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Akbar Novruz

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We are already in the second month of the Gulf War, and the parties remain unable to reach a common ground, even on the resolution of the conflict. Combined with the already devastated oil and gas market and destroyed infrastructure, this has shown that the market needs serious time to stabilize. There is one more point we should emphasize here. The US renewed the Russian oil waiver after pressure from countries dealing with the Iran war price shocks. The Treasury Department's waiver lets countries purchase Russian oil and petroleum products loaded on vessels as of Friday through May 16. It replaces a 30-day waiver that expired on April 11 and excludes transactions involving Iran, Cuba, and North Korea.

Just when that happened, Russia's Deputy Prime Minister Alexander Novak confirmed that from May 1st, Moscow would cease transit of Kazakhstani crude through the Druzhba pipeline's northern leg to Germany, citing "technical capacities" in two words that explained nothing and implied everything. The PCK Schwedt refinery in northeastern Germany, which supplies roughly 90% of fuel to vehicles in the Berlin-Brandenburg region and feeds jet fuel to the capital's airports, will lose approximately 17% of its annual crude throughput. Brent crude ticked upward on the news. Germany's economy ministry said, with the careful phrasing of a government that knows the situation is serious, that supply was "not ultimately jeopardised."

In addition, Kazakhstan's Energy Minister Yerlan Akkenzhenov (Erlan Aqkenjenov) confirmed that Russia will stop transporting oil to Germany via the Druzhba pipeline in May. Notably, this occurred before Novak's statement. According to Akkenzhenov, Kazakhstan does not plan to reduce oil production, but volumes will be redistributed across export routes:

"For May, we have zero transit via the Druzhba pipeline via Atyrau-Samara and from there to the oil refinery in Schwedt."

Kaztransoil, Kazakhstan's national operator, provides oil transit through Russia via the Transneft pipeline system. This transit is carried out under the relevant intergovernmental agreement between Kazakhstan and Russia, dated June 7, 2002. Kazakhstan has been exporting oil to Germany via the Druzhba pipeline since 2023.

The Schwedt refinery operates at a capacity of around 12 million tonnes of oil annually. In 2025, Kazakhstan was supplying 2.146 million tonnes through Druzhba, an impressive 44% rise over the previous year, since Astana was consciously constructing that particular channel as an alternate source of non-Russian crude under the control of Russia following Berlin's decision to place Rosneft Germany into trusteeship in 2022. The Schwedt refinery is currently importing the rest of its oil through pipeline supplies from both Rostock, on the Baltic Coast, and Gdańsk, in Poland. All three pipelines are running at full capacity, and with Hormuz supply chain issues due to the war in Iran, Germany is now dealing with two logistical problems at once.

Now, when something like this happens, what is at stake?

PCK Schwedt numbers:

- 12 million tons: Total annual crude processed.
- 17%: Share supplied by Kazakh Druzhba transit, which will be reduced starting May 1st.
- 90%: Proportion of vehicle fuel for Berlin-Brandenburg supplied by the Schwedt refinery.
- 2.15 million tons: Kazakhstan's planned Druzhba deliveries to Germany in 2025, representing a 44% increase year-on-year.

But is it really a technical issue?

Russia has cited technical reasons. Well, there are two more plausible explanations, which are not mutually exclusive. The first would be geopolitical, in that Germany is the second-largest provider of weaponry to Ukraine, following only the United States, and also provides significant monetary assistance to Kyiv. Russia has always wanted some form of leverage over Germany, and with Hormuz currently being blocked due to the Iran war, blocking the passage of Kazakhstan oil shipments through its territory could very well have been calculated as such.

The second explanation is infrastructural. Drones from Ukraine hitting fuel stations and pumping stations two days ahead of the statement indicate that significant damage has been inflicted upon the part of the Druzhba pipeline, which carries Kazakh oil to be transported along the Belarus-Poland-Germany route. If there really is a problem of capacity of Russian pipelines, then it will obviously favor its own crude. Kazakh oil, which is shipped under a separate agreement between the governments signed back in 2002, is diverted elsewhere. In any case, Germany’s reserve of Kazakh oil is gone, but the difference is important here for the sustainability and reversibility of the action taken.

Caspian alternative is on the agenda, yet again

Kazakhstan has always had a second option: the Baku-Tbilisi-Ceyhan pipeline. Perhaps, either does Europe.

The BTC, managed by bp and consisting of eleven shareholders, including SOCAR and Chevron, spans 1,768 km from the Sangachal terminal at the Caspian Sea via Georgia all the way to the Mediterranean Sea at Ceyhan, Turkey. Its planned maximum capacity is 50 million tons annually, or one million barrels a day. However, in 2025, its throughput amounted to just 27 million tons, which means it has considerable spare capacity left. Oil extraction in Azerbaijan is in decline, and domestic demand keeps rising; thus, the current use of this pipeline barely reaches 50 percent of its capacity, which makes it readily available for Kazakh oil, unlike any other alternative.

Legal arrangements have already been made via the transit agreement between KazMunayGas-SOCAR, which took place in 2022 and was later extended. In 2025, Kazakhstan shipped 1.3 million tonnes of crude oil via BTC; in 2026, this amount is expected to be increased to 1.6 million tonnes per year. The goal for the long term, which was announced during the talks between KMG and a group that consisted of such companies as Chevron, ExxonMobil, Shell, Eni, TotalEnergies, CNPC, and Inpex, is the annual shipment of 20 million tonnes.

Let us take a look at the alternatives in a big picture:

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The strategic importance of the BTC corridor is obvious. It is free from dependence on Russia; it links the Caspian suppliers with Mediterranean tanker shipping directly; it has the extra capacity to take the increased volume. Herein lies the limitation: not in the pipelines, but in the terminal for supplying the pipeline network. It is necessary that Kazakhstani oil be delivered by tankers from the Aktau port through the Caspian Sea to Baku, where it would then enter the pipeline network. At present, Aktau has a capacity of transporting just 5–6 million tonnes of oil annually, compared to the target figure of 20 million tonnes. The Caspian max tanker capacity of the state shipping company Kazmortransflot was cut from six to three ships when volumes were low. To reach 20 million tonnes, an expansion ten-fold of Aktau's capacity, building new tankers, and constructing new pipelines will be needed.

Over the shorter period of time, that is, over the next 12-24 months, Kazakhstan is capable of re-routing 2-3 million tons of its oil originally destined for Druzhba transit. First, there is the capacity within BTC’s pipelines; second, there is an agreement in place with SOCAR; third, there is an operational facility in Ceyhan for shipping crude to Europe via tankers. Considering the current limits of the number of tankers from the Caspian available in 2026, that amount is not expected to exceed 2.2 million tons – that is the limit according to the agreement. But that still corresponds to the amount sent through Druzhba to Germany.

Best opportunity for Baku

The Druzhba closure is an opportunity that arrives at an awkward moment. On one hand, it brings closer to fruition precisely the transit revenue calculus Azerbaijan had been working towards all along: excess capacity in BTC, a strategic benefit that Europe requires desperately, and something that provides a big commercial gain as well. The war in Iran had already forced oil flows to shift northwards via the Caspian route. Druzhba's shutdown introduces yet another push factor for the same redirection. Azerbaijan finds itself in a uniquely pivotal position regarding the only oil transport corridor that avoids going through either Russia or Iran, a geopolitically advantageous situation that has gained material significance in the last eight weeks alone, which I have been reiterating ever since.

This is because, last year’s two-month shutdown of the flow of BTC-bound Kazakh crude due to the poisoning of Azerbaijani crude oil en route to Ceyhan, claimed to be orchestrated by the Russians, revealed that the BTC passage cannot escape hybrid attacks. While the problem was sorted out, the timing, when Europe was starting to rely on it, was very unfortunate and damaging to the reputation of the transit route. Azerbaijan must prove that the BTC route is indeed secure in terms of both operation and international diplomacy before it becomes the main pipeline for European refineries.

BTC capacity: 50 million tonnes/year nameplate; approximately 27 million tonnes used in 2025, leaving roughly 23 million tonnes of headroom.

Kazakh BTC volumes: 1.3 million tonnes in 2025; target 1.6–2.2 million tonnes in 2026 under existing SOCAR agreement. Long-term ambition: 20 million tonnes annually.

Aktau bottleneck: Current port capacity 5–6 million tonnes/year. Tripling required for 20mt ambition. Tanker fleet reduced from 6 to 3 Caspian-max vessels, needs rebuilding.

Near-term feasibility: Substituting the halted 2–3 million Druzhba tonnes via BTC is achievable in 2026 within existing infrastructure. Scaling to 20 million tonnes is a 5–7 year infrastructure programme requiring $5–8bn in port, fleet, and pipeline investment.

Germany's first course of action, diversification through Rostock and Gdansk, may be a decent tactic, but it doesn't address the underlying issue. Both Rostock and Gdansk were already operating at their limits even before Wednesday's announcement. What this announcement did do, however, was hasten the decision that had already been hanging for the last two years over Europe's heads regarding how much investment would have to go into the Trans-Caspian corridor to give it the capability to become a real alternative to the transit facilities of Russia. The pipeline between Aktau, Baku, Ceyhan, and European terminals is there. So too is the arrangement structure. Capacity is present. What has been lacking until now is the urgency, together with the political commitment to complete the infrastructure. Now Russia has supplied the former; the latter becomes much more urgent.

*Image is AI-generated