Indeed, the deal came as a surprise to experts in the field. Negotiations were going on for nearly two years without visible success for Kazakhstan’s government. Obviously, British Gas was reluctant to lose its share in Kashagan, which is three times larger than the equally famous Tenghiz oil deposits. But what nourishes speculations around the large-scale deal are the $913 million paid to purchase half of the 16.67% stake of BG in the Kashagan oil deposits development project, the second half of the share being purchased by other Agip KCO oil consortium companies which incorporate oil giants ENI, Total, ExxonMobil, Royal Dutch Shell (each holding 18.52% stakes in Kashagan project), ConocoPhillips (9.26%), and Inpex (8.33%). With its 8.33% bought from BG, Kazmunaygaz now will be able to play a greater part in the oil business in the Caspian, making the declared goal of joining the ten largest oil-producing nations by the year 2015 more real for Kazakhstan. The impressive deal with BG left many observers guessing how the national company Kazmunaygaz, with shaky financial resources, could so readily dish out hundreds of millions of dollars to purchase the stake. The mystery shrouding the transaction bring back to memory the year 1997, when the government sold off Kazakhstan’s 14.3% share of Kashagan for the low price of $560 million. The government motivated the sale with the economic and financial crisis in the country.

What is trumpeted as an “unprecedented deal” turns out to be nothing more than a pyrrhic victory for Kazakhstan, for over the last two years oil share prices in Kashagan went up 44% and the government lost $353 million buying back part of its erstwhile share. Why did the government not use foreign loans to tide the country over the crisis that time instead of selling its Kashagan share? In Kazakhstan, memories are still alive of the shady oil deal concluded with American companies under former prime-minister Nurlan Balgymbayev when the government sold first 20%, then 5% of Kazakhstan’s shares in the Tenghiz oil field amid strong criticism from the opponents of the transaction which led to the “Kazakhgate scandal”.

Kazmunaygaz announced its plan to invest $1 billion in the Kashagan oil project by 2008, the year the commercial oil production, initially scheduled for 2005 but then postponed, should start. In anticipation of large oil output and in a bid to join BTC pipeline project, the Kazakh government this year activated talks with Georgia and Azerbaijan, earlier deadlocked by divergences over oil transportation tariffs. On his visit to Astana and subsequent trip to Baku, Georgian President Mikheil Saakashvili removed the last hurdles on tariff issues. President Nursultan Nazarbayev clearly articulated Kazakhstan’s decision to participate in this costly project in Baku where he traveled to attend the launching ceremony of the BTC.

It was not an easy choice for Astana. Kazakhstan’s bias toward the BTC project was obviously provoked by prolonged disputes with Russia over Caspian Pipeline Consortium routes. A few weeks before the BTC pipeline was put into operation, Kazakhstan’s prime-minister Danial Akhmetov casually mentioned that the issue of increasing the capacity of Caspian Pipeline Consortium (CPC) discussed with Russia have led practically nowhere, and Kazakhstan will focus its attention on maritime routes. However, in every aspect the Russian route is the cheapest one for pumping Kazakh oil to Europe. First, Kazakhstan will either have to create its own shipbuilding industry to build oil tankers needed to bring oil to the Azerbaijani terminal of Sangachal which is economically unreasonable, or buy tankers from Russia. Second, even the lowest possible transportation tariff of $3.3 per barrel offered buy BTC project shares is considerably higher than transportation tariffs fixed for any other route. This indicates that Kazakhstan’s option is largely motivated by the changing geopolitical climate in the region.

Economic interests and the uncertain political prospects in the Caspian region make Kazakhstan vacillate between the Russian-favored CPC and the American-supported BTC routes. With its huge oil reserves and clash of geopolitical interests in the Caspian region, Kazakhstan has many reasons to be judicious in its choice. It is safer for Astana to sustain its time-tested multiple oil route policy.