Fuel Prices: Why Market Prices Are Fairer

I am often asked what I think about fuel prices and the policy of holding them down in Kazakhstan. As a motorist, I naturally want gasoline to stay cheap and affordable. From the standpoint of the national interest, however, market prices are the fairest and most economically justified.

From a macroeconomic perspective, cheap fuel makes Kazakhstan neither richer nor more competitive. On the contrary, the country loses substantial sums every year and in effect subsidizes its neighbors. Today AI-92 gasoline costs about 1.6 times more in Russia than in Kazakhstan, almost twice as much in Kyrgyzstan, and 1.6 to 2.5 times more in Uzbekistan. For diesel the gap is smaller, but it still runs at 1.35–1.6 times. This gap has two consequences that are extremely difficult to combat at the national level.

First, Kazakhstan is a transit country, and large flows of traffic cross its borders. By estimate, some 4 million vehicles of all types leave Kazakhstan each year, about 1.5 million of them trucks. Every departing vehicle takes a tank of fuel bought in Kazakhstan, but heavy trucks take out the most: the tank of a long-haul tractor unit holds 600–1,000 liters, against 50–70 liters for a passenger car. Taking fuel out in standard tanks is legal and impossible to control. As a result, fuel produced, and in effect subsidized, in Kazakhstan is consumed abroad, and third countries are the beneficiaries. Even assuming the minimum tank volumes, 600 liters for a truck and 50 liters for a passenger car, about 1 billion liters, or roughly 0.85 million tonnes of fuel, leave the country every year. At the current price differential with neighboring countries, that comes to about KZT 150 billion a year. These are direct losses for the country and a subsidy to neighboring economies.

Second, a stable shadow business has taken root at the borders, especially at small checkpoints. Modified vehicles with extra tanks make several trips a day, carrying fuel out of Kazakhstan. Anyone who has traveled to Kyrgyzstan or Russia has almost certainly seen such cars. According to the Agency for Financial Monitoring, volumes of "gray" fuel exports have reached 10 thousand tonnes per month. It is hard to estimate the losses from such exports precisely, but the relevant ministries have the tools to do so, for example by comparing sales at border-area filling stations with those in interior regions.

Beyond the direct losses, cheap fuel has a number of less obvious consequences. Let us consider the main ones.

1. Loss of the next processing stage. Fuel is an export product. With its own resource base, Kazakhstan could become a leading supplier of petroleum products to Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan. That requires new refineries, which can be built only if affordable feedstock is available. However, holding down fuel prices is in practice achieved by regulating the domestic price of the crude supplied to domestic refineries. As a result, producers have no incentive to sell oil on the domestic market, and each of them tries to maximize exports. Since a significant share of the country's oil is produced by international oil companies, the state has few levers to oblige them to supply crude at a discount, and using them would damage the investment climate. As long as domestic prices are regulated, business has no incentive to build new refining capacity, and the country forgoes the value added of the next processing stage.

2. Constraints on related industries, above all air transit. Kazakhstan consumes 1.1–1.2 million tonnes of jet fuel a year, while domestic refineries produced about 720 thousand tonnes in 2025. The missing 30–35% is imported, mainly from Russia and Belarus. Jet fuel cannot be produced separately from other petroleum products: refining is the separation of crude into fractions. Refineries can raise jet fuel output somewhat by changing their processing regime, but this reserve is limited. To close the shortfall, more oil must be refined, and that requires a new... [truncated]