Oil Markets: OPEC+ faces an internal foe in 2025 — Kazakhstan

The potential for internal dissidence within OPEC+ could further weaken the market.

OPEC+ faces many enemies in 2025 — weak oil demand growth, rising production from its rivals and the arrival of Donald Trump at the White House chanting “drill, baby, drill.” Those are the external threats. But there are internal foes, too.

Every few years, the cartel faces a recurring challenge: One of its members has spent lots of money on new oilfields and is ready, eager, and aching to turn that investment into barrels of crude. In the early 2000s, Algeria was that impatient member wishing to boost output; in the 2010s, it was Iraq. More recently, the United Arab Emirates played the role. Next year, it will be Kazakhstan.

The central Asian nation joined forces with OPEC in 2016 when the oil cartel created an alliance with several other big petrostates, with the expanded group dubbed OPEC+. For nearly a decade, Kazakhstan has been an uneasy partner for the cartel, more often than not pumping above its quota. The challenge will increase next year when a $45 billion project to expand the country’s largest oilfield will be ready.

If allowed to pump at full throttle, the expansion of the Tengiz oilfield, almost a decade in the making, could produce about 260,000 barrels a day from mid-2025. That may not sound like a lot, but it equals about a quarter of the expected increase in global oil demand next year. The expansion, alongside stronger-than-expected output from existing facilities at the field, would allow Kazakhstan to lift its oil production, including a form of light oil called condensates, to a record above 2 million barrels a day next year.

The central Asian nation had hoped that by the time the expansion of Tengiz comes on stream, its quota would be somewhat higher, giving it room to boost output without violating the limits too obviously. Back in June, OPEC+ approved a plan to slowly increase its quotas through the final months of 2024 and then into 2025. The monthly hikes should have started in September, but falling oil prices prompted delays until January. The cartel is scheduled to meet on Sunday to discuss whether it should pause again. OPEC+ delegates tell me another delay is likely, although formal conversations haven’t started yet.

Brent crude, the global benchmark, has traded around $75 a barrel for several weeks despite significant tension in the Middle East, including Iranian and Israeli bombings. The potential for internal dissidence within OPEC+ could further weaken the market.

If the cartel agrees to a further delay, it would be a significant setback for Kazakhstan. If the country adheres to its OPEC+ output limits, it won’t be able to produce that extra oil despite heavy investments – or it would need to reduce output elsewhere to offset the Tengiz increase. If driven purely by economics, Kazakhstan would do the latter, as Tengiz has the lowest cost of production and therefore is very profitable for the government and its foreign partners. The Tengiz field, operated by American energy giant Chevron Corp., is part of a trio of super-giant oil fields in Kazakhstan that include Karachaganak and Kashagan.

State-owned company KazMunayGas along with Chinese, Russian and domestic privately-owned groups operate other much smaller fields with higher production costs. In the past, the government has instructed KazMunayGas to reduce output on those fields, which often require prices above $50 a barrel to make a profit.

Alternatively, Kazakhstan may ignore the limits set by OPEC+, joining the UAE and Iraq in pumping well above the cartel’s quotas. The country has already done so in recent months, prompting a tense showdown with the cartel, including a trip by Haitham Al Ghais, the cartel’s secretary general, to Astana, the capital, for meetings with the country’s leadership in August. Further output increases would only exacerbate the problem.

The key is how long OPEC+ delays the quota increases. Chevron recently assured investors that the expansion of Tengiz will start pumping in the first half of next year, putting a deadline for the new oil by the end of June. Reading between the lines, it appears that Chevron is trying to under promise and over deliver, so the barrels may flow earlier. If the group just announces a three-month delay, until the end of the first quarter, it may not cause much trouble to Kazakhstan. But if increases are deferred until the second quarter, as many in the oil market expect, it may put the Asian country and OPEC+ on a collision course.

Similar confrontations have caused significant infighting inside the group. In 2021, for example, the UAE blocked an OPEC+ deal for several days after it clashed with Saudi Arabia over quotas. Although Riyadh won the battle at the time, it ultimately lost the war, allowing Abu Dhabi to win significant quota concessions over the following months. And when the cartel attempted to reduce Angola’s quota in 2023, the country fought back and, ultimately, left the group. The risk is that Kazakhstan follows suit. OPEC+ faces struggles on many fronts in 2025.

Credit: Bloomberg