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Drastic increase in Kazakh oil exports via Caspian Aktau port toward Azerbaijan - while Russia remains the main oil transit route, Astana tries to develop some alternative routes

According to Kazakh official data, the Trans-Caspian oil exports from Aktau (Kazakhstan's port in the north-east of the Caspian Sea) toward the Azeri capital of Baku amounted to 1.238 million tons in January-November 2023 that was six times higher than in the same period of previous year.

The Azeri-Kazakh agreement envisages the transportation of 1.5 million tons of Kazakh oil via this route - the oil is delivered to the Azeri Sangachal terminal (near Baku) in western coast of the Caspian Sea. Baku-Tbilisi-Ceyhan (BTC) oil pipeline transporting Azeri oil to Turkey's Mediterranean coast starts here and the Kazakh oil is transported via this pipeline.

Some alternative to Russian route

Russia is a traditional main route for transportation of Kazakh oil (firstly via Caspian Pipeline Consortium/CPC, which ships it via Russian Novorossiysk Black Sea port) - while Kazakh authorities were increasingly concerned about various restrictions imposed by the Russian authorities after the beginning of the war in Ukraine.

One of these decisions was the ruling of the district court of the city of Novorossiysk suspending the operation CPC terminal for 30 days. This happened in July 2022. Also there were several other reports on some restrictions related to Kazakh crude oil exports via mentioned route.

While Moscow denied political motivation for these developments, many were certain that Russia's main goal was to put obstacles in delivering Kazakh oil to the global markets in order to further destabilize oil supply-demand ratio and keep oil prices on high level or even increase them. Another political reason could be using the route as a tool of pressure on Kazakhstan amid Russia's invasion of Ukraine.

Against this backdrop, the Kazakh government announced (in the summer of 2022) plans to increase the oil exports via alternative routes and firstly via the Trans-Caspian route. The current drastic increase in Aktau-Baku oil deliveries is reasoned by this approach. Moreover, there are plans to increase the volumes of such deliveries from current (planned) 1.5 million tons per year to 5 million tons.

Technological challenges and project's economic feasibility

While politically the Kazakh government tries to push the alternative (to Russian) oil exports routes, there are serious technological obstacles that make using the Tran-Caspian route more complicated and more expensive. One of the biggest challenges is the shortage of tankers in the Caspian Sea, but reportedly both Azerbaijan and Kazakhstan try to solve this problem by increasing their tanker fleets.

Another issue is the Sangachal Terminal's ability to receive more Kazakh oil and reportedly the respective modernization works have been made. As of the ability of the BTC pipeline to get commercial volumes of Kazakh oil, the maximal capacity of the pipeline is 1.2 million barrels per day or about 60 million tons annually. But the volumes of shipped oil in 2022 was less than half of this level, 29.75 million tons and actually.

Azerbaijan will not be able to significantly increase this volume in the future due to declining production (there was further 7.5 percent decline in commercial oil production as of January-November 2023) and thus theoretically quite significant volumes of Kazakh oil (even 10-20 million tons annually) can be transported via BTC.

Russia remains the main transit route for Kazakh oil

Despite of higher Trans-Caspian oil transportation, Russia remains the main and actually irreplaceable route for exporting Kazakh oil. By the way, there were no major technological problems and administrative restrictions in terms of transportation of Kazakh oil in Russia in 2023 and possibly this was reasoned by Moscow's desire to not escalate the tensions with Kazakhstan and actually force it to find and use the alternative transit routes at any cost.

As for now, Russia is the main route for exporting Kazakh oil - in the first half of 2023, Kazakhstan reportedly transported 96 percent of its 35.7 million tons oil exports via Russia.

Many experts think that the alternative Trans-Caspian route is more expensive while upgrading sea ports/terminals in order to enable them to deal with much higher oil volumes, increasing tanker fleets, improving pipelines and other steps can make the Kazakh oil transit cheaper and more convenient (than now).

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The Azeri land borders remain closed - the government preserves formally Covid-19 related restrictions regarded by many as mostly a political measure aimed at limiting border crossings

The Azeri government again extended 'the special quarantine regime' for another three months, from January 1, 2024 to April 2, 2024. Thus, the Azeri land borders will remain further closed and this is a case for last four years. Despite any similar strict restrictions in almost all countries, including neighbouring ones, the Azeri authorities still say that the necessity to prevent the spread of Covid-19 infections and its possible consequences demands a special regime that means actually closed land borders.

In fact, all other pandemics related restrictions within the country have been lifted 1-2 years ago and there was no serious spread of Covid-19 infections (including the latest period) in the last two years. Against this backdrop, the Azeri government's 'special quarantine regime' is regarded by many as ridiculous and few people believe in the official version.

Many Azeris are concerned about closed land borders - with some exceptions (for example the short border between Azeri Nakhichevan enclave and Turkey is open and also cargo traffic remains unimpeded) the only way to enter and leave Azerbaijan is airflights.

Drastic decline in number of travellers

Against this backdrop, the share of Azeri citizens travelling abroad via land borders decreased from 82.3 percent in January-October of pre-pandemic 2019 to 29 percent in January-October 2023, while the share of air travellers increased from 17 percent to 68 percent. Some number of travellers used the sea way.

Due to expensiveness and sometimes inconvenience of airflights, the number of Azeri travellers sharply decreased between the mentioned periods, from 4.653 million people to 1.542 million people or by three times.

Similar developments are happening with foreign visitors to Azerbaijan - in pre-Covid-19 January-October 2019, 58 percent of travellers used car/bus/train to visit Azerbaijan and 41 percent were air travellers. In the same period of 2023, the composition was 71 to 27 percent in favour of air travellers. And the number of foreign visitors decreased from 2.7 million to 1.7 million or by more than a third.

Thus, many in Azerbaijan say that the quite dubious border restrictions hit tourism, both Azeri citizens foreign travels and foreigners' visits to Azerbaijan. While Azerbaijan had tried to prioritise (at least officially) the development of tourism sector in pre-pandemic period, probably today it is not regarded priority by the government.

Moreover, some experts think that there can also be certain economic benefit (from the government's point of view) of closed borders - the number of Azeris travelling abroad traditionally was seriously higher than the number of foreign travellers and now many citizens cannot travel abroad and thus stay in the country and spend their money within the country.

Security concerns

At the same time, many observers think that security concerns can be regarded as the main real reason for border restrictions rather than some economic benefits that actually are questionable taking into account the decline in the number of foreign travellers and certain social discontent due to problems with leaving the country via land borders.

Most likely, Azerbaijan is concerned to have open land borders with Russia amid its war against Ukraine and Iran taking into account quite tense relations between Teheran and Baku in the last few years.

For example, there can be concerns that the long land border with Russia can turn to one of the biggest gates for Russians (including Azeris having Russian passports) leaving the country due to war and mobilization fears. In contrast to Georgia (that has an open land border with Russia) and Armenia (that has an open land border with Georgia), Azerbaijan did not turn to one of the main countries for new Russian migration.

Iran related concerns

In terms of Iran, there was even an armed attack at the Azeri embassy in Teheran in January 2023 and Azerbaijan closed its embassy due to security concerns. While there is some slight improvement in Azeri-Iran relation in last months of 2023, Baku possibly fears that Iran still can infiltrates its agents via open land border, particularly in the regions bordering Iran and also pro-Iranian forces in Azerbaijan can easily travel to this country.

Traditionally, Azerbaijan's southern regions have close economic, interpersonal relations with Iran, firstly its northern ethnic Azeris populated regions. Ordinary Azeri citizens mostly used cheaper Iran for shopping and medical tourism. And there are plenty of reports that Iran tries to strengthen its position (firstly based on radical Shiite Muslim groups) in these Azeri regions and actually to use them as a trampoline for further infiltration.