The much-criticised patience afforded to Vladimir Putin by Donald Trump has eventually worn thin as the obfuscation deployed by the Russian President to any form of ceasefire in Ukraine has at last gone beyond tolerance. Announcing sanctions on state-owned Rosneft and privately backed Lukoil, the US Treasury Secretary, Scott Bessent noted the Kremlin’s refusal to end “this senseless war” with his President claiming it was he that cancelled the proposed meeting in Budapest. The action by the United States is the first sanction levied on Russia since Donald Trump returned to the White House and follows a similar policy taken by the UK last week. Simultaneously, the European Union announced its nineteenth sanction package which includes the banning of LNG imports from Russia. 

Oil prices have rallied in response as the market had become imbued with the idea of any action against Russia has thus far been a deployment of words rather than meaningful restrictions. However, it should be noted that the news coincides with a market that in futures terms was close to being technically ‘oversold’, and how there is often a reversal in time spreads when they tickle into contango without follow-through into more negative ground. 

There are also other reasons to be, if not sceptical, then at least careful of political meddling. The Trump administration has often used pendulum tactics where it swings from support for Ukraine only to dampen them with countless olive branches for Russia. These remain evident even yesterday. When commenting on the meeting in Hungary he said, “I cancelled it, but we’ll do it in the future,” adding to Trump suggesting that engagement might mean sanctions could be temporary. It was also noted in a conversation with Reuters by a former Treasury Department investigator that there was a lack of sanctions on banks and both Indian and Chinese buyers. As for the European package, it has yet to sanction Lukoil and is still allowing a caveat in which Hungary and Slovakia are able to carry on in their Russian oil purchases. Supporters of Ukraine and oil bulls are free to express themselves at present, but unless there is follow through in political actions and Russia’s ability to circumvent them quelled, there is a sense that we have seen this all before.

BTC and Central Asia supply

Aiding the rally commented on above are the Ukrainian drone strikes on Russia’s Orenburg gas plant which is handler of natural gas from Kazakhstan and aids oil production as the Karachaganak field has been forced to cut output by some 25 percent. It should come as little surprise on how Kazakhstan is becoming a greater piece in the puzzle of the global energy picture. While it claims to have very little control over the quantity of fossil fuels it produces, it will not be cowed by pressure either from the green lobby or its fellow OPEC+ members. Indeed, it might be argued that Kazakhstan’s serial cheating when OPEC pursued the recent policy of shuttering production to control price, was a main factor in the reversal by the cartel to recapture market share. Back in April, the Energy Minister, Yerlan Akkenzhenov, in an interview with Reuters, spoke on how there was a need to prioritise national interests over OPEC when its production was considered and went on to explain how 70 percent of output came from the fields of Kashagan, Karachaganak and Tengiz which are operated by Western oil companies. 

The importance of Kazakhstan’s strategic capabilities was highlighted in the Astana Times, reporting on the UK’s House of Lords discussion in July which noted the growing role of the Trans-Caspian International Transport Route (TITR), widely known as the ‘Middle Corridor’, the trade route that connects China to Europe via Kazakhstan, the Caspian Sea, Azerbaijan, Georgia and Turkey, providing a non-Russian alternative to traditional east-west trade paths. This ‘Middle Corridor’ is becoming of keen interest to India as it competes with China in international trade and to secure more dependable north/south access to Europe and elsewhere. With the pressure being exerted by Washington on New Delhi to quell its Russian oil imports, any chance to bolster strategic lines of goods communications must be snatched at. India already has investments in Kazakh oil supply and is looking for longer-term supply and pipeline access.

Such mineral needs are not lost on Kazakhstan’s Caspian Sea neighbour, Azerbaijan. Hosting COP29 last year in Baku, President Ilham Aliyev, rounded on hypocritical criticism of his country’s reliance on fossil fuels as major income. Over 50 percent of GDP and 90 percent of export revenue comes from gas and oil which Aliyev described as a “gift of God” and how Azerbaijan should not be blamed for providing natural resources if the market had a need.

With such a shared outlook and a geographical ability to pool delivery functions, Baku and Astana are looking at ways to increase pipeline exports. According to BP Azerbaijan, the Baku-Tbilisi Ceyhan (BTC) pipeline carries oil from the Azeri-Chirag-Deepwater Gunashli (ACG) field and condensate from Shah Deniz across Azerbaijan, Georgia and Turkey. It not only links the Caspian Sea to Ceyhan, but it also transports oil from Turkmenistan and importantly Tengiz crude from Kazakhstan. Azerbaijani Energy Minister Parviz Shahbazov said last week that Azerbaijan and Kazakhstan are in discussions which aim to double the current oil transit volumes through BTC from 3.4m tonnes/year to 7m tonnes by 2027. The Azeri-Chirag-Deepwater Gunashli platform is increasing its production to 100kbpd from the Caspian Sea and with Kazakhstan having 3 percent of the globe’s oil reserves, pursuing greater capacity in delivering such oil riches is paramount in taking advantage of a changing world in which an elongation of fossil fuel use is very much signposted. With Azerbaijan’s Azeri crude grade being very much an ‘A-lister’ for refiners, and Kazakhstan’s abundance of oil reserves ready and waiting to take former Russian markets, the increased supply and ambitions from these Central Asian producers will very soon have to be taken far more seriously.

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