Russia's refusal to cut oil production sparks panic, suffering in Kazakhstan

By Kanat Altynbayev

A currency exchange in Almaty is shown March 12. [Kanat Altynbayev]

A currency exchange in Almaty is shown March 12. [Kanat Altynbayev]

ALMATY -- The Russian regime's recent refusal to cut oil production has led to a drop in global oil prices and an economic shock in Kazakhstan.

The impact illustrates yet again Kazakhstan's vulnerability to Kremlin policies.

The country has complained before about the unfairness of the Russian-dominated Eurasian Economic Union (EEU). It has enabled Russian firms to dominate Kazakh markets while impeding Kazakh firms from exporting to Russia.

Now a Russian power play on the world oil market threatens to impoverish Kazakhstan. Oil is the country's main export.

Organisation of the Petroleum Exporting Countries (OPEC) officials on March 6 in Vienna, Austria, attempted to reach agreement with Russia and other non-OPEC producers on reducing oil production, according to Reuters.

OPEC's intention was to force an increase in oil prices as the global economy and demand for oil falter from the outbreak of coronavirus.

However, Russian negotiators rejected the idea, and now the OPEC and non-OPEC countries will pump oil without any restrictions starting April 1, announced Russian Energy Minister Alexander Novak.

Moscow's decision drew sharp criticism in the energy sector.

"Russia's refusal to support emergency supply cuts would effectively and fatally undermine OPEC+'s ability to play the role of oil price stabilising swing producer," Bob McNally, founder of the US consultancy Rapidan Energy Group, told Reuters.

OPEC+ was the 24-country body attending the Vienna talks. It includes the 14 members of OPEC and 10 oil-producing non-members, including Russia.

"The result will be higher oil price volatility and geopolitical volatility," said McNally.

As expected, on Monday (March 9) market oil prices fell by 30% in what was "the most severe collapse since the Persian Gulf War in 1991", DW reported.

A victim of the Kremlin

Moscow is trying to drive American shale companies, which cannot make money selling oil for $40 (16,262 KZT) per barrel, out of the market, said Aidan Karibzhanov, director of the Visor Holding investment firm in Almaty.

However, the cost of oil production in Kazakhstan is higher than in Russia, which means that "we [Kazakhs] will suffer", he added.

"At a time when the coronavirus is creating so many problems in the global economy, instead of pooling our collective efforts and solving them together, Russia has made the worst decision that could be made in this situation," said Karibzhanov.

Kazakhs are dreading the impact on them of decisions made in faraway Moscow.

The first weekday after the OPEC meeting, March 9, became known as Black Monday in Kazakhstan, the largest Central Asian oil producer. It was the day after women in Kazakhstan celebrated International Women's Day on March 8, and the spring mood gave way to shock and stress.

The national currency, the tenge, crashed after the deep decline in the price of oil, which is Kazakhstan's main export.

Currency exchanges in Kazakh cities stopped selling foreign currency, particularly dollars and euros, that same day. They kept buying them but at a very unfavourable rate for the sellers.

Banks, unlike the currency exchanges, were closed on March 9 because the government declared it a holiday in connection with Women's Day, which fell on Sunday this year.

"Today I drove through the whole city, and I couldn't buy dollars anywhere. There was just one exchange selling foreign currency at a predatory rate," Almaty resident Saule Jusupova said on March 9.

Panic reigns in the city -- customers have begged and even demanded to buy dollars at currency exchanges but in vain, she said.

"Now everything in Kazakhstan will cost more. Who's responsible for all of this?" she asked.

Another Almaty resident, Janbolat Suleimenov, said that the unexpected weakening of the tenge cost him part of his savings in a bank account.

"I keep my money in tenge because the interest rate on it is higher than on deposits in dollars. Because of the weakening of the tenge, I've already lost six months of interest income relative to the dollar. But I'm afraid that this might not be the end."

"The previous day we bought tulips [for women on Women's Day], but we should have bought dollars," Almaty-based political analyst Islam Kurayev said.

Preparing for the worst

Kazakhstan's problems are just beginning.

On Tuesday (March 10), Kazakh authorities made a series of statements about planned measures in order to reassure the public.

The National Bank of Kazakhstan said that it had been forced to conduct "currency interventions" to "stabilise the situation on the currency market".

"The National Bank will not allow destabilisation and is continuously monitoring the currency market. If necessary, currency interventions will resume," the bank said in a statement.

In addition, local residents fear a sharp rise in the price of almost all goods, including food, which happened previously during tenge devaluations in 2009, 2014 and 2015.

The National Economy Ministry will watch for price gouging, said Ruslan Dalenov, its minister, March 10.

Authorities will raise pensions and benefits, "taking into account the tenge's new exchange rate", assured Finance Minister Alikhan Smailov on the same day.

The government is trimming its budget and cutting spending on the lowest priorities, said Smailov.

Still, because of the unexpected drop in oil prices, officials will face a budget deficit this year. To start filling in these holes, the government decided to issue government securities worth up to $500 million (203.3 billion KZT) in the Astana International Financial Centre (AIFC), which Nur-Sultan promotes as a regional economic and financial hub.

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Now Arabs will take revenge on Russia