Kazakhstan can cope with consequences of drop in oil prices

/By AzerNews/

By Aynur Karimova

The fluctuation of oil prices in world markets has had a significant impact on the economies of energy-rich countries.

Experts predict that if the oil prices, which are fluctuating around $40-$50 in world markets, remain low for two or three years, a decline in oil production would be seen throughout the world, including in Kazakhstan, an energy-rich Central Asian nation.

Andrei Kazantsev, a doctor of political science and director of the Analytical Center at the Moscow State Institute of International Relations (MGIMO), believes that low oil prices won’t have a serious impact on Kazakhstan’s oil sector.

“As long as oil production is profitable, it will go on. A decline will start only if oil prices remain this low for two or three years, making its production unprofitable,” Kazantsev told Trend on September 9.

Meanwhile, Kazakhstan has increased oil and gas production in January-August 2015. The country produced some 53.4 million metric tons of oil, as well as 30.2 billion cubic meters of natural gas in the first eight months of 2015.

Despite Kazakhstan’s increased hydrocarbon production, a lower oil price, which is one of the main concerns in the world today, has lead to a reduction in foreign investments in new oil projects. Due to this, several years are needed for investments in oil projects to become efficient.

Also, there is a certain degree of probability that in the next six months the price of oil will remain low.

“This will have quite a negative impact on the economies of oil-producing countries, including Kazakhstan,” the expert said.

According to Kazakhstan's draft state budget for 2016-2018, the revenues from the oil companies to the National Fund is expected to amount to 1.6 trillion tenge ($ 6.7 billion) in 2016, based on a volume of oil production at 77 million tons, world oil prices at $40 per barrel, and the exchange rate of the U.S. dollar steady at 250 tenges.

Despite these dismal forecasts, experts believe that Kazakhstan has a way to adapt to the situation.

First, the devaluation of Kazakhstan's national currency will help the country cope with the consequences of the decrease in oil prices, making it possible to increase the competitiveness of Kazakh goods and, accordingly, to increase exports.

Secondly, institutional reforms, which help to increase Kazakhstan’s competitiveness and attract new investments into the oil sector, may become efficient in the short term.

Third, the development of relations with energy-consuming countries, in particular with China, could help alleviate some of Kazakhstan’s woes.