The four most dangerous words in finance are “this time is different.” History suggests that when Saudi Arabia launches a price war against one of its OPEC+ allies, it ultimately succeeds — but this time really will be different1.
Saudi efforts to bludgeon Kazakhstan into compliance with its OPEC+ oil production quota are doomed to fail. Ostensibly, Riyadh is trying to reestablish discipline among rogue producers; Kazakhstan and several others are cheating on their output targets. To force them to relent, the kingdom is voting at OPEC+ meetings to raise group production faster than previously expected, hoping that the ensuing price decline forces the troublemakers into line. In OPEC+ parlance, the Saudis are trying to give the Kazakhs a sweating.
To be sure, the kingdom isn’t only focused on Kazakhstan. Its oil policy is multidimensional: It appears to be trying to recoup market share, probably from US shale producers, and is simultaneously using cheap crude as a tool in diplomatic talks with US President Donald Trump.
In the market, the strategy of pumping more oil — two consecutive monthly increases of 411,000 barrels a day for the eight main OPEC+ nations — is working as one would expect, particularly at a time when demand growth is slowing. Brent crude earlier this week touched a four-year low of just above $60 a barrel. Brent is down 15% this year, and many observers anticipate further declines as Saudi production, currently just above 9 million barrels a day, heads higher.
Kazakhstan, though, isn’t cutting production to meet its OPEC+ quota. It has two strong motivations to keep pumping; it needs the revenue, and it’s in negotiations with international oil companies about investment plans that will determine the country’s economic development from now until the middle of the century.
First, the math. Thanks to the $48-billion expansion of its Tengiz mega-oilfield, Kazakhstan will pump on average 300,000 barrels a day more in 2025 than in 2024, with annual crude output averaging 1.8 million barrels a day this year. Those extra barrels can offset a large price decline. Put it simply, Kazakhstan isn’t sweating.
According to my back-of-the-envelope calculations, if Brent remains around its current level of $62 a barrel for the remainder of the year, Kazakhstan’s gross oil revenue would decline just 2% compared with last year; a drop to $60 would trim it by 4%. Even if Brent traded at $50 until December, the accompanying 12% decline in annual revenue isn’t enough to persuade the government in Astana to change course. Kazakhstan has already banked the proceeds of higher prices earlier this year: Brent crude averaged around $75 during the first quarter.
Much lower crude prices of, say, $40 through the end of this year may inflict enough of a hit to prompt Kazakhstan to reconsider its production policy — but that would put extraordinary pressure on the Saudi budget, too. So far, there’s little indication that the kingdom, which was taking on increased debt even before the recent decline in crude prices, is prepared to crash the market sufficiently to bring Kazakhstan to heel.
The second reason why Kazakhstan isn’t budging is its relationship with Big Oil. The nation has relied on Chevron Corp., Exxon Mobil Corp., Shell Plc, TotalEnergies SE and ENI SpA to build the three mega oilfields that are the backbone of its petroleum industry. The foreign companies have invested dozens of billions of dollars; if Astana forced them to pump less, they would probably balk at further investments. But Kazakhstan needs that spending to further expand production.
Beyond those Western oil companies, the rest of the Kazakh industry is dominated by state-owned KazMunayGas, along with Chinese, Russian and domestic privately owned groups. They mostly operate smaller fields that are significantly older. Cutting production there is complicated by vested local interests and the fact that output cuts may be impossible to reverse due to the age of the oilfields; they never recovered from shutdowns imposed during the Covid-19 pandemic, for example.
The pressure from Saudi Arabia comes at a delicate moment for Astana and the foreign oil companies operating there. The contracts that govern the three megaprojects will come up for renewal relatively soon — Tengiz is valid until 2033, Karachaganak until 2038 and Kashagan until 2041 — and both sides have started to explore extensions. Oil majors typically prefer to try to prolong agreements long before expiry, often as many as five years before the deadline is reached.
Tengiz is at the center of the current dispute between the Saudis and the Kazakhs. Forcing project leader Chevron and the other international oil companies involved to reduce production now would further complicate those extension talks.
So the most Kazakhstan is likely to do is to pay lip service to the OPEC+ targets. Expect more platitudes from Astana, reiterating in public its disposition to cooperate with the cartel while privately doing the opposite by pumping way more than its quota. For the Saudis, this time may truly turn out differently.
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