Opinion: How Oil Went from Kazakhstan's Greatest Asset to Biggest Liability

For three decades, oil was the engine of Kazakhstan's post-Soviet prosperity, lifting it to middle-income status and turning it into a darling of frontier market investors. Today, that same oil is the source of a profound national crisis, as the dependencies created during the boom years have transformed into crippling liabilities.

The country's economic model was built on a series of calculated risks that have now all come due at once. The most critical was an infrastructure dependency: 80 per cent of the country's crude exports flow through a single pipeline to the Russian port of Novorossiysk. A Ukrainian drone strike on that terminal on November 28 instantly exposed this choice not as a pragmatic partnership, but as a strategic vulnerability to a war beyond its control.

This was compounded by a revenue dependency. With oil accounting for more than half of exports and a third of government revenue, the state budget is now hostage to a global market collapse that has seen Brent crude fall below $60 a barrel for the first time in four years. The International Energy Agency's forecast of a nearly 4mn barrel-a-day supply glut in 2026 suggests no quick relief is coming.

At the same time, a contract dependency has come home to roost. The production-sharing agreements signed in the 1990s, which were essential to attracting the Western capital needed to develop the country's giant fields, are now seen as deeply unfair. A confidential arbitration ruling has revealed the government's explosive claim: that the consortium running the Kashagan field, including Shell and ExxonMobil, takes 98 per cent of the revenue after royalties. This has driven Astana to launch a $170bn legal war on the very companies it needs to operate its fields.

These liabilities are now feeding on each other in a vicious cycle. The meager returns from the old contracts have fueled the government's desperation, leading it to defy its OPEC+ allies by overproducing its quota by as much as 400,000 barrels a day. This attempt to maximize volume only contributes to the global glut that is crushing the price, further deepening the fiscal crisis and making the unfair contracts even more painful.

No surprise: the final liability is the one that was thirty years in the making—a market dependency. Unlike its neighbor Azerbaijan, which built an alternative pipeline to the Mediterranean, Kazakhstan never developed a meaningful non-oil economy. The paradox of its oil boom is a chronically weak currency; the tenge has steadily depreciated against the dollar for two decades, even during periods of high oil prices. With no other engine to power the economy, there is no cushion for the shocks that are now hitting.

The question confronting Kazakhstan is how to navigate an economic future where its primary export route is no longer reliable, its relationship with its key investors is adversarial, and its production policy is at odds with its allies. The government's pledge to achieve net-zero emissions by 2060 seems a distant thought when the immediate challenge is managing a potential collapse in state revenue.

For Kazakhstan, the path forward requires more than just rhetoric about diversification. It demands a painful acknowledgment that the foundations of its economic model are broken. The immediate priority will be to mitigate the fiscal damage, but the long-term task is to build an economy that is no longer captive to a single commodity and a single, increasingly unreliable, neighbour.