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Russia Seeking Control of Kazakhstan's Oil, Expert Says

(Washington, DC--March 27, 2007) Western policy makers should not assume that Kazakhstan's current "multi-vector" policy of balancing foreign interests in the country's oil sector will continue, according to an expert on the region's oil supplies. Kimberly Marten, Chair of the Political Science Department at Barnard College, Columbia University, told a recent RFE/RL audience that Moscow wants to "reestablish an export pipeline monopoly in Kazakhstan and expand control over the associated oilfields."

"Controlling Kazakhstan's oil exports could allow Russia to become the sole alternate regional supplier of oil" said Marten, who added that, because Kazakh oil is "a high quality oil" sweeter and lighter than Russia's own Siberian crude, it is more profitable. Marten noted that Russia has already "used its ownership of pipelines crossing Kazakhstan to insist that the two be mixed into an 'Urals blend' before hitting the export market." Both of these factors help to explain why Russia is seeking control of Kazakhstan's oil according to Marten.

Kazakh President Nursultan Nazarbayev's current term as president ends in 2012, but "very public infighting among the president's daughters and sons-in-law foreshadow a difficult succession struggle," said Marten. This conflict provides an opportunity for "a successor sympathetic to Moscow's interests" to change the Kazakh government's policy of maintaining a balance among outside powers. In this context, Marten reviewed the actions of Timur Kulibayev -- a vice president of the KazMunaiGaz (KMG) state petroleum company and one of Nazarbayev's sons-in-law. Kulibayev was involved in the disputed realignment of ownership in the Kumkol oil field, which has been the object of numerous lawsuits by the Russian oil company LUKoil.

In 1996, the Kazakh government sold the Kumkol oil field, geologically a single oilfield, as two separate sections. The South Kumkol oil field was bought by PetroKazakhstan, a now-bankrupt, publicly traded Canadian company originally called Hurricane Hydrocarbons, Ltd. But, in the case of the North Kumkol field, 50 percent of the field was bought by LUKoil, and the other 50 percent by PetroKazakhstan. In October 2005, PetroKazakhstan's assets were bought by the Chinese state-owned China National Petroleum Corp. (CNPC). A string of lawsuits and related actions by Kazakhstan's Ministry of Energy has resulted in a change of ownership of the North Kumkol oil field to LUKoil's benefit and a dilution of the Chinese share in South Kumkol. "China was used as a cash cow, and its interests misused," said Marten, who noted the lack of a "Russia-China condominium in Central Asia."

Using Kumkol as a case study, Marten also highlighted Moscow's attempts to "renegotiate the Caspian Pipeline Consortium (CPC) contract," which is "based on an international treaty" and pipes oil from Kazakhstan's giant Tengiz field to the Black Sea for export. According to Marten, Russia is trying to reinterpret the contract "into two bilateral agreements between consortium members and the separate Russian and Kazakh states. If Moscow succeeds, Transneft [Russia's state pipeline monopoly] will likely take control over the pipeline that crosses Russian territory, allowing its Russian state owners to veto CPC prices and policies." Marten noted that, in the past, Russia had blocked PetroKazakhstan's attempts to gain access to the CPC for its oil exports.

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