By Najia Badykov
FEB 13, 2015
The steep decline in global oil prices has dealt a blow to earnings for many energy-exporting states, pushing their finances and investment projects over the red line. They have suffered slowdowns since crude prices began to slide in mid-2014, but most of them still expect to weather the crisis and will draw on their significant currency reserves to keep their economies and projects floating.
The Caspian states – specifically, Azerbaijan, Kazakhstan and Turkmenistan – are among these believers. This essay will focus on their responses to the price crash.
Nobody knows with certainty when and how this prolonged and unexpected market fluctuation will end.
Even if conditions were to stabilise soon, the consequences of the dramatic fall that has already occurred could be serious. And if the market remains bearish, these countries could have a very hard time, not only with respect to recouping their losses but also in facing much tougher competition for new investment.
Under pressure
Caspian oil and gas exporters are already feeling the pressure from low oil prices and slow global economic growth. Additionally, they are also being squeezed by the knock-on effects of Russia’s economic crisis.
Among the former Soviet republics, Kazakhstan and Azerbaijan are the biggest crude oil producers in the Caspian region. According to the International Energy Agency (IEA), Kazakhstan exported about 1.69 million barrels per day of oil in 2014, while Azerbaijan exported 840,000 bpd and Turkmenistan 280,000 bpd.
Since Turkmenistan is predominantly a gas-exporting country, it is more insulated from the fall in oil prices. But if the market remains at its current level for a long time, the country will soon face more serious problems than it has so far. Its export contracts may soon be generating less money than usual, as they link gas prices to global oil prices, which have sunk by about 50% since last June.
Kazakhstan and Azerbaijan are also bound to be hurt by the deterioration of crude prices. Since these two countries rely heavily on oil exports to generate budget revenues, they have felt an immediate negative impact from the bearish market conditions.
