EEU II: Astana's Russian Oil Ban


Part II in an ongoing series analyzing the Eurasian Economic Union


Summary

For the year of 2015, Kazakhstan agreed to import 1.1 million tons of gasoline and 760 thousand tons of diesel fuel from Russia. In the first few months since the EEU’s formation, Russia has exported double the planned monthly volume of petroleum to Kazakhstan, which has forced Kazakhstan to ban Russian oil for 45 days, ending in mid-April. Continued oversupply of cheap Russian fuel products to Kazakhstan could force Kazakh companies to suspend production. This reveals a major problem within the EEU. Russia and Kazakhstan, the members with the largest economies in the union, rely on exporting the same products.

 

Production Similarities Stymie Integration

Both Kazakhstan and Russia are major fuel producers, where oil exports are each states’ top exports. Although Russia may have hoped that by over-exporting fuel to Kazakhstan that it could provide a quick boost to its own ailing economy, all it has really done is saturate the Kazakh market and damaged its partnership with Astana.

While the EEU was established to create a common market between its members, it may be ineffective if it causes its members to compete over the sale of the same products. However, the union will also be ineffective if integration is continuously hindered by exclusions on other key goods that protect individual producers. When asked about the problems the EEU faces, the Belarusian Ambassador to Kazakhstan said:

“I would single out the presence of the exceptions and limitations in the union that significantly impede an economic integration process. We still have a long and difficult path to go in order to develop the union. A comprehensive modernization of industrial capacity should take place. Moreover, we have to increase the cooperation between our companies and the competitiveness of national economies in the framework of the global economy.”

To alleviate problems with the economic integration process, Belarus and Kazakhstan are pursuing closer integration in industrial, scientific and technological spheres, according to the Belarusian Ambassador. Since Russia’s invasion of Crimea, Belarus and Kazakhstan have been less enthusiastic about cooperation with Russia, and are now preparing to handle integration on their own, especially now that the Russian economy is less than attractive to international investors.

 

Cancelled Summit Points to Building Tensions

The leaders of Russia, Belarus, and Kazakhstan were scheduled to meet in Astana during the second week of March, but President Putin announced that he would need to postpone the meeting (reportedly due to illness). If there is a successful meeting in the near future, it could be a key indicator of whether or not Kazakhstan and Belarus will continue to cooperate with Russia, or whether they will opt towards stronger bilateral integration.