Kazakhstan

Public finances are under structural strain despite a favorable headline. The fiscal deficit is projected to narrow to 2.7% of GDP in 2026, but this relies on elevated oil prices (Brent averaging above USD85/b) and continued withdrawals from the National Fund. This pattern erodes the sovereign buffer without addressing underlying revenue mobilization weaknesses, while tax reform remains slow.

The CPC crisis introduces acute fiscal risk: with ~80% of crude exports transiting via Novorossiysk, a prolonged shutdown compresses oil revenues at source while budgetary spending commitments remain fixed. If the terminal remains inoperative for 4-6 weeks, the fiscal deficit could widen by 0.5-1pp of GDP above baseline.

The banking sector is well-capitalized, with improved risk-based supervision, but underlying vulnerabilities persist. Retail lending dominates credit growth, with the corporate portfolio lagging. Microfinance organizations saw profits halve in 2025 while loans overdue by 30+ days rose over 25% y/y – an early signal of consumer stress in lower-income segments. Legacy problem assets from previous crises have not been fully resolved. Related-party transactions require continuous monitoring. A meaningful oil revenue shock would tighten liquidity conditions and risk spillovers from the energy sector to construction and services SMEs dependent on procurement flows.

President Tokayev has consolidated power since the 2022 unrest, implementing a single seven-year term limit and constitutional reforms that nominally redistribute authority. In practice, political space remains tightly controlled – media freedom, civil society and political opposition face significant restrictions. Industrial unrest, particularly in the energy sector, continues to pose social risks, amplified when production cuts force layoffs or wage arrears.

Kazakhstan's foreign policy is undergoing its most significant reorientation since independence. The November 2025 accession to the Abraham Accords marked a public step toward Western alignment. The country has distanced itself from Russia's war in Ukraine diplomatically – but the CPC crisis exposes the limits of declarative independence when physical infrastructure remains hostage to a conflict zone on Russian soil. Kazakhstan condemned the July drone strikes as "an unacceptable infringement on the economic interests of the Republic," yet has limited leverage over either belligerent.

The deeper structural question is whether Kazakhstan can actually reroute its export architecture. Trans-Caspian oil shipments and the Middle Corridor offer alternatives, but replacing 1.2mn b/d of CPC capacity requires years of investment in tankers, Caspian port infrastructure and Azerbaijani pipeline capacity. In the meantime, the country's economic sovereignty is physically mediated by a conflict it cannot control. This is the single most significant political risk facing Kazakhstan today: not internal instability, but the external weaponization of its export geography.