Pricey oil gives Kazakh investors emergency cover

Natsional'naya Atomnaya Kompaniya Kazatomprom AO

07/01/2022 08:56

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Dasha Afanasieva
    LONDON, Jan 7 (Reuters Breakingviews) - Vladimir Putin is
lending his Kazakh counterpart a hand. The Russian president and
his regional allies sent troops to Kazakhstan to quash a bloody
nationwide uprising. President Kassym-Jomart Tokayev says order
has been restored. Even if that’s true, major oil and gas
investors like Chevron  CVX.N  and Royal Dutch Shell  RDSa.L ,
 RDSa.AS  may suffer populist fallout. Paradoxically, high
energy prices provide some cover against hasty renegotiation of
contracts.
    Dozens have died in the uprising which began as a protest
 urn:newsml:reuters.com:*:nL1N2TN07E against increases in the domestic price of fuel.
The situation remains volatile, although the arrival of Russian
troops increases the chances of Tokayev prevailing.
    Assuming he does, he’ll still need to make some changes. For
one, he may find himself indebted to the Kremlin, resulting in a
tighter alliance with Moscow, oil-rich Kazakhstan’s Soviet-era
master. Ironically, that in itself may add to the grievances of
the anti-government protestors demanding similar freedoms to
other post-Soviet states.
    For companies like Chevron and ExxonMobil  XOM.N , the
revolt underscores the importance of the social part of the
environmental, social and governance principles designed to keep
workers and locals happy in places where they operate. The two
U.S. majors participate in the Tengiz oil field on the Caspian
Sea where workers have been protesting. The consortium
developing the Karachaganak gas condensate field, led by Shell
and Eni  ENI.MI , is also braced for trouble.
    The Karachaganak companies have a long history of dispute
over profit-sharing with the state. An under-pressure leader –
be it Tokayev or somebody else - could easily be tempted to put
the squeeze anew on the oil firms, who settled the most recent
spat in 2020 by handing over more than $1 billion.
    However, that outcome may provide some protection. Under its
terms, the state also got a larger slice of royalty revenue from
Kazakhstan’s 1.6 million barrels/day of production. With the oil
price now above $80  urn:newsml:reuters.com:*:nL1N2TM14P, Tokayev should have plenty of
cash to spend on appeasing his disenchanted populace. Ripping up
contracts could hurt investment and even production, threatening
those financial flows. Similarly, healthy oil receipts lower the
cost of government borrowing. With national debt at just 27% of
GDP, there’s lots of scope for Tokayev to mortgage his way out
of trouble. A shakedown of Big Oil might be doubly
counterproductive.
    Follow @dasha_reuters https://twitter.com/dasha_reuters on
Twitter
    
    
    CONTEXT NEWS
    - Security forces appeared to be in control of the streets
of Kazakhstan's main city Almaty on Jan. 7 and President
Kassym-Jomart Tokayev said constitutional order had mostly been
restored after an uprising sparked by higher fuel costs.
    - Russia sent paratroopers to Kazakhstan on Jan. 6 to help
put down a countrywide uprising after deadly violence spread
across the tightly controlled central Asian state.
    - Oil prices edged up on Jan. 7, heading for their biggest
weekly gains since mid-December, fuelled by supply worries amid
escalating unrest in Kazakhstan and outages in Libya.
    - Kazakhstan’s currency, the tenge, has remained steady at
around 435 to the dollar. However, on Jan. 5 the yield on its
2045 dollar bond jumped 32 basis points to 4.1%, its highest
since May 2020.
    - Shares of London-listed uranium producer NAC Kazatomprom
fell 11% from Jan. 4 to 0848 GMT on Jan. 7.    
 

 (Editing by Ed Cropley and Karen Kwok)
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