Azerbaijan becomes key hub for Kazakh oil exports as Russia's role declines Trans-Caspian oil transit via the Baku-Tbilisi-Ceyhan pipeline

The year 2024 was marked by periods of unstable demand and price volatility for hydrocarbons on the global market, driven in part by the ongoing conflicts in Ukraine and the Middle East. Looking ahead to 2025, these trends are expected to persist, especially in light of recent developments. 

Notably, on January 10, the outgoing administration of President Joe Biden imposed strict sanctions on Russian oil and gas companies, with the European Union following suit by extending sanctions during a meeting of foreign ministers in Brussels the previous day. In this challenging environment, there is growing interest in more secure and stable energy resource deliveries from the Central Asia (CA) region, especially those transiting through Azerbaijan. A key development in this regard is the commencement of oil shipments from Kazakhstan’s Kashagan field, which began on January 28.

The ongoing sanctions standoff between the West and Russia amid the unrelenting conflict in Ukraine, the escalation of the Palestinian conflict, missile exchanges between Iran and Israel, and attacks by the Yemeni movement Ansar Allah on civilian vessels in the Red Sea have remained key negative factors since October 2023. Despite periods of stabilization in oil prices, these processes have continued to affect the global energy market throughout the past year.

The high volatility in global oil markets has persisted into 2025. On January 27, the price of Brent crude oil futures for April 2025 delivery on the London ICE exchange fell to $76.96. In discussing this price fluctuation, several key market trends must be considered. These include an increase in oil supply from Libya and other countries, as well as a decline in fuel demand from China. Simultaneously, nations participating in the OPEC+ agreement have made it clear that they intend to gradually raise oil production, with a tentative start date of April 1, 2025.

Additionally, U.S. President Donald Trump has repeatedly advocated for a boost in U.S. hydrocarbon production, particularly by increasing output in the shale oil sector. The U.S. government also continues to exert pressure on Saudi Arabia and other Persian Gulf countries to reduce energy resource prices. Overall, the White House’s oil market policies are largely "bearish," driven in part by the need to enforce and strengthen sanctions.

For instance, in February 2024, the U.S. added the Russian companies SUEK and Mechel to the Specially Designated Nationals (SDN) list, followed by further additions such as Sibanthracite in May, Elga and Coalstar in June, and Raspadskaya and SDS-Ugol in August. In January 2025, the outgoing Biden administration imposed another round of stringent sanctions on Russian oil and gas companies. These measures could lead to a reduction in Russian exports of oil, coal, and liquefied natural gas, ultimately causing budgetary losses and contributing to the inevitable weakening of the ruble.

On January 27, the foreign ministers of the European Union countries, during a meeting in Brussels, agreed on another extension of anti-Russian sanctions, while also discussing guarantees for Hungary's energy security, which had previously linked the issue of sanctions extension to the resumption of Russian gas transit through Ukraine.

Nevertheless, in the context of the sanctions standoff over the past three years, EU countries have qualitatively altered their transit routes for hydrocarbon supplies, with a marked increase in the attractiveness of transporting Kazakh and Turkmen oil via Azerbaijan. This refers to the long-standing energy corridor from Central Asia, through the Caspian Sea, and onward through Azerbaijan, which has been operational for more than two decades. Specifically, since 2010, Turkmen oil has been delivered by tankers and subsequently transported via the Baku-Tbilisi-Ceyhan pipeline to global markets, with a total of over 35 million tons of Turkmen crude exported in recent years.

Cooperation on the oil front is rapidly developing between long-time partners in energy and transport projects in the Caspian region – Baku and Astana. In the past, millions of tons of Kazakh oil were transshipped through Azerbaijan’s ports and pipelines, but during the energy crisis of 2014–2017 and in the years following, this route was temporarily inactive. The situation began to change three years ago when the operation of the Caspian Pipeline Consortium (CPC), which exports the lion's share of Kazakh oil via the Novorossiysk terminal, was repeatedly suspended.

At the end of 2022, Kazakhstan’s President Kassym-Jomart Tokayev instructed to increase oil transportation through the Trans-Caspian Corridor. In early 2023, KazMunayGas and the State Oil Company of Azerbaijan (SOCAR) signed an agreement to transport over one million tons of Kazakh oil via the Baku-Tbilisi-Ceyhan (BTC) pipeline system. Since April 2023, oil, primarily from the Tengiz field – 1.392 million tons, as well as crude from other Kazakh producers, has been transshipped via tankers through the BTC system, marking a 5.5-fold increase compared to the 2022 figures. Kazakhstan's oil transit via BTC last year amounted to 1.4 million tons, slightly short of the target of 1.5 million tons. According to Kazakhstan’s Ministry of Energy, the plan for 2025 remains at the same level as in 2024 – 1.5 million tons of oil.

It seems that this goal is quite achievable, especially since, alongside traditional crude from the Tengiz field, regular shipments of oil from Kazakhstan's Kashagan field have begun. On January 27, a subsidiary of Kazakhstan's national company KazMunayGas – KMG Kashagan B.V. – sent a Kazakh tanker, Taraz, from the port of Aktau, transiting through Azerbaijan with a batch of Kashagan oil. Earlier, in March 2023, Inpex North Caspian Sea Ltd carried out a trial shipment of 7,000 tons of oil from the Kashagan field. However, this time, the goal is to establish regular shipments of Kashagan oil.

The operators of one of the most complex fields to develop, Kashagan, with geological reserves estimated at 36.6 billion barrels, are a consortium of companies including Eni, Total, ExxonMobil, Shell, CNPC, Inpex, and KazMunayGas.

In March 2024, KazMunayGas and SOCAR signed an agreement for the phased increase of oil transit through Azerbaijan, to increase shipments to 2.2 million tons per year. In this regard, a Memorandum of Strategic Cooperation was signed between SOCAR and KazMunayGas in Baku last year, aimed at the purchase and sale of Kazakh oil. This, in turn, will expand Azerbaijan's opportunities for buying and re-exporting Kazakh oil. The key advantage is that when purchasing oil from Central Asian countries, Azerbaijan receives a discount relative to the market price. Moreover, in the event of upward trends in the commodity market, the rise in global prices during the tankers' delivery across the Caspian Sea, their unloading at the BTC terminal, and further transshipment to the Ceyhan terminal ensure additional profits for SOCAR relative to the terms of the contracts.

Notably, Kazakhstan's dependence on the Russian pipeline system, the Caspian Pipeline Consortium (CPC), remains significant. In 2025, it is planned that 55.4 million tons of oil will transit through this pipeline. Therefore, Astana is focused on further diversifying its exports, including increasing oil transit via Azerbaijan. This is of mutual interest to both countries and according to agreements reached last year in Baku, SOCAR and KazMunayGas are exploring the possibility of transporting Kazakh oil through the currently unused Baku-Supsa pipeline.

“The potential of the Baku-Supsa pipeline, with a throughput capacity of 5 million tons per year, is being considered, with the possible volumes of Kazakh oil shipments estimated at around 3 million tons per year. The use of this route is still in the stage of development and discussion,” said Kazakhstan's Minister of Energy and Mineral Resources, Almasadam Satkaliyev, in late 2024.