An underappreciated and poorly understood risk within oil markets, and hard commodities in general, is the broad range of geopolitical risks to supply. Recent events in Libya, Yemen, and now Kazakhstan, have demonstrated just how quickly this risk can materialize and impact supply and price. With the instability in Kazakhstan, a large oil producer, tied to rising fuel prices, it also alerts to the far-reaching implications that rapidly rising global fuel, natural gas, and power prices may have in other nations facing internal economic and political challenges.
Perhaps the biggest new development this week was the uprising that started in Almaty, Kazakhstan. Kazakhstan is not a country of major focus in the west, but it represents a sizeable chunk of oil production, most recently producing around 1.6 million bpd. Just prior to the pandemic peak output was just under 2 million bpd.
Kazakhstan Becomes an Issue
The uprising began as protests on Sunday in the oil-rich region of Mangystau. It was in response to the elimination of fuel subsidies by the federal government. These protests quickly escalated into a larger move against the single-party rule that has controlled the country since it broke away from the Soviet Union in the early 1990s. The actions evolved to a point where weapons were seized from state security forces, protesters stormed the presidential palace, as well as attempted to burn large administrative buildings in the biggest Kazakh city of Almaty.
In response to the intensity of the upheaval, the plan to eliminate fuel subsidies was scrapped. This was followed by the mass resignation of the President’s cabinet and security council, although President Kassym-Jomart Tokayev himself clung to power. These moves did little to slow the escalation as now well-armed protestors dug in and clashed with Kazakh soldiers and police officers. Almaty has been turned into a war zone in less than 72 hours. Kazakhstan’s president has also called for Russian aid, meaning Russian special forces have been deployed to this trouble spot. As of press time, the escalation of violence continues.
There are reports of disruptions on trains hauling crude through Kazakhstan, although it is unclear about the size of any oil supply impact to date. The loss of a material part of Kazakhstan’s 1.6 million bpd of crude output would further tighten already stretched global oil markets, especially with Libyan exports now falling as well (see below).
Kazakhstan is also the world largest producer of uranium by a wide margin, producing more than 40% of the world supply. Russia’s entry into this Kazakh situation comes at an interesting time with Moscow still threatening to invade Ukraine. Russia’s intervention in Kazakhstan is in line with its aim of having greater influence in the region and of course more leverage with the EU and NATO.
Libyan Exports Down Immediately Following Election Postponement
Libya scheduled an election for December 24th. It would have been the first election since the civil wars began in 2011 and was an effort to unify the fractured nation. Not surprisingly, internal bickering among factions led to the indefinite postponement of the election. This has fostered doubt about the viability a Libyan political solution and ability to solve the division in the country. Since the failed election, nearly half of Libya’s 1.2 million bpd of oil production has gone offline.
The initial Libyan supply losses were caused by arm groups blocking production flowing from four major oil fields, including the nation’s largest El Sharara, to coastal export terminals. The second tranche of supply loss was caused by “emergency maintenance” to pipelines. Initial reports suggest the maintenance will be completed soon, but after years of war and neglect of critical oil infrastructure that is uncertain. Likewise, with no means in place to control the competing armed factions, repairs can be quickly undone.
Yemen/Saudi Conflict Comes Back into Focus
The ongoing Saudi/Iranian proxy war in Yemen appears to be dialing back up as well. There has been an increase in missile attacks from Iranian back Houthi rebels into Saudi territory. The Houthis have increasingly been targeting Saudi oil infrastructure using missiles/drones with increased range. In September 2019 Houthis were able to hit and take out the massive oil processing plant at Abqaiq, causing a brief disruption in Saudi Arabia’s production.
Another reason to monitor the Yemeni conflict closely is the potential impact on global shipping. The Bab El Mandeb Strait is a narrow channel of water between Southern Yemen, Eritrea, and Djibouti. This crossing links the Indian Ocean, the Gulf of Aden, and the Red Sea. It is the fourth busiest crude oil shipping chokepoint with about 6.2 million bpd flowing daily. The proxy war in Yemen is in large part about controlling this chokepoint on behalf of Iran. This is similar to the influence Iran strives to hold over the narrow Strait of Hormuz in the Persian Gulf. The strategic importance to oil, and the Gulf States, of this shipping route cannot be overstated.
The world is increasingly chaotic and difficult to predict. Increased geopolitical risks and associated supply risks, now must be considered on top of the BTU shortages in Europe, low global inventories of fuels amid growing signs that OPEC is struggling to produce at its targets while the pace of global demand recovery well exceeds expectations.

Alexander Saucer
Alexander is a physical operations analyst supporting physical crude oil operations for producers. He has a BA in economics from Furman University.