of the
leading non-OPEC oil suppliers, it deserves greater autonomy and ﬂexibility
in selecting the routes for its future crude exports. Acquiring a stronger stake
in resolving future bottlenecks around the Black Sea is where Washington and
Astana could start working together.
Finally, the idea for reversing the direction of the so-called Odessa–Brody
Pipeline, a long-forgotten opportunity, deserves more attention. This pipeline
stretching between the Ukrainian cities of Odessa on the Black Sea coast and
Brody near the Ukrainian–Polish border was built at the beginning of the
decade. It was originally intended to carry Caspian Sea crude oil to Europe
but failed to obtain delivery guarantees. As a result, its direction of ﬂow was
reversed in 2004, allowing Russian companies to ship their crude to the Black
Sea. However, it has lost its importance as an export route for Russian com-
panies, as Russia’s export capacity has expanded in the past few years. As a
result, even ﬂowing in the reverse direction, it has remained substantially
Washington’s diplomacy should expand its
focus on Kazakhstan, which has prospects
of emerging as a major global oil supplier.
Reversing the Odessa–Brody Pipeline could have several potential beneﬁts.
Since it has a connection to the Druzhba Pipeline, the Central European coun-
tries, worried about a potential decline in Russian supplies, could access a major
alternative source—Caspian crude oil. And Caspian producers, mainly Kazakh
oil exporters, would gain further ﬂexibility in their oil exports. Additionally,
Ukraine, and possibly Belarus, could also beneﬁt from improved energy secu-
rity amid prospects for declining oil deliveries and the transit of Russian crude.
Washington, along with Brussels, could support a new feasibility study of
the potential beneﬁts of reversing the ﬂow of the Odessa–Brody Pipeline and
for the construction of a potential new spur line from Brody to Poland—the
largest EU member country in Eastern Europe. Washington should also focus
its diplomatic efforts on bringing the various stakeholders together as needed
for the realization of the project.
In sum, as Moscow builds new crude oil export routes and the uncertainty
about the destination of its future exports grows, Washington can take the
following steps in pursuit of enhanced stability for oil supplies and improved
energy security for its allies in Europe:
• Establish a platform for sharing information on oil production and export
trends in Russia and the Caspian Sea region.
• Support Astana in pursuing stable export routes for growing volumes of
Kazakh crude oil.
• Support initiatives aimed at reversing the direction of the Odessa–Brody
Federal State Statistics Service. Russia in Figures—2010. Moscow: Federal State Statistics
Institute for Energy Strategy. Energy Strategy of Russia for the Period Up to 2030.
Moscow: Institute for Energy Strategy, 2010. energystrategy.ru/projects/docs/
International Energy Agency. World Energy Outlook 2010. Paris: International Energy
Korzhubayev, Andrey, and Leontii Eder. “Eksport Nefti iz Rossii” [Oil Exports from
Russia]. Burenie i Neft, July–August 2010. http://www.burneft.ru/archive/
Meshcherin, Andrey. “Eksport Nefti i Nefteproduktov” [Export of Oil and Petroleum
Products]. Neftegazovaya Vertikal, no. 5, 2010.
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