Why did Azerbaijan and Kazakhstan sign the Vienna Agreement on cutting oil production?

Abstract

A long awaited deal – which could potentially stabilize global oil prices - was reached on 10 December in Vienna, between OPEC and non-OPEC oil producer countries. The non-OPEC parties, which include Russia, Azerbaijan and Kazakhstan, agreed to cut oil production by 558,000 bpd (barrels per day). Among the Caspian littoral state signatories, Russia’s reduction commitment is the largest, at 300,000 bpd, while Azerbaijan is cutting 35,000 bpd. Kazakhstan - despite OPEC’s expectation of a 50,000 bpd reduction - has agreed to a cut just 20,000 barrels from the November 2016 level. Kazakhstan’s weaker commitment to OPEC stems from the fact that in recent months, its oil production and exports have risen. This is partly because the Tengiz field has returned to full production, while outputs from Kashagan - a vast oil field in the Caspian – have been ramped up. While both Azerbaijan and Kazakhstan may share expectations of the resumption of stable world oil prices, they have taken different approaches to the OPECnon- OPEC deal, and the decline of oil prices has impacted each country differently. Furthermore, since the increase in production at Kashagan, the two have a common goal of exporting oil to European markets. Previously Kazakh oil was transported via the Baku-Tbilisi- Ceyhan pipeline, but Kashagan field’s commercial production will require a new means of bilateral engagement.