Oil and geopolitics: a turbulent year, and no end in sight

Kazakhstan is moving fast to pacify its restive west as a new video circulates in which police shoot and beat retreating oil workers protesting labor conditions. Two reasons: With parliamentary elections three weeks away, President Nursultan Nazarbayev (pictured above) wants to stamp out any political narrative conflicting with his long-time assertion of keeping Kazakhstan stable

by Steve LeVine | Dec 22 2011 by The Oil and the Glory, Foreign Policy in Energy Bulletin | Dec 22, 2011

Abroad, the jittery global oil market is already starting to factor in a possible disruption of Kazakhstan's 1.5 million barrels a day of oil exports, half of which is extremely high-quality light variety.

The Kazakhstan unrest -- violence in the western city of Zhanaozen in which some 14 workers were killed -- caps an extraordinarily turbulent year in the world's oil patch. The distribution of power has been shaken up in the Magreb countries of Egypt, Libya and Tunisia, and violence continues to threaten the rulers of Syria and Yemen. Saudi Arabia is spending some $130 billion to stave off its own public dissatisfaction. In Russia, Prime Minister Vladimir Putin's seemingly unassailable hold on power has been challenged by a botched decision to return to the Kremlin, and a rigged parliamentary election. All in all, the uprisings have helped to push oil prices to their highest level in history, exceeding $100
a barrel.

The trouble on the eastern Caspian Sea is the climax of a six-month-long labor strike by some 1,500 oil
workers over wages and other grievances. These workers appear to have mounted their strike against two oil companies -- the state oil company, which goes by the acronym KMG, and a Chinese-Kazakh oil company called Karazhanbasmunai (hereis a good explanation by Alisher Khamidov at eurasianet.org.). Last weekend, as the country prepared to celebrate the 20^th anniversary of its independence, workers protested city plans to turn their strike camp -- the Zhanaozen public square -- into a festive place for dancing and public dining. It turned into a riot, with vehicles and buildings set aflame.

The new 1-minute-and-50-second video, posted just two days ago, is shot by an unidentified Kazakh-speaking woman from a balcony overlooking the city of Zhanaozen. It shows rock-throwing protesters running in retreat on Dec. 16, and the smoke of a burning building. Gunshots are fired, and at least two men fall to the ground. A policeman bludgeons one of them repeatedly with a baton.

 

The unrest.

In Washington, Erlan Idrissov, Kazakhstan's ambassador to the U.S., said senior officials in the government are aware of the video. In a news conference, he said the images are shocking and that the incident is under investigation.

Meanwhile, the government said it had arranged jobs for all ,500 of the strikers, initially in public jobs and later in industry.

There were no further reports of protests apart from in the nearby city of Aktau.

Any major disruption of oil production seemed highly unlikely. Workers at the main fields -- Tengiz and Karachaganak, which together produce more than 830,000 barrels a day of oil and natural gas liquids -- receive relatively high pay and benefits. In terms of the theoretical landscape, Tengiz would appear to be more vulnerable since it is situated in the general region of the protests, while Karachaganak is in the north next to the Russian border.

Still, oil analysts are using stark language to describe the potential risk, reports Bloomberg,analogizing it to the surge in oil prices that accompanied the uprising agains Libyan strongman Muamar Qadhafi. David Wech of Vienna-based JBC Energy told the agency that, should Kazakh exports fall away entirely, "the impact will be quite similar to Libya also in terms of regional market. It will mainly hit European markets and strengthen Brent sentiment."

In plain English, Wech means that prices would rise for the main European-traded crude variety. The agency also quotes Michael Poulsen of Denmark-based Global Risk Management: "With tighter sanctions openly being discussed on Iran, unrest in other major oil-producing countries is, debt crisis or not, a potential powder keg for oil prices."

Look for the global turbulence to continue well into next year. Among the clues: Iraq is chaotic with U.S. forces now out of the country, and Prime Minister Nouri al-Maliki fighting for primacy. Russia's middle and upper-middle classes appear to be in a fighting mood with presidential elections scheduled in March. And now we have authorities unapologetically shooting into crowds in Kazakhstan, whose parliamentary elections are Jan. 15.

Update: Nazarbayev today fired the head of Mangistau oblast, in which Zhanaozen is located, as well as the local KMG oil boss.

Steve LeVine is the author of "The Oil and the Glory" and a longtime foreign correspondent

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