DEC. 16 2016 (The Conway Bulletin) — The collapse in oil prices since 2014 has hit the economies of Central Asia and the South Caucasus. Every now and then, though, a new touted solution emerges, be it maximising oil output to earn as much as possible or freezing output and waiting for sunnier days.

Both Azerbaijan and Kazakhstan, the main producers in our region, have played with the idea of “freezing” oil production, although this is more a reflection of a drop in production at aging oil fields rather than a conscious choice. An agreement reached between members of OPEC and other producers seems to have solved the headache in the medium-term. The parties pledged to cut output, forcing prices up.

This measure, however, lasted just a few days.

After the US Federal Reserve raised interest rates for the first time in one year on Wednesday, the US dollar soared against all commodities, cancelling out the progress made after the OPEC-sponsored meeting.

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DEC. 2 2016 (The Conway Bulletin) — Oil prices shifted up more than 10% after OPEC, the group of oil exporting countries, agreed to reduce output by 1.2m barrels/day starting in January.

This is good news for oil-rich countries across the South Caucasus and Central Asia, as the potential positive impact on oil prices could be sustained for a few months longer.

Throughout 2016, OPEC has repeatedly pledged to decrease output if non-OPEC countries also participated in the cut. In reality, though, the issue at stake was Saudi Arabia’s unwillingness to relinquish market share to Iran, who had just re-emerged from western sanctions and rapidly increased its output.

Now Saudi Arabia will slash 500,000 barrels/day from its output of around 11m barrels/day. Other OPEC countries will cut a total of 700,000 barrels/day and some non- OPEC countries pledged cuts for 600,000 barrels/day. For reference, the total cut would be 20% larger than Kazakhstan’s total oil production in 2016.

In fact, both Kazakhstan and Azerbaijan have used the OPEC deals as smokescreens to conceal declining production figures, as some of their projects have become unsustainable at low oil prices.

The output from the giant offshore field of Kashagan, which is three years late in hitting commercial levels of production, is no consolation either for Kazakhstan. Analysts have said that the field, sited in the northern part of the Caspian Sea, is profitable only with oil prices at $100/barrel at a minimum, a figure that is currently not on the horizon.

This means that Kazakhstan’s government will have to wait longer to reap the benefits of its largest oil basin.

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