On January 17, the Ministry of Energy of the Republic of Kazakhstan published a number of draft orders on the Open NLA (normative legal acts) portal, which were to be discussed within five days. In total, the Ministry proposed the abolition of eleven orders regulating wholesale and retail prices for petroleum products, which have been under price control since 2014. In addition, it intends to change the calculation formulas and price ceilings for wholesale and retail sales of liquefied and natural gas.

I have been writing about the need for price liberalization since 2018, as seen in articles such as “#Kazneft, part 2: The Bermuda Gasoline Triangle – Why Prices Will Rise” and “#Kazneft, part 4: We Rank Seventh in the World for the Cheapest Gasoline. Is It Sold at a Loss?”

This is a landmark event for the Government of Kazakhstan, which has long maintained not only the lowest fuel prices in the region but some of the lowest globally. The country consistently ranks among the top ten nations with the cheapest energy resources, including fuel, natural gas, coal, and electricity.

Cheap and Even Cheaper

According to Global Petrol Prices, as of January 20, 2025, fuel prices per liter in dollar terms across the EAEU, CIS, and neighboring countries are as follows:

(Table 1)

Kazakhstan ranks seventh globally for the affordability of RON-95 gasoline, trailing behind Angola, Egypt, Algeria, Kuwait, Turkmenistan, and Malaysia. At the same time, there are “throwaway” prices in Iran, Libya, and Venezuela, but these price indicators do not reflect the actual availability of fuel in these countries. Turkmenistan also shows relatively low fuel prices, primarily due to the use of alternative fuels, such as methane, in transportation.

Kazakhstan has historically had nearly double the price gap compared to its neighboring countries, which has facilitated the shadow export of fuel despite an official ban on exporting petroleum products.

A Leaky Bucket

I have described Kazakhstan’s domestic fuel market as a “leaky bucket”— no matter how much fuel is produced, it is constantly in short supply. In 2024, the country processed about 18 million tons of oil, with its three major refineries — Atyrau: 99% owned by the national company KazMunayGas (KMG), Shymkent: 51% owned by China National Petroleum Corporation (CNPC), and 49% by KMG, and Pavlodar: 100% KMG — accounting for approximately 17 million tons. Mini-refineries produced an additional one million tons. The production of petroleum products (excluding fuel oil) amounted to around 14.5 million tons.

For 2025, the Indicative Supply Plan between the Russian Federation and the Republic of Kazakhstan provides for a duty-free supply of 1.6 million tons of petroleum products within the EAEU. For gasoline, the highest dependence is observed during periods of refinery maintenance, whilst for diesel fuel there is a high volume of imports during planting and harvesting seasons. There is also a dependence on the importation of winter and Arctic diesel due to the low domestic production of these specific products.

As for jet fuel and bitumen/hydrone for highway construction, the level of dependence can be defined as critical. One should also take into account that the ongoing exchange of attacks on energy and oil infrastructure in Russia and Ukraine exacerbates the fuel supply situation –  Russia has imposed bans on gasoline and diesel exports, though exceptions are made for EAEU countries.

Despite near-full utilization of Kazakhstan’s refineries and increasing imports from Russia, the domestic market still faces periodic shortages of certain petroleum products. For example, there was a shortage of RON-95 gasoline in the summer of 2024 due to fuel flowing into neighboring countries via illegal schemes, such as modified fuel tanks, exports disguised as other goods, and even makeshift pipelines crossing borders.

With such significant price differences and vast land borders, combating fuel smuggling is almost impossible. For instance, in 2024 alone, over 1,200 attempts to illegally export fuel were intercepted at the Kazakhstan-Kyrgyzstan border. Taking into account the high level of corruption and semi-legal export, the Ministry of Energy assumes that shadow exports are growing and amount to at least 500,000 tons annually to border countries, including the Russian Federation.

Kazakhstan has essentially become a low-cost fueling station for the entire transit flow of Central Asia. For example, diesel trucks transporting fruits and vegetables from Uzbekistan to Moscow travel around 3,500 km on Kazakh fuel: they refuel in Kazakhstan at the border with Uzbekistan, drive across Kazakhstan on Kazakh diesel, fill a full tank (from 1,000 to 3,000 liters) at the border with the Russian Federation, and can then drive on a full tank to Moscow and back to Kazakhstan.

While this is simply business, maintaining the lowest prices in the region ensures that fuel is siphoned off through both illegal and legal means.

Attempts to introduce differentiated fuel prices for foreign vehicles have failed. For instance, the government tried to curb diesel outflows by requiring vehicle registration certificates and driver’s licenses for refueling. However, official data showed that only 1% of fuel sales were to foreign vehicles, indicating that the measures were ineffective and prone to corruption at private gas stations.

Day of Independence from Addiction

When analyzing the situation, it is essential to consider the structure of the domestic market. Oil companies, under their subsoil use contracts, are required to supply 50–80% of their crude to domestic refineries at $20–25 per barrel. This is not only three times below global prices, but also below the average production cost of over $40 per barrel. Meanwhile, large international oil and gas projects that are considered “whales,” such as Tengiz, Karachaganak, and Kashagan – which account for two-thirds of national output – do not supply oil to the domestic market.

Thus, out of the 87.8 million tons of oil and gas condensate extracted in 2024, approximately 59 million tons are produced by these “whales.” In contrast, other companies supply 18 million of the 29 million tons they produce (62%) at prices close to or below actual production costs, covering losses through crude oil exports.

Kazakhstan’s multilayered “dependency pie” also includes Chinese companies, which provide 35% to 45% of all refining volumes for the domestic market. The earliest the country might be able to reduce its reliance on Russian oil products is by 2030. This will require the expansion of PetroKazakhstan Oil Products LLP (the Shymkent refinery in the south of the country), jointly owned by CNPC and KMG, which plans to increase its capacity from 6 million to 12 million tons yearly.

Chinese partners have long been dissatisfied with the prevailing pricing policies and obligations to supply oil domestically. Meanwhile, the Kazakhstan-China export pipeline operates at only 11 million of its 20-million-ton capacity, with 10 million tons of that volume coming from Russian oil via swap arrangements.

Thus, oil-producing Kazakhstan remains, and will continue to remain, dependent on both Russian oil and oil products supplies and on Chinese oil companies, which play a crucial role in domestic supply and own major infrastructure, including the largest refinery in the south of the country.

The combination of these factors, along with uncertainty over stable oil product supplies from Russia amid sanctions, attacks on refineries, growing domestic demand, and the declining national currency (since last year the devaluation of the tenge amounted to 18%) has led to the need to abandon marginal wholesale and retail prices for fuel, which is a cause for some discontent among both the public and shadow networks that control the distribution of scarce fuel resources.

Efforts to establish oil and oil product trading on exchanges, which Kazakhstan had been gradually moving toward, were “frozen” after the January 2022 events, which were exploited in an attempted coup.

The abandonment of the state regulation of fuel prices and transition to market-based pricing methods, including within the framework of the Common Market of oil, oil products, and gas of the EAEU starting January 1, 2027, will undoubtedly impact all countries in the region. It will lead to higher transportation costs for both individuals and businesses.

The break-even price for the most common gasoline grade, AI-92, is at least $0.60 per liter, compared to its current price of $0.40 per liter. This means an imminent price increase of at least 1.5 times. However, the government is likely to implement this adjustment gradually, avoiding an abrupt shift to market prices.

In conclusion, Kazakhstan’s experiment with subsidized energy prices, much like in other oil-producing countries, has failed. Instead of benefiting the domestic market, it has only deepened the country’s dependence on Russia and China.