Kazakhstan’s capacity for oil exports and therefore its primary credit metrics are in danger due to Russia’s tendency and capacity to interrupt the Caspian Pipeline Consortium (CPC) pipeline, according to Fitch Rating.
The CPC transports 80% of Kazakhstan’s oil exports from the Caspian shore in northwest Kazakhstan to Novorossiysk port on the Black Sea coast of Russia.
In the medium term, Fitch does not see any feasible alternatives to the CPC for Kazakhstan. According to Fitch, given the expense and the technical and legal difficulties involved, it is not feasible to transport petroleum on any major scale by alternate pipelines over the Caspian Sea.
Although a viable method, moving oil by oil tankers across the Caspian Sea won’t be as common as it is now with CPC. As a result, Kazakhstan will continue to rely heavily on Russia for the transportation of its oil.
Fitch maintains that Moscow’s objective for keeping a firm grip on the CPC pipeline, which it owns 24% of, is to prevent Kazakhstan from attempting to establish closer relations with the US and other western nations to the point where tight ties with Russia are damaged.
Moreover, it gives Russia a tool to influence the availability and cost of oil on the international market.
Given that Kazakhstan’s primary exports are oil and other liquid hydrocarbons, which account for 57% of all goods exported from January to November 2022 and 17% of the economy as of 2020, the cessation of the majority of crude exports will have a significant negative impact on export revenues and macroeconomic performance, at least in the short term.
Nonetheless, a complete shutdown of the CPC will likely need to continue for at least a few weeks in order to have a significant impact on export income (and consequently the external balance sheet).
The impact on Kazakhstan’s credit rating will largely depend on the country’s policy reaction to a CPC shutdown and the length of any such closure.
