As Russia’s war in Ukraine upends the flow of fuels and commodities around the globe, countries including its ex-Soviet neighbours are hunting for alternative routes amid mounting concerns over the dependability of long-established trade routes through Russia.

Case in point: Kazakhstan, where a new oil terminal project at the port of Kuryk is part of the country’s drive to reduce its nearly total dependence on Russian pipelines to reach Western markets. The aim of the project is to increase the amount of oil shipped through the so-called Middle Corridor, which involves sending tankers across the Caspian Sea and feeding the oil into the Baku-Tbilisi-Ceyhan (BTC) pipeline for delivery to Europe.

“Nowadays, 98% of our oil is going through Russia, which at some point was OK because it was efficient, cheap and reliable,” Nurzhan Marbayaev, CEO of Semurg Invest, the Astana-based infrastructure investor that’s developing the terminal, said in an interview. “But now that the current situation is more adverse, it’s not good to have all your eggs in one basket.”

The new terminal will increase the Kuryk port’s capacity to as much as 15mn-20mn tonnes per year (tpy) of oil, or as much as 112mn barrels. Much of the port’s infrastructure such as rail links, power and water, is already in place. Completing the project, which involves building a jetty with arms to load tankers as well as a local oil storage facility with a pipeline to the docks, will cost less than $100mn, Marabayev said.

The oil terminal has always been part of the plan for Kuryk port, which shipped its first cargo in 2017 and opened a ferry terminal in 2018. Now, a government push to diversify Kazakhstan’s export routes is adding new urgency to its completion. Much of the terminal’s infrastructure such as rail links, power and water, is already in place.

Kazakhstan’s President Kassym-Jomart Tokayev has made alternative export routes a top priority and has called on US oil majors operating in the country to contribute to their development. The country’s goal is to increase exports through the Middle Corridor to as much as 20mn tpy, equal to about 400,000 barrels per day (bpd).

The country’s dependence on Russia for the lifeblood of its economy can’t be overstated. Oil accounts for more than 60% of the country’s export revenue and a fifth of its GDP. About 80% of its oil flows to export markets through the Caspian Pipeline Consortium (CPC) pipeline that travels through Russia to a port on the Black Sea (about 100 km from Crimea.) In all, about 97% of Kazakhstan’s oil exports must cross Russian territory.

Disruption worries

Trouble erupted last year when Russia began disrupting flows through the 1,500-km CPC pipeline, citing “technical” and regulatory issues. The move was widely interpreted as a warning from the Kremlin to its neighbour to stay silent about the war in Ukraine or face disruptions to its most important export.

“Diversification should have been a strategy for a long time,” Marabayev said. “Looking back, it seems quite shortsighted that this didn’t happen earlier. Warren Buffet once said that in business the rear-view mirror is always clearer than the windshield.”

Kazakhstan, an OPEC+ member and one of the world’s top 20 producers, accounts for about 2% of the global oil consumed and plans to increase output further. Astana’s oil ambitions are dependent on the vagaries of the war in Ukraine, Energy Minister Bolat Akchulakov said at a conference in Houston in March. Reducing the country’s dependence on transportation routes through Russia is the country’s “number one problem,’’ amid an “ocean of uncertainty” he said.

Like other leaders in post-Soviet Central Asia, President Tokayev has been walking a fine line with the Kremlin. While he hasn’t condemned the invasion of Ukraine outright, he has expressed his support for the country’s territorial integrity and refused to recognise Russia’s annexation of Ukrainian regions in the east. He has also opened up a dialogue with Ukrainian President Volodymyr Zelenskiy since the start of the war.

Reluctance from oil companies

Despite the growing risk of disruptions in Russia, international oil companies (IOCs) operating in Kazakhstan have been slow to embrace alternative routes. ExxonMobil, Shell, Eni and Japan’s Inpex extract oil in Kazakhstan through joint ventures in its largest oilfields. Exxon, Shell and Eni are also part owners of the CPC pipeline along with Russian producers and continue to pay Russia to transport their oil across its territory.

Exxon, which holds a 16.8% interest in Kazakhstan’s Kashagan field and a 25% stake in the Tengizchevroil consortium that operates the Tengiz and Korolev fields, acknowledged the possibility of transportation disruptions in a February 22 securities filing.

“In the event that Russia takes countermeasures in response to existing sanctions related to its military actions in Ukraine, it is possible that the transportation of Kazakhstan oil through the CPC pipeline could be disrupted, curtailed, temporarily suspended or otherwise restricted,” the company said, warning of a “loss in cash flows of uncertain duration” under such circumstances.

One of the main obstacles to attracting investment to the port of Kuryk, which is also owned by Semurg Invest, is the lack of commitments from these oil majors to use the terminal after it’s completed, according to Marabayev. Dredging to deepen the port will be done by a state-owned company, but that also depends on the volume commitments from companies, he said.

“We have met with several of the oil companies and have presented the project,” he said. “Everyone is excited, but no one is giving any commitment. For now, we’re making sure that we have everything in place to build it fast when we’re able to proceed. The tankers are coming, we have to make sure we have a reliable port.”

Cost issues

One issue is the cost. Transporting oil by train, unloading it at the port and then transferring it again to a pipeline at Baku is a more complex and expensive process than sending the oil directly through the Russian pipelines. However, the price difference may fluctuate depending on geopolitical risks in Russia and the Black Sea, where CPC oil is loaded onto ships. Greater security may be worth a premium.

Numerous market and geopolitical factors will influence the cost differences between transporting through the Middle Corridor and continuing to rely on Russian pipelines, the Semurg CEO said. Companies need to consider the entire route from the oilfields to the end customers, not just the cost of getting the product to a seaport with access to Europe. The CPC pipeline unloads at Novorossiysk on the Black Sea, about 100 miles (160 km) from the potential conflict zone of Crimea.

“How easy will it be to find a ship that will be willing to go to a war zone in the Black Sea,” Marabayev said. “Insurance, the cost of freight and so on may get more difficult if the big Russian companies like Transneft are sanctioned. You should always have a Plan B.”

Unpredictable situation 

The potential for future disagreement with the Kremlin isn’t limited to Kazakhstan itself. Both Exxon and Shell quickly exited Russia following the invasion of Ukraine, leaving behind billions of dollars in assets and soured relationships with Moscow. Russia and the oil companies have “unfinished business with each other,” Marabayev said

Despite the hurdles, there are signs that diversification is moving forward. Kazakhstan has just begun shipping small amounts of oil via the Middle Corridor from the port of Aktau, with Chevron and Inpex sending small test shipments through the route. However, Aktau doesn’t have nearly enough capacity to achieve the country’s goal of increasing exports through the Middle Corridor to as much as 20mn tpy. Semurg’s project at Kuryk is about filling that gap.

The issues of supply security extend beyond oil. The fragile nature of the latest UN-Turkey-Ukraine Russia grain deal and the recent controversy surrounding Ukrainian grain transiting Poland show that other commodities are vulnerable to the conflict.

At the Kuryk port, a grain terminal and facilities to ship metals are anticipated to be up and running by July, as the port will also handle other commodities. The port has already been handling liquid cargos such as petrichemicals and is now strarting to move dry bulk and general cargo.


Meanwhile, the lack of commitments continues to stand in the way of the oil terminal at Kuryk. While a state-owned company will conduct the dredging to deepen the port, it won’t do so until those commitments are made, Marabayev said.

“What would I say to the oil companies? If you don’t have an alternative to Russia then you should consider one. A partial alternative, like one that crosses only a small part of Russia, isn’t an alternative. We’re not talking about replacing the CPC, but a certain amount of oil has to keep moving to keep the fields operational. Restarting a field that’s been shut down is a major project and it’s very costly. From all points of view, it’s better to keep things running.”