Putin’s pipeline: How the Kremlin outmaneuvered Western oil companies to wrest control of vast flows of Kazakhstan’s crude

Chevron and part­ners pri­or­i­tized prof­its, enabling run­away costs and bal­loon­ing bud­gets worth bil­lions as Russia deployed strong-arm tac­tics and steered con­tracts to cronies.

On a late August after­noon in 2021 the moor­ing mas­ter made a fran­tic call to a dis­patch­er at Russia’s largest port, Novorossiysk.

“Stop! Stop! Stop load­ing tanker Minerva Symphony!” he shouted.

But the dam­age had already been done. A float­ing plat­form used to load oil onto the Greek tanker had mal­func­tioned, unleash­ing a six-foot-high jet of oil into the Black Sea, three miles off the Russian coast. The oil, which had been flow­ing through the pipeline that was the heart of the Caspian Pipeline Consortium (CPC), gushed for near­ly a half hour before work­ers were able to stop it. It inched dan­ger­ous­ly close to a pop­u­lar beach dozens of miles from the so-called Putin’s Palace, an extrav­a­gant res­i­dence report­ed­ly used by the Russian president.

A full hour passed before 306 work­ers, 18 ships, four oil-recov­ery sys­tems and nine spe­cial­ized ves­sels with col­lec­tion tanks were deployed. The oil slicked sev­en miles of coast­line, and by the next evening it had spread to between 20 and 32 square miles, threat­en­ing farm­ers, vil­lagers, wildlife and tourists. The cleanup last­ed sev­en days, with only about 45 tons of the spilled oil recov­ered out of hun­dreds lost, accord­ing to a Russian court rul­ing. And then the dis­as­ter got worse. A vio­lent storm swept through the region with heavy rain and fierce winds, halt­ing efforts to cor­ral the oil, which, accord­ing to eco-activists, had set­tled on the bot­tom of the sea.

The hav­oc in the water, which was ulti­mate­ly a result of pri­or­i­tiz­ing prof­its over safe­ty, was only the lat­est adver­si­ty for the Western oil giants who long ago had accept­ed the con­se­quences of doing busi­ness in Russia and neigh­bor­ing Kazakhstan.

Caspian Cabals, a new inves­ti­ga­tion by the International Consortium of Investigative Journalists and 26 media part­ners, expos­es how the spill didn’t just lead to envi­ron­men­tal dam­age, but also to alle­ga­tions of finan­cial cor­rup­tion and geopo­lit­i­cal threats. Five whistle­blow­ers have alleged in inter­views with ICIJ that Western oil com­pa­nies’ deal­ings in Russia or Kazakhstan includ­ed improp­er pay­ments in vio­la­tion of the Foreign Corrupt Practices Act, a U.S. law that pro­hibits bribes to for­eign officials.

Caspian Cabals: Key findings

The Caspian Cabals inves­ti­ga­tion reveals how Western oil com­pa­nies — includ­ing Chevron Corp., ExxonMobil Corp., Shell PLC, and Italy’s Eni S.p.A. — ignored bribery risks and mas­sive cost over­runs to secure their stake in a crit­i­cal Kazakhstan-Russia pipeline, only to be side­lined by the Kremlin. Here are sev­en key find­ings from our reporting.Read more 

The 939-mile pipeline, which has cost bil­lions of dol­lars since con­struc­tion began in 1999, car­ried hopes for inter­na­tion­al coop­er­a­tion as well as future prof­its for both the investors and com­mu­ni­ties near the pipeline. It was also a means to reduce Western depen­dence on the Middle East. Increasingly, though, the pipeline’s Western own­ers, led by Chevron, had to cozy up to and buck­le under Russian pow­er to secure their invest­ment and keep the oil flow­ing. Over 20 years, as Putin became more pow­er­ful, strate­gic-mind­ed and a grow­ing threat to Western inter­ests, Chevron and the oth­er share­hold­ers increas­ing­ly ced­ed author­i­ty over the pipeline to the Russian president.

After the 2021 spill, the Western com­pa­nies wrote to CPC’s direc­tor gen­er­al to com­plain about Transneft and a string of “neg­a­tive mile­stones” — includ­ing the oil spill, the first in the pipeline’s his­to­ry. While their let­ter demand­ed answers, Western exec­u­tives were con­fronting a new hard truth in the near­ly 30-year his­to­ry of CPC: The answers, when or if they did come, would be too lit­tle, too late.

Caspian Cabals explores the rise of a crit­i­cal pipeline in the Caspian Sea region and the Kazakh oil fields that feed it. The two-year inves­ti­ga­tion is based on tens of thou­sands of pages of con­fi­den­tial emails, com­pa­ny pre­sen­ta­tions and oth­er oil indus­try records, audits, court doc­u­ments and reg­u­la­to­ry fil­ings, as well as hun­dreds of inter­views, includ­ing with for­mer com­pa­ny employ­ees and insid­ers. The inves­ti­ga­tion expos­es a pat­tern of prob­lem­at­ic con­tracts and deals that illus­trate how Western oil giants turned a blind eye to bribery risks, poten­tial con­flicts of inter­est and cost over­runs. It reveals how Western oil com­pa­ny mon­ey has empow­ered anti-demo­c­ra­t­ic actors in Kazakhstan, bol­stered the neigh­bor­ing regime of Vladimir Putin and enriched region­al elites.

“It’s not just the oil com­pa­nies who were com­plic­it — so was the U.S. gov­ern­ment,” Edward C. Chow, a for­mer exec­u­tive for Chevron Overseas Petroleum Ltd., said about alle­ga­tions of oil-indus­try cor­rup­tion in Russia. “They all knew, or they should have known, and chose to look the oth­er way.”

For Chevron, there is lit­tle turn­ing back. The sec­ond largest U.S. oil com­pa­ny — with its long­time home in San Ramon, Calif., and its cen­ter of grav­i­ty and new head­quar­ters in Houston — has one of its biggest finan­cial assets run­ning through Russia and Kazakhstan. The com­pa­ny has said it expects to see $4 bil­lion of free cash flow next year and $5 bil­lion in 2026 from its joint ven­ture at the Tengiz oil field in west­ern Kazakhstan, which feeds the CPC pipeline. Chevron report­ed $21.4 bil­lion in glob­al net income last year. The com­pa­ny holds a 50 per­cent stake in the Tengiz oper­a­tion, which aver­ages bil­lions of dol­lars in year­ly income. Chevron declined to say exact­ly how much it earns on its Kazakhstan or Russia operations.

In a state­ment to ICIJ, Sally Jones, a senior media advis­er for Chevron, said Chevron and the inter­na­tion­al oil com­pa­nies “have sought to pro­vide crit­i­cal tech­ni­cal sup­port to enable safe and reli­able oper­a­tions of the Caspian Pipeline Consortium.”

“Chevron is com­mit­ted to eth­i­cal busi­ness prac­tices, oper­at­ing respon­si­bly, con­duct­ing its busi­ness with integri­ty and in accor­dance with the laws and reg­u­la­tions of each of the juris­dic­tions in which it oper­ates,” she said. She did not respond direct­ly to ques­tions about Chevron’s role in the pipeline or com­plaints about over­priced con­tracts, alleged kick­backs or con­flicts of interest.

Exxon did not respond to requests for com­ment, nor did the gov­ern­ments of Kazakhstan or Russia. A spokesman for Shell said the com­pa­ny does not tol­er­ate bribery in any form. An Eni spokesper­son said, “We are com­mit­ted to uphold­ing the high­est stan­dards of trans­paren­cy, eth­i­cal con­duct and envi­ron­men­tal respon­si­bil­i­ty.” Eni referred ques­tions about the pipeline to CPC, which did not respond to mul­ti­ple requests for com­ment from ICIJ.

Transneft also didn’t reply.

The new ICIJ inves­ti­ga­tion also reveals Russia’s relent­less quest for dom­i­nance over the Western oil com­pa­nies. Putin’s grad­ual con­trol over the CPC — com­plete with ulti­ma­tums and an unbreak­able will to emerge on top — aligned with his larg­er pres­ence on the inter­na­tion­al stage as a prime min­is­ter and pres­i­dent who would assert his influ­ence where he saw fit. Whether it was invad­ing Chechnya, Georgia or Ukraine, med­dling in U.S. pres­i­den­tial elec­tions, or mak­ing bare­ly veiled threats of using his nuclear arse­nal, Putin saw a way to use CPC as a weapon in a long-stand­ing and trou­bling rival­ry with the West. And he was show­ing the for­mi­da­ble adver­sary he would come to be.

‘To reward friends and punish enemies’

The Caspian pipeline orig­i­nates at the 156-square-mile Tengiz oil field on the remote north­east­ern coast of the Caspian Sea, the largest lake in the world. With some sec­tions of pipe above ground and oth­ers at least 23 feet under­ground, the line cross­es tree­less prairies and rivers in Kazakhstan, and moun­tains, rice pad­dies and corn­fields in south­ern Russia. More than two-thirds of it is on Russian ter­ri­to­ry. The pipeline, which is up to 56 inch­es in diam­e­ter with col­or-cod­ed iden­ti­fi­ca­tion marks, ends in the Black Sea at three orange buoys about three miles from the CPC pipeline’s ter­mi­nal build­ing. These float­ing plat­forms are anchored to the seabed about 165 feet below.

Kazakhstan, the sec­ond biggest coun­try in the Caspian region — and the one with the most oil — shares long bor­ders with Russia to the north and north­west and China to the east.

In the late ’80s, with Kazakhstan still a Soviet state, the poten­tial for reshap­ing the geopol­i­tics of a region rich in oil became clear. The rela­tion­ship between the West and Soviet Union President Mikhail Gorbachev was thaw­ing. Gorbachev was look­ing for ways to revive his nation’s creaky econ­o­my. Stifled by 70 years of dic­ta­tor­ship, the Soviet Union need­ed Western mon­ey and tech­nol­o­gy. The West need­ed oil.

How Kazakhstan’s oil boom fueled a wealth gap

Formerly a mem­ber of the Soviet Union, Kazakhstan is the largest coun­try in Central Asia, and the ninth largest coun­try in the world. Despite being rich with nat­ur­al resources, the coun­try has suf­fered from a per­sis­tent wealth gap.Read more 

The United States became the first coun­try to rec­og­nize Kazakhstan’s inde­pen­dence, under President George H.W. Bush in 1991, when the Soviet Union col­lapsed. For  decades since, U.S. pres­i­dents, diplo­mats and lob­by­ists have pro­mot­ed the Caspian region as a resource bonan­za, a New Persian Gulf.

Almost overnight, it seemed, the Caspian region took cen­ter stage, show­ing up on mag­a­zine cov­ers and even in a James Bond thriller about a Caspian pipeline. In Kazakhstan, U.S. offi­cials at first sought to secure the country’s nuclear weapons and help Chevron, at the time the fourth largest U.S. oil com­pa­ny, gain access to the Tengiz oil field. As oil com­pa­nies scram­bled for Caspian stakes, Washington artic­u­lat­ed new pol­i­cy objec­tives such as enhanc­ing com­mer­cial oppor­tu­ni­ties for U.S. com­pa­nies and pro­mot­ing the West’s free-mar­ket and oth­er busi­ness prac­tices in the region.

The West also had hopes of free­ing Caspian coun­tries from depen­dence on Russia. But before any of that could take hold, there was a major hur­dle: how to get the Tengiz oil to world mar­kets from the Caspian Sea bor­der­ing Kazakhstan, which was sur­round­ed by nations that were com­mer­cial rivals and had their own oil trans­port routes.

James Giffen, a mer­chant banker, knew a lot about deal­ing with hur­dles. He had start­ed trav­el­ing to Moscow in 1969 while con­sult­ing with American com­pa­nies inter­est­ed in enter­ing the Soviet mar­ket. Soviet offi­cials had sug­gest­ed that he get involved in bring­ing oil field tech­nol­o­gy and equip­ment to the Soviet Union because the future of the coun­try depend­ed on the devel­op­ment of its oil and gas industry.

In the spring of 1987, a golf part­ner, financier Nicholas Brady — who would soon be named President Ronald Reagan’s Treasury sec­re­tary — offered to help con­nect Giffen with exec­u­tives at Chevron. Chevron appeared more than eager, accord­ing to an account that Giffen, who died in 2022, gave to Columbia University’s Harriman Institute. The oil giant was try­ing to secure its future in an uncer­tain time for Western oil companies.

Within days, Giffen said, he and a col­league were on a flight to San Francisco to meet Chevron’s chair­man and CEO, George Keller. At the end of the meet­ing, after two hours and lunch, Keller declared: “We’re in,” accord­ing to Giffen.

Working for Chevron, Giffen brought along politi­cians, lob­by­ists, lawyers, con­sul­tants, trade groups and think tanks used by Chevron and oth­er oil com­pa­nies to pro­mote their new inter­ests in the Caspian region.

Chevron exec­u­tives court­ed Kazakh offi­cials at a casi­no, at Disneyland, on a beach in Spain. In the Columbia inter­view, Giffen said the oil com­pa­nies “made extrav­a­gant gifts” to woo deci­sion-mak­ers, includ­ing build­ing sta­di­ums for the Kazakhs, which he believed to be a vio­la­tion of the Foreign Corrupt Practices Act. “It’s just unbe­liev­able what they did,” Giffen said. “But no charges were ever brought against the oil companies.”

After the col­lapse of the Soviet Union, Chevron and Giffen part­ed ways. Giffen went to work for the new Kazakh pres­i­dent, Nursultan Nazarbayev, as his chief oil nego­tia­tor and, pros­e­cu­tors lat­er alleged, his per­son­al banker.

Chevron’s over­seas pres­i­dent, Richard Matzke, who orig­i­nal­ly joined Chevron as a geol­o­gist in Louisiana, had his sights on what he called Kazakhstan’s “super-giant” Tengiz oil field, one of the world’s rich­est and deep­est, on the north­east shore of the Caspian Sea.

In April 1993, after more than five years of gru­el­ing nego­ti­a­tions, Chevron struck a deal with Kazakhstan to devel­op Tengiz. Kazakhstan and Chevron each got 50%. Chevron received a license to pro­duce oil for 40 years through 2033. The joint ven­ture was called Tengizchevroil. With that deci­sion, oil indus­try con­sul­tant Thane Gustafson wrote that Chevron “prac­ti­cal­ly bet the com­pa­ny” on Tengiz.

As oil exec­u­tives from at least four oth­er Western oil com­pa­nies pushed to buy chunks of the Kashagan and Karachaganak oil and gas fields in Kazakhstan, Giffen nego­ti­at­ed for Nazarbayev.

Between 1995 and 2000, Mercator Corp., the small mer­chant bank that Giffen found­ed and con­trolled, was paid about $67 mil­lion in “suc­cess fees,” and Giffen alleged­ly divert­ed $78 mil­lion from the oil com­pa­nies to two senior Kazakhstan offi­cials, accord­ing to 2003 indict­ments filed in U.S. fed­er­al court. The offi­cials were President Nazarbayev and Nurlan Balgimbayev, who served first as Kazakhstan’s min­is­ter for oil and gas and then prime minister.

Prosecutors charged Giffen in a bribery scheme. Much of the mon­ey, they said, was deposit­ed in Swiss bank accounts. Balgimbayev alleged­ly used funds to buy $180,000 worth of dia­mond jew­el­ry and $20,000 to reserve a week’s stay at a Swiss spa, the indict­ment said. Giffen spent $80,000 on a Donzi speed­boat for a Kazakh offi­cial and $30,000 for fur coats for Nazarbayev’s wife and daugh­ter, accord­ing to the indict­ment. He paid for his daughter’s tuition at George Washington University, in Washington, out of the same funds, the indict­ment said. Neither Nazarbayev nor Balgimbayev was charged; Giffen plead­ed guilty to a tax-relat­ed mis­de­meanor. But a judge declined to sen­tence him to prison after he tes­ti­fied that he act­ed with sup­port from the CIA and the White House to help advance American inter­ests in the region.

The oil field con­tracts between the gov­ern­ment of Kazakhstan and the oil com­pa­nies remain secret to this day — fair­ly stan­dard prac­tice in the industry.

With the oil extrac­tion deals set, Chevron need­ed a trans­porta­tion route to get the oil out of non-coastal Kazakhstan. While some Chevron exec­u­tives pushed for a way to bypass Russia, Matzke, Chevron’s over­seas pres­i­dent, kept his focus on an uncom­plet­ed pipeline in south­ern Russia. U.S. offi­cials pro­mot­ed expand­ing the CPC pipeline through Russia, too, but they also stressed the need for mul­ti­ple oil routes.

The route through Russia, though, was fraught from the ear­li­est dis­cus­sions about Tengiz. For starters, the CPC left out Western com­pa­nies. It wasn’t until 1996 that CPC’s struc­ture was rad­i­cal­ly revised to give Chevron and oth­er pri­vate com­pa­nies (many of them Western) a com­bined 50% stake in the ven­ture. The oth­er 50% was divid­ed among states: Russia, Kazakhstan and Oman. And all pipelines in Russia ran through that country’s state-owned pipeline monop­oly, Transneft. Neither Transneft nor Moscow was about to take a back seat. And the Kremlin was par­tic­u­lar­ly invest­ed in what came next, because Russia didn’t have a direct part­ner in the project.

As Nazarbayev lat­er recalled, he had to go and con­vince Russian President Boris Yeltsin, who was in a Kremlin hos­pi­tal. When Nazarbayev showed the ail­ing pres­i­dent a map of the pipeline, Yeltsin called up Russian Prime Minister Viktor Chernomyrdin and asked whether the pipeline was “prof­itable” for Russia. After get­ting assur­ance, Yeltsin said: “Then I’ll sign it.”

Chow, the for­mer Chevron man­ag­er, said that Transneft was impor­tant for polit­i­cal as well as eco­nom­ic rea­sons. “In Russia’s patron­age sys­tem,” he said, “you can use the con­trol of the pipeline to reward friends and pun­ish enemies.”

The most eager oil­man with close ties to the Kremlin was Vagit Alekperov, CEO of the fledg­ling Lukoil com­pa­ny and now Russia’s rich­est man. A for­mer oil rig work­er from Azerbaijan, Alekperov rose to become deputy oil and gas min­is­ter of the Soviet Union before tak­ing over large Russian oil fields and set­ting up Lukoil, now Russia’s sec­ond largest oil com­pa­ny. American jour­nal­ist Paul Klebnikov wrote in “Godfather of the Kremlin” that Alekperov and Russian Fuel and Energy Minister Yuri Shafranik put the “Baku squeeze” on Chevron and Kazakhstan in 1995: They saw to it that Chevron received only a third of the pipeline capac­i­ty it had been promised. Then Lukoil received a share of the Tengiz oil project. The revised deals, com­plet­ed in 1996 and 1997, reflect­ed the del­i­cate bal­ance of pow­er in the region. Of all the pipeline own­ers, the Russian gov­ern­ment would end up hold­ing the largest share, 24% at the time. Kazakhstan held 19% and Oman, which over­looks the mouth of the Persian Gulf and shares a bor­der with Saudi Arabia, 7%. The pri­vate share­hold­ers — includ­ing Chevron, Exxon, Amoco, Eni and Shell — held a com­bined 50% own­er­ship. Chevron owned the largest piece of that slice, 15%. Estimates were that Russia could get as much as $33 bil­lion in direct and indi­rect rev­enue over 35 years. And while Russia agreed to donate unused pipeline assets, the pri­vate com­pa­nies would put up the mon­ey to con­struct the pipeline. These devel­op­ments sprang from Russia’s enor­mous sense of “nation­al pride” and “enti­tle­ment” that were dri­ving forces pre­dat­ing Putin, said Adrian Dellecker, a polit­i­cal sci­en­tist who wrote about CPC for the French Institute for International Relations in 2008.

“CPC only hap­pened because Russia was weak and the West dic­tat­ed it,” Dellecker told ICIJ. When Putin came to pow­er, “The whole cal­cu­la­tion changes,” he said. “It becomes about Russia regain­ing its for­mer glo­ry. For Putin, the CPC project is not about quar­ter­ly prof­its, or even annu­al prof­its. It’s about gain­ing control.”

Bending to Moscow

The deals to start the oil flow­ing were under­way in 1999, but plans for democ­ra­cy in the Caspian region would fade because of a pro­found break­down of intel­li­gence and fail­ure to pre­dict Putin’s desire to rebuild the old Soviet Union.

“This was a great dream of the U.S. to make these coun­tries inde­pen­dent,” said for­mer CIA agent Robert Baer, who was assigned to Central Asia and the Caucasus. “It just wasn’t doable.”

Baer told ICIJ that U.S. gov­ern­ment offi­cials’ talk about pro­mot­ing democ­ra­cy was “pub­lic mes­sag­ing” and “will­ful blind­ness” to gov­ern­ment cor­rup­tion and dic­ta­tor­ship in Russia and Kazakhstan. “It was all about oil,” Baer said. “The real­i­ty of oil.”

In the end, the U.S. allo­cat­ed only mod­est resources to the sort of train­ing, aid and insti­tu­tion build­ing nec­es­sary to achieve its goals, said Robert A. Manning, a for­mer senior U.S. State Department offi­cial and author of “The Asian Energy Factor: Myths and Dilemmas of Energy, Security and the Pacific Future.” He called the U.S. goals of expand­ing democ­ra­cy in the Caspian region a “roman­tic dream.”

But on a crisp day in May that year there was much cel­e­bra­tion of the pipeline’s promise. At CPC’s ground­break­ing cer­e­mo­ny in the Black Sea vil­lage of Yuzhnaya Ozereevka, oil exec­u­tives, diplo­mats and politi­cians on one side of the road feast­ed on caviar and sipped cham­pagne. On the oth­er side, a spir­it­ed group of up to 100 activists had wran­gled their way into the cer­e­mo­ny, despite orders from the may­or of the port city of Novorossiysk that police stop them.

VIPs includ­ing Chevron’s Richard Matzke and Lukoil’s Vagit Alekperov hailed the start of CPC ter­mi­nal con­struc­tion, which had been in the plan­ning stage for many years, as a mod­el of inter­na­tion­al coop­er­a­tion. Protesters jeered the loud­est when U.S. spe­cial advis­er Richard Morningstar read a let­ter of con­grat­u­la­tions from President Bill Clinton.

They aimed to block the pipeline from cut­ting through a coast­line nature reserve, plac­ing an ever greater envi­ron­men­tal bur­den on Novorossiysk. They main­tained that Chevron and the oth­er CPC own­ers had bro­ken Russia’s law on envi­ron­men­tal assess­ment and that they were being denied ade­quate com­pen­sa­tion for their land.

Yuzhnaya Ozereevka, a set­tle­ment of around 1,100 peo­ple 10 miles from the port, fea­tured unique for­est slopes and pis­ta­chio and juniper trees that res­i­dents had sought to pro­tect since the 1980s; now they were under threat from the bil­lion-dol­lar pipeline, res­i­dents said in a law­suit against CPC in 2000. They also point­ed to ongo­ing issues with air pol­lu­tion from two oil ter­mi­nals and oth­er enter­pris­es already oper­at­ing in the area. CPC denied the alle­ga­tions, and a judge found in favor of the company.

Meanwhile, the West was hope­ful about Russia’s next pres­i­dent, Vladimir Putin, who offi­cial­ly took over as act­ing pres­i­dent on the last day of the 20th cen­tu­ry. Western nations react­ed opti­misti­cal­ly when the new leader vowed to stand firm for free­dom of speech and the rule of law. In Clinton’s con­grat­u­la­to­ry phone call to the for­mer KGB agent, the American pres­i­dent remarked that Yeltsin’s res­ig­na­tion and Putin’s response “are very encour­ag­ing for the future of Russian democracy.”

Putin’s rise, though, sig­naled a fun­da­men­tal shift in the Caspian. In a 1999 meet­ing in Moscow with Alekperov and Matzke to assess the pipeline’s progress, Putin voiced a keen inter­est in it, accord­ing to Matzke. After the meet­ing, Putin stressed the eco­nom­ic and geopo­lit­i­cal impor­tance of CPC to Russia, accord­ing to Petroleum Economist, a web­site that cov­ers the indus­try. Indeed, for some, the ear­ly Putin years her­ald­ed a moment of coop­er­a­tion between Russia and the U.S. — at least on issues such as nuclear non­pro­lif­er­a­tion and, in the wake of 9/11, coun­tert­er­ror­ism. As U.S. Secretary of Commerce Donald Evans said lat­er at the pipeline’s open­ing cer­e­mo­ny in Moscow, CPC was the “start of Russian-American dialogue.”

The view of CPC from the offices of Transneft, Russia’s state pipeline monop­oly, was more cyn­i­cal than Putin’s, how­ev­er. Transneft, then led by for­mer Lukoil exec­u­tive  Semyon Vainshtok, who went on to have direct access to Putin, want­ed total con­trol of oil trans­port by Russia. Throughout the 2000s, Vainshtok wast­ed few oppor­tu­ni­ties to remind the pub­lic that CPC’s low rev­enue for the Russian state was “humil­i­at­ing.”

“For trans­port­ing oil across its ter­ri­to­ry, the coun­try has not received a cent,” Vainshtok would com­plain to Neftegaz.ru, an ener­gy news web­site, in 2006.

Meanwhile, Novorossiysk res­i­dents wor­ried about what would hap­pen if a pipeline acci­dent spilled oil onto their land. They turned to Mikhail Konstantinidi, a sec­ondary school his­to­ry teacher and local civic activist, to fight for them in court. They alleged in law­suits filed in 1999 and 2000 that CPC had not com­plied with envi­ron­men­tal laws. “The rude intru­sion of CPC into nature was sim­ply unac­cept­able,” Konstantinidi, now 66, told ICIJ. “And as prac­tice and time showed, all of our con­cerns were confirmed.”

Activists in Novorossiysk also demand­ed a ref­er­en­dum on the loca­tion of the pipeline, which local offi­cials said was of such “nation­al impor­tance” that home­own­ers in Yuzhnaya Ozereevka had to sign over their land. Soon after, a crew bull­dozed the vine­yards and the forest.

With Konstantinidi’s help, cam­paign­ers won a lim­it­ed vic­to­ry in September 2000. A Novorossiysk judge ordered a halt to pipeline con­struc­tion. The judge found that CPC had failed to obtain required envi­ron­men­tal approvals and did not have per­mis­sion to begin con­struc­tion. But CPC suc­cess­ful­ly appealed the rul­ing. Police detained Konstantinidi two weeks lat­er on fraud charges, which he said were trumped up in retal­i­a­tion for his pipeline oppo­si­tion. A judge con­vict­ed him, and he served more than two years in prison.

By the time the teacher turned activist would be freed on appeal in 2004, local resis­tance to CPC had large­ly been quashed, he told ICIJ.

As the oil expan­sion plans at Tengiz moved for­ward, CPC need­ed to dra­mat­i­cal­ly open up the pipeline’s capac­i­ty. Officials want­ed to more than dou­ble its out­put by enlarg­ing the diam­e­ter of the pipes and adding 10 pump­ing sta­tions to increase the veloc­i­ty of the oil flow. The esti­mat­ed cost was $1.5 billion.

Putin, who had promised his sup­port for CPC, was now under more scruti­ny from the West over his bru­tal mil­i­tary cam­paign in Chechnya, a repub­lic in south­ern Russia that had declared inde­pen­dence. After a brief Chechen suc­cess in the First Russo-Chechen War, Russia, under Putin, had launched a sec­ond war in 1999, crush­ing the move­ment with over­whelm­ing mil­i­tary force. The result was deaths, dis­ap­pear­ances and dis­place­ment of hun­dreds of thou­sands of civil­ians, leav­ing Chechnya firm­ly under Moscow’s control.

To build on Russia’s stat­ed coop­er­a­tion, Chevron exec­u­tive Ian MacDonald, who was named CPC direc­tor in 2002, led an inter­na­tion­al cam­paign to pro­mote the pro­posed pipeline expansion.

“It is vital to the inter­ests of Russia that CPC con­tin­ues to suc­ceed,” MacDonald said at the Moscow International Oil and Gas Exhibition in June 2002. “CPC unlocks the key to the Caspian’s wealth.” But the surge of Western oil mon­ey flow­ing into Russia and Kazakhstan in the 2000s only fur­ther bol­stered the bur­geon­ing dic­ta­tor­ships in both countries.

As Russia aimed to boost its eco­nom­ic gains from oil and gas exports — as well as regain its ear­li­er place of pow­er in the world — the gov­ern­ment tight­ened its grip on CPC. “The stronger Transneft became finan­cial­ly and the more its lead­er­ship was affil­i­at­ed with Putin, the stronger it emerged as an enti­ty issu­ing [the mes­sage] that it con­sid­ers CPC a prob­lem” — a non-gov­ern­ment pipeline that was a com­peti­tor to Transneft, Vladimir Milov, a Russian oppo­si­tion leader and for­mer Russian deputy ener­gy min­is­ter, told ICIJ.

From Russia, the Kazakhs had learned how to take “advan­tage of every minor trans­ac­tion to extract max­i­mum val­ue” from the oil com­pa­nies, John Dabbar, a ConocoPhillips exec­u­tive at the time and a for­mer CPC busi­ness man­ag­er, would lat­er tell a U.S. ambas­sador, accord­ing to a U.S. diplo­mat­ic cable obtained by WikiLeaks.

“In Russia, every­body in the Ministry of Energy needs a rev­enue stream and a lever, and some­times they will pull that lever just to remind you that they can,” the cable quot­ed Dabbar as saying.

• Recommended read­ing

Caspian Cabals

Oil giants ignored red flags, enriched elite for Kazakhstan pipe dream

Nov 22, 2024

BROKEN PROMISES

The lost village: Western oil companies enriched Kazakhstan’s power brokers — and left a community in ruins

Nov 22, 2024

LOBBYING

Inside Big Oil’s war against transparency

Nov 22, 2024

In October 2007 the Russians applied addi­tion­al lever­age when Putin tapped an old KGB col­league, Nikolai Tokarev, to lead Transneft, which had been tasked with man­ag­ing Russia’s CPC stake. Days lat­er, Chevron bent to pres­sure from Moscow. The com­pa­ny changed its per­spec­tive and agreed with a pro­pos­al to cre­ate CPC’s first board of direc­tors, which would have ulti­mate say over the pipeline. Russia had five of the board’s 22 seats, more than any share­hold­er, accord­ing to a report by International Oil Daily, a pro­pri­etary ener­gy infor­ma­tion com­pa­ny. The elec­tion of a Chevron rep­re­sen­ta­tive, Andrew McGrahan, as board chair­man was a “com­pro­mise” from the per­spec­tive of Western shareholders.

While Chevron exec­u­tives played up progress and suc­cess, the real­i­ty was that the oil giant con­tem­plat­ed with­draw­ing from the ven­ture. Chevron exec­u­tive Guy Hollingsworth would lat­er tell U.S. offi­cials that the com­pa­ny had large­ly “writ­ten off” CPC expan­sion. The Russians “keep ratch­et­ing up demands until there is noth­ing left,” he said, accord­ing to WikiLeaks.

Russian influ­ence on CPC increased in late 2008, after it bought Oman’s 7% share and boost­ed its stake in the pipeline to 31%; now Russia could block deci­sions at the board level.

By late 2010, when CPC share­hold­ers were final­ly set to approve the expan­sion bud­get, the cost had bal­looned from $1.5 bil­lion to a remark­able $5.4 bil­lion. Chevron cit­ed  “adjust­ments in scope” for the esca­lat­ing price tag, includ­ing addi­tion­al pow­er sup­ply costs in Russia, a sig­nif­i­cant increase in labor hours and rates, and “uncer­tain­ty regard­ing the readi­ness” of CPC and the three com­pa­nies man­ag­ing the expansion.

The con­fi­den­tial Chevron doc­u­ments warned that Transneft was “mus­cle flex­ing” and using “bul­ly tac­tics” to give con­tracts to Russian com­pa­nies. For exam­ple, Transneft held up con­tract awards, sought to steer deals to unqual­i­fied bid­ders and fil­i­bus­tered for max­i­mum con­trol. Internal Chevron doc­u­ments obtained by ICIJ show the com­pa­ny opposed Transneft’s effort to steer con­tracts to its own affil­i­ates because such awards cre­at­ed built-in con­flicts of inter­est, since Transneft was not in a posi­tion to over­see itself. Transneft’s “fil­i­buster” over the con­tract process came to a head on the day the bid pack­ages for pump­ing sta­tions were opened: Transneft blocked CPC rep­re­sen­ta­tives from enter­ing its build­ing to review the bids, accord­ing to one con­fi­den­tial Chevron pre­sen­ta­tion. The CPC share­hold­ers approved the expan­sion deal any­way. Despite all the strong-arm tac­tics, com­pro­mis­es and Russia’s clear ascen­dence, there was still so much mon­ey to be made.

A new power grab

“I went to great lengths to get my hands on this secret report and final­ly suc­ceed­ed,” Russian anti-cor­rup­tion blog­ger Alexei Navalny wrote in his posthu­mous­ly pub­lished book “Patriot: A Memoir.”

“I was appalled,” he wrote, adding, “It was a huge scandal.”

Navalny was writ­ing about a leaked inter­nal audit into alleged embez­zle­ment on Transneft’s Eastern Siberia-Pacific Ocean pipeline, a bomb­shell doc­u­ment that broke open the scale of cor­rup­tion inside Russian state com­pa­nies in late 2010.

Based on the leaked inter­nal audit Navalny obtained, Transneft con­trac­tors had reg­u­lar­ly raised work costs, rigged ten­ders, per­formed unnec­es­sary work and inflat­ed expens­es on materials.

Transneft’s Tokarev dis­missed Navalny’s alle­ga­tions and sug­gest­ed he was a shill for the CIA.

As Navalny took on state ener­gy com­pa­nies in his cru­sade against cor­rup­tion, he became the most out­spo­ken crit­ic of Putin and his inner cir­cle —  and an inter­na­tion­al icon for jus­tice. He was jailed on extrem­ism and oth­er charges but denied all of them. Navalny, 47, died in “Polar Wolf,” one of Russia’s tough­est penal colonies, locat­ed north of the Arctic Circle in Siberia.

A month after Navalny’s audit leak, despite what­ev­er mis­giv­ings Chevron and the oth­er share­hold­ers might have had, they signed off on the CPC expan­sion deal.

“The more Russia became rich, the more assertive the poli­cies of Putin’s gov­ern­ment were, the more endan­gered the Western invest­ments in the oil and gas indus­try became,” said Milov, the for­mer Russian ener­gy offi­cial and one-time advis­er to Navalny.

The Russian audit on Transneft raised con­cerns about sev­er­al con­trac­tors to which  Chevron and its CPC part­ners had award­ed work for the $5.4 bil­lion CPC expan­sion. The pipeline upgrade — to increase capac­i­ty to 67 mil­lion tons of oil a year — began in July 2011 after a decade of nego­ti­a­tions. Pipe with a larg­er diam­e­ter would be weld­ed onto old­er pipe. Larger valves would be installed, and vast stor­age tanks would be added. There would also be 10 addi­tion­al pump­ing stations.

Through review­ing court and oth­er pub­lic records as well as leaked doc­u­ments such as expan­sion progress reports, ICIJ dis­cov­ered that CPC con­trac­tors in Russia and Kazakhstan ran up mil­lions of dol­lars in charges through con­tract amend­ments, per­formed poor-qual­i­ty work such as weld­ing defects in pipes and in at least one case paid a fake subcontractor.

In 10 cas­es iden­ti­fied by ICIJ, Russian con­struc­tion firms signed con­tracts for the CPC expan­sion and accept­ed advance pay­ments or loans, but they alleged­ly failed to car­ry out sub­stan­tial work or deliv­ered work late. One case, a tax dis­pute brought by a major CPC con­trac­tor in the Russian courts in 2015, revealed that a $48 mil­lion advance pay­ment was made for work that includ­ed build­ing elec­tric­i­ty lines to a new pump­ing sta­tion in south­ern Russia that nev­er hap­pened. Most of those funds, court records show, were ini­tial­ly des­tined for mod­u­lar homes for con­struc­tion work­ers. Instead, a few days lat­er, accord­ing to a Russian judge, $35.6 mil­lion end­ed up at a finan­cial ser­vices com­pa­ny set up by a for­mer col­league of Andrei Bolotov, son-in-law of Nikolai Tokarev, whom Putin had installed as the Transneft president.

The next year, Bolotov took a 50% inter­est in the finance com­pa­ny — a stake that he lat­er trans­ferred to his wife at the time, Tokarev’s daugh­ter, Russian cor­po­rate records show. A Russian court not­ed that the orig­i­nal con­struc­tion contractor’s actions “were aimed exclu­sive­ly at remov­ing funds from cir­cu­la­tion” but did not find any wrong­do­ing on the part of the finan­cial ser­vices company.

Bolotov did not respond to mul­ti­ple requests for com­ment from ICIJ. In an email to ICIJ, a for­mer direc­tor and share­hold­er of the finan­cial ser­vices com­pa­ny strong­ly denied that his com­pa­ny had ever received the funds in question.

Less than a year after the pipeline expan­sion got under­way, a for­mer Chevron exec­u­tive turned whistle­blow­er accused Chevron and five oth­er oil com­pa­nies, along with four Chevron exec­u­tives, of approv­ing huge­ly over­priced con­tracts. The whistleblower’s lawyer, Stephen M. Kohn, asked the oil com­pa­nies to investigate.

“The infor­ma­tion and doc­u­ments pro­vid­ed by our client(s) demon­strate that Chevron, through its Chevron Caspian Pipeline Consortium Company, has entered into a project that it knows will fun­nel huge amounts of mon­ey to offi­cials in the Russian gov­ern­ment (and the col­leagues and rel­a­tives there­of) via mas­sive over­pay­ments” to com­pa­nies with con­nec­tions to Transneft and the Russian gov­ern­ment, Kohn wrote in a November 2011 con­fi­den­tial let­ter to Chevron. He sent sim­i­lar let­ters to Exxon, Shell, Eni and BG Group PLC (lat­er acquired by Shell).

Exxon’s lawyers said they found no evi­dence to sup­port the com­plaint. “Your let­ters to date sug­gest the pos­si­bil­i­ty that you are engaged in a fish­ing expe­di­tion,” attor­ney Theodore V. Wells Jr. wrote.

And BG Group’s lawyers replied that the com­pa­ny was review­ing the alle­ga­tions but that many were based on sup­po­si­tion and too gen­er­al to respond to. Shell PLC, at the time known as Royal Dutch Shell, acquired BG Group in 2016. Shell declined to respond to ques­tions from ICIJ.

Kohn filed a com­plaint with the U.S. Securities and Exchange Commission the fol­low­ing year, claim­ing that the oil com­pa­nies vio­lat­ed the Foreign Corrupt Practices Act; that 1977 law pro­hibits com­pa­nies from promis­ing any­thing of val­ue to for­eign gov­ern­ment offi­cials to influ­ence deci­sions. Kohn’s com­plaint alleged red flags: dis­guis­ing kick­backs as man­age­ment fees, reduc­ing peer review require­ments essen­tial for prop­er over­sight, and steer­ing con­tracts to com­pa­nies polit­i­cal­ly favor­able to the Russian government.

The com­plaint went nowhere, but in 2022 Kohn filed com­plaints with the SEC and Commodity Futures Trading Commission on behalf of two oil com­pa­ny whistle­blow­ers with alle­ga­tions sim­i­lar to the ear­li­er com­plaint. Kohn’s let­ters to the oil com­pa­nies from the ear­li­er com­plaint alleged that one way Transneft fun­neled mon­ey to gov­ern­ment offi­cials was through the polit­i­cal­ly influ­en­tial com­pa­ny Velesstroy, which grew into a major Transneft sup­pli­er and was alleged­ly award­ed con­tracts vast­ly above mar­ket rate.

Sanctioned by the U.S. in 2023, Velesstroy is owned by busi­ness­men from Croatia named Mihajlo Perenčević and Krešimir Filipović; the U.K. sanc­tioned both men as indi­vid­u­als (one as ear­ly as 2022 and the oth­er last year) because of their ties to the ener­gy sec­tor in Russia. Filipović, who owned near­ly 85% of Velesstroy in 2020, is a close busi­ness asso­ciate of the Russian gov­ern­ment. The media dubbed him “Putin’s wal­let” in the Balkans. In 2017, Putin pre­sent­ed Filipović with a cer­tifi­cate of hon­or in grat­i­tude for work in “con­struc­tion, devel­op­ment and oper­a­tion of new gas and con­den­sate fields.”

The records reviewed by ICIJ, includ­ing bank doc­u­ments, inspec­tion reports and court fil­ings, show how Velesstroy avoid­ed tax­es, used ille­gal and poor­ly trained labor, and vio­lat­ed safe­ty rules.

Since 2015 at least 18 Velesstroy work­ers have died on the job, includ­ing a man who was buried under rub­ble after an avalanche at a CPC site. In a press release, CPC man­age­ment expressed its “deep­est con­do­lences.” Neither Velesstroy nor Mihajlo Perenčević and Krešimir Filipović respond­ed to mul­ti­ple requests for comment.

Records obtained by Oštro, an ICIJ media part­ner, reveal that by 2020 Filipović and Perenčević con­trolled hun­dreds of mil­lions of dol­lars in high-end prop­er­ties in Croatia and Russia. A Russian bank grant­ed a loan to help fund these acqui­si­tions, and a com­pa­ny linked to Russian oli­garchs man­aged the properties.

In May of this year, Russian news out­let and ICIJ media part­ner Proekt found that Velesstroy was paid $4.3 mil­lion in 2021 to refur­bish the 4.4‑acre Putin Palace. According to Navalny’s Anti-Corruption Foundation, the prop­er­ty fea­tures a heli­pad, a 27,000-square-foot green­house, an ice hock­ey rink, an indoor pool lead­ing to an “aqua dis­co,” an amphithe­ater under­go­ing end­less ren­o­va­tions, a chapel with an impe­r­i­al-look­ing throne and a tun­nel dug under the prop­er­ty to access the pri­vate beach — about 50 miles from CPC’s terminal.

Neither Velesstroy nor its own­ers respond­ed to mul­ti­ple requests for com­ment from ICIJ. The Russian President’s press office also didn’t reply.

As for the ongo­ing frus­tra­tions with the CPC expan­sion, one Western oil exec­u­tive said in an email that the way con­tracts were writ­ten and man­aged was “ter­ri­ble” and that CPC man­agers who sought to increase over­sight were dis­cred­it­ed. A con­fi­den­tial email from November 2012 quotes a CPC com­pli­ance offi­cer call­ing CPC’s sys­tem of man­ag­ing con­tracts a “snakepit” under Transneft. “Transneft is tak­ing full advan­tage,” it said.

The prob­lems spi­raled down to the con­struc­tion itself. An inter­nal CPC report found “bla­tant dis­re­gard” for con­struc­tion qual­i­ty was “com­mon on the expan­sion project, dri­ven by a need to deliv­er results accord­ing to sched­ule.” But, the report not­ed, this sit­u­a­tion “introduce[d] a greater like­li­hood of injury and / or fail­ure when equip­ment goes live.”

In inter­views with ICIJ, five whistle­blow­ers said they had report­ed inflat­ed costs on Caspian oil deals and efforts to steer con­tracts to polit­i­cal­ly influ­en­tial com­pa­nies. Their com­plaints alleg­ing vio­la­tions of the Foreign Corrupt Practices Act have gone nowhere, they said. ICIJ also reviewed doc­u­ments from four oth­er whistle­blow­ers or for­mer insid­ers that alleged sim­i­lar cost infla­tion or con­flicts of interest.

Baer, the for­mer CIA agent, said the major oil com­pa­nies were aware of the cor­rup­tion risks and all the fine points of the Foreign Corrupt Practices Act. “But they also under­stood that you can’t go into Central Asia with­out effec­tive­ly pay­ing bribes by over­pay­ing for ser­vices, con­tracts and leases.”

Tensions with­in the con­sor­tium were ratch­et­ing up. Former CPC inter­na­tion­al per­son­nel said they faced visa prob­lems and oth­er intim­i­da­tion they sus­pect­ed  Transneft had ini­ti­at­ed. In 2016, CPC hired as its new gen­er­al direc­tor Nikolay Gorban, a Transneft vet­er­an who had worked at sev­er­al of the company’s sub­sidiaries through­out the 2000s. With Gorban at the helm, a new pow­er grab was in the off­ing. And so was a new calamity.

Turbulent waters

In April 2018, CPC General Director Gorban gave the com­mand to start the pipeline pump sta­tion in Kalmykia, Russia — the final mile­stone of an expan­sion that had lagged four years behind sched­ule. The next year, the CPC part­ners launched plans for a $600 mil­lion project to again boost the pipeline’s capac­i­ty. Once more Transneft was ready to flex its muscles.

Transneft pushed to take away a buoy main­te­nance con­tract from a Dutch firm called Smit Lamnalco, which Chevron pre­ferred, and award it to its sub­sidiary Transneft Service, accord­ing to sources with knowl­edge of the sit­u­a­tion. The three bright orange buoys, each as tall as a two-sto­ry build­ing and attached to the seabed by mul­ti-ton anchors, were high­ly com­plex pieces of equip­ment float­ing about three miles from CPC’s marine ter­mi­nal. Specially designed to with­stand severe winds, these plat­forms trans­ferred more than 50 mil­lion tons of oil onto hun­dreds of tankers every year.

According to doc­u­ments obtained by Proekt, Transneft Service was pay­ing Complex, a firm that owns Putin’s Palace, near­ly every month for a non-res­i­den­tial real estate lease. Transneft Service paid the same firm a small month­ly fee for buf­fet ser­vices. The pay­ments for the lease and the buf­fet ser­vices from 2019 to 2023: more than $18.9 million.

In 2021, Navalny’s team pub­lished details on how Transneft sub­sidiaries paid Complex about $1 mil­lion a month for real estate leas­es. Navalny dubbed Putin’s Palace “history’s biggest bribe,” con­struct­ed for the Russian pres­i­dent, Navalny said, with $1.35 bil­lion pro­vid­ed by mem­bers of his inner cir­cle in exchange for top jobs and lucra­tive projects.

Sources told ICIJ’s Dutch part­ner NRC that share­hold­ers argued over a pro­pos­al to award Transneft Service a lucra­tive marine ser­vice con­tract, which includ­ed buoy maintenance.

Transneft then blocked the elec­tion of a new CPC board of direc­tors in ear­ly March 2020. Afterward, accord­ing to inter­nal CPC doc­u­ments reviewed by ICIJ, Transneft pro­posed expand­ing Gorban’s pow­ers and hav­ing employ­ees of Western share­hold­ers work­ing at CPC report to the gen­er­al direc­tor. Though a new board was elect­ed in May that year, share­hold­ers chose not to vote on Transneft’s pro­pos­als. Five days after the board’s elec­tion, more than a dozen Western oil com­pa­ny employ­ees work­ing with CPC got an unwel­come sur­prise: Russia’s Interior Ministry accused CPC of employ­ing them in Russia ille­gal­ly. Concerned over pos­si­ble con­se­quences, the Western work­ers fled the coun­try and were shut out of CPC’s com­put­er sys­tem. Six weeks lat­er, CPC signed a 10-year con­tract with Transneft Service for marine ser­vices at Novorossiysk.

The pipeline had essen­tial­ly mor­phed into “a very impres­sive and pow­er­ful polit­i­cal tool,” accord­ing to Vladimir Milov, the Russian oppo­si­tion leader.

In March 2021 Transneft Service took con­trol of marine work at Novorossiysk. The oil spill hap­pened five months later.

A Russian-dom­i­nat­ed inves­ti­ga­tion board blamed the acci­dent on a dam­aged part in one of the buoys that caused a sud­den rup­ture. The buoys’ man­u­fac­tur­er, Imodco, is part of SBM Offshore N.V., which has a sub­sidiary that plead­ed guilty in a 2017 scheme to bribe offi­cials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq, and agreed to pay a $238 mil­lion fine. The board did not impli­cate Imodco in the spill.

In the years before the spill, a series of inci­dents revealed seri­ous safe­ty laps­es with­in the CPC pipeline net­work, with Russian reg­u­la­tors repeat­ed­ly flag­ging defi­cien­cies. Inspectors not­ed inad­e­quate pro­ce­dures for inves­ti­gat­ing acci­dents, includ­ing inci­dents in 2016 and 2017 in which reports lacked crit­i­cal details on envi­ron­men­tal dam­age and finan­cial loss­es. Also, essen­tial safe­ty infra­struc­ture such as fire-extin­guish­ing equip­ment at pump­ing sta­tions wasn’t main­tained, and uncer­ti­fied work­ers were allowed to han­dle haz­ardous tasks in the years after the spill occurred. All these issues height­ened risks across the pipeline.

CPC nev­er dis­closed exact­ly how much oil was recov­ered from the sea, and a Russian court found that the pipeline com­pa­ny pro­vid­ed con­tra­dic­to­ry infor­ma­tion to a Russian envi­ron­men­tal agency. CPC “has repeat­ed­ly changed its posi­tion” on how much oil spilled, the court said.

Finding that the buoy sys­tem was “extreme­ly poor­ly equipped with con­trol devices,” the court fined CPC $98.7 mil­lion in April 2022.

Just two weeks ear­li­er, the share­hold­ers had writ­ten to Gorban, com­plain­ing about numer­ous dam­aged pipeline hoses and ques­tion­ing Transneft Service’s expe­ri­ence, its equip­ment and its qual­i­fi­ca­tions to “ensure safe and reli­able oper­a­tions.” Neither CPC’s inter­nal inves­ti­ga­tion nor the court found Transneft Service respon­si­ble for the spill. But what­ev­er lever­age share­hold­ers once had was long gone.

Weapon of war

Russia’s war on Ukraine pre­sent­ed all new wor­ries for the Western oil com­pa­nies. The U.S. had already sanc­tioned sev­er­al Russian gov­ern­ment offi­cials and enti­ties: in 2014 after Russia’s occu­pa­tion of Crimea, and in 2018 for cyber and U.S. elec­tion inter­fer­ence. With the February 2022 inva­sion of Ukraine came new mil­i­tary action in the Black Sea: cruise mis­siles launch­ing from Russian sub­marines; Russian war­ships tar­get­ing Ukrainian cities; Ukraine’s sink­ing of a Russian fleet flag­ship; and Ukrainian drones and mis­siles strik­ing dev­as­tat­ing blows against Putin’s fleet based in Crimea and Novorossiysk. And all of this was in prox­im­i­ty to the CPC pipeline.

The start of the war, then, led to fre­quent shut­offs of the pipeline tap.

During the war, ICIJ’s inves­ti­ga­tion found, CPC has faced at least 20 dis­rup­tions of activ­i­ty or sus­pen­sions of oil ship­ments, most because of main­te­nance and repair of equip­ment, bad weath­er con­di­tions pre­vent­ing oil from being loaded onto tankers, and inspec­tions of the seabed for decom­mis­sioned explo­sives dat­ing to the Second World War.

ICIJ also dis­cov­ered that Putin’s admin­is­tra­tion may have manip­u­lat­ed a claim of equip­ment dam­age by a storm to make the West and Kazakhstan wor­ry about oil sup­plies. The appar­ent manip­u­la­tion of infor­ma­tion began two weeks after the U.S. moved, in ear­ly March 2022, to cut off Russia’s oil prof­its and oth­er resources through sanc­tions. CPC released a state­ment say­ing it had sus­pend­ed oper­a­tion for two of its three oil buoys because of the storm dam­age and esti­mat­ed that repairs could “take con­sid­er­able time.” Originally, accord­ing to Arseny Pogosyan, who was a press sec­re­tary at the time for Russia’s deputy ener­gy min­is­ter, the Russian gov­ern­ment was going to release a sim­ple state­ment about the dam­age, offer­ing a sim­i­lar assessment.

But in review­ing the ini­tial mes­sage, Pogosyan said, Russian offi­cials sug­gest­ed the repairs would take longer than they actu­al­ly would or should have, with Deputy Energy Minister Pavel Sorokin claim­ing, in what had now mor­phed into a video mes­sage, that the repairs could take six weeks to two months. “And nat­u­ral­ly, giv­en the length of these repairs, we’re talk­ing about a poten­tial loss of capac­i­ty up to 80% of oil load­ing,” Sorokin said. Pogosyan, the man behind the cam­era, told ICIJ that the Russian gov­ern­ment sought to embell­ish the March pipeline shut­down to show the West that Russia could inflict pain through oil avail­abil­i­ty despite the sanctions.

Pogosyan said he had to redo the video with Sorokin — who con­stant­ly went back to Putin’s admin­is­tra­tion for con­sul­ta­tion — 12 times.

“They tried to make the inci­dent more sig­nif­i­cant to glob­al media,” said Pogosyan, who left Russia in September 2022. “The main rea­son we did it so many times was the pres­i­den­tial administration’s inten­tion to make the mes­sage hard­er, more sig­nif­i­cant, to scare the West.”

In January of this year, though, CPC General Director Gorban told Kazakh jour­nal­ists, “There have nev­er been any stop­pages of our pipeline sys­tem, in any year, because of the polit­i­cal state­ments of any­one. All the stop­pages were con­nect­ed to tech­ni­cal caus­es, or to the weath­er. We are in no way con­nect­ed to politics.”

Radio Free Europe report­ed in 2022 that the pipeline car­ries about 80% of Kazakhstan’s oil exports, much of it to Western mar­kets. In 2023, the CPC pipeline car­ried 63.5 mil­lion tons of oil to inter­na­tion­al mar­kets. Eighty-eight per­cent of that amount came from the Kazakh oil fields and the rest from Russia. Based on changes to expand the pipeline’s capac­i­ty, it can car­ry up to 83 mil­lion tons of oil annu­al­ly. But  when ship­ments are halt­ed, oil prices rise and Europeans face poten­tial fuel shortages.

“What hap­pened in 2022, with the dis­rup­tion to load­ing in the Black Sea, cre­at­ed shock waves through the indus­try,” Malcolm Forbes-Cable, vice pres­i­dent of ener­gy con­sult­ing firm Wood Mackenzie, said at a con­fer­ence this year.

“When half of this capac­i­ty was tak­en offline in March 2022, the oil mar­ket react­ed by increas­ing the price by $5 [per bar­rel],” Forbes-Cable said. “That just shows you what a crit­i­cal, glob­al piece of infra­struc­ture [CPC] is and how impor­tant it is to the glob­al economy.”

Based on ICIJ’s report­ing, how­ev­er, the pipeline shut­downs have had lim­it­ed impact on con­sumers world­wide, despite occa­sion­al, tem­po­rary price hikes. This find­ing goes against what Western gov­ern­ments have offered as to why CPC should be exempt  from sanc­tions: to spare European ener­gy consumers.

In her state­ment, Chevron’s Sally Jones under­scored how CPC is a crit­i­cal export route for Kazakh crude to inter­na­tion­al mar­kets. “There are no oth­er viable export options,” she said.

To keep CPC off the list of com­pa­nies banned from doing busi­ness with Russia, the Western oil com­pa­nies and Kazakhstan spent mil­lions lob­by­ing the U.S. Department of the Treasury, the Department of Energy, the State Department, mem­bers of Congress and the European Commission. They argued that shut­ting off the oil might harm con­sumers in Europe and have geopo­lit­i­cal consequences.

And that argu­ment was con­stant: Five months into the war in Ukraine, the Kazakhstan state oil com­pa­ny KazMunayGas retained the American law and lob­by­ing firm Brownstein Hyatt Farber Schreck. For a con­tract that is now worth about $3.8 mil­lion, the firm orga­nized at least 101 meet­ings with U.S. offi­cials to lob­by for CPC, in addi­tion to han­dling oth­er relat­ed mat­ters, accord­ing to dis­clo­sure forms filed by the lob­by­ing firm under the Foreign Agents Registration Act (FARA).

According to the FARA reports, Brownstein Hyatt Farber Schreck arranged at least eight meet­ings with Geoff Pyatt, U.S. assis­tant sec­re­tary of state and spe­cial envoy and coor­di­na­tor for inter­na­tion­al ener­gy affairs at the State Department. In remarks post­ed on the State Department web­site last year, Pyatt said that CPC had to be kept off the sanc­tions list because it is the “prin­ci­pal exit point for Kazakh crude to glob­al mar­kets.” It is also “an impor­tant source of sup­ply, espe­cial­ly for a cou­ple of key European allies,” he said.

The State Department “worked very close­ly” with the Treasury Department to keep the pipeline in oper­a­tion, Pyatt acknowl­edged. “Chevron and ExxonMobil have invest­ed tens of mil­lions of dol­lars” in Kazakhstan, he said, and they “are all watch­ing very care­ful­ly the vul­ner­a­bil­i­ty that aris­es from our col­lec­tive reliance on CPC.”

Pyatt did not respond to sev­er­al requests from ICIJ seek­ing com­ment, nor did Brownstein Hyatt Farber Schreck.

In a writ­ten state­ment to ICIJ, a State Department offi­cial empha­sized inher­ent risks of doing busi­ness with Russia, cit­ing con­cerns such as seiz­ing pri­vate assets, manip­u­lat­ing ener­gy resources for polit­i­cal ends, and seek­ing to pun­ish firms that adhere to U.S. or part­ner sanc­tions. “Russia has weaponized its ener­gy trade rela­tion­ships to exert polit­i­cal influ­ence, prov­ing itself an unre­li­able long-term partner.”

The State Department offi­cial also reit­er­at­ed long-stand­ing sup­port for diver­si­ty of pipeline export routes to bol­ster ener­gy secu­ri­ty and reduce depen­den­cy on a sin­gle partner.

In total, Brownstein Hyatt Farber Schreck report­ed 17 meet­ings with State Department rep­re­sen­ta­tives. The firm also orga­nized meet­ings for its clients, KazMunayGas and the Kazakh Embassy, with nine sen­a­tors and 48 U.S. representatives.

Neither KazMunayGas nor the gov­ern­ment of Kazakhstan respond­ed to requests for comment.

In Brussels, 10 weeks after the inva­sion of Ukraine, the cab­i­net of European Commission President Ursula von der Leyen received an email from an Exxon vice pres­i­dent express­ing “urgent seri­ous con­cern” regard­ing the impact of just pro­posed sanc­tions. But by then the EU was already tight­en­ing sanc­tions on Russia.

“The cur­rent text would pre­vent the exports of Kazakhstan crude through the CPC pipeline,” Nikolaas Baeckelmans, a vice pres­i­dent for EU affairs at Exxon, wrote to Kurt Vandenberghe, a mem­ber of von der Leyen’s cab­i­net, in May 2022.

“This (CPC) crude should con­tin­ue to flow and not be sub­ject to/clearly exempt­ed from sanc­tions,” Baeckelmans wrote. “Please note that the US sanc­tions do con­tain an explic­it exemp­tion for this pipeline and I believe it always has been the inten­tion to try and ensure the transat­lantic alignment.”

Seventeen min­utes lat­er, Vandenberghe wrote back, reas­sur­ing the lob­by­ist that his mes­sage was “well received.”

In a writ­ten state­ment to ICIJ, an EU Commission spokesper­son declined to pro­vide details about how the com­mis­sion made the deci­sion not to sanc­tion the CPC pipeline. “All deci­sions on sanc­tions in the EU are tak­en unan­i­mous­ly by the Member States in the Council,” the spokesper­son wrote. The Council of the EU is one of its deci­sion-mak­ing bodies.

For a thou­sand days, it has been cru­cial to rad­i­cal­ly reduce Russia’s abil­i­ty to fund its war through oil sales. Oil is the lifeblood of Putin’s regime.— Ukrainian President Volodymyr Zelenskyy, address­ing European Parliament on the 1,000-day anniver­sary of Russia’s invasion

Beyond the argu­ments against sanc­tions, the truth is that sanc­tions would also cost Chevron, Exxon and the oth­er com­pa­nies lost sales and a delay in their expan­sion plans.

One coun­try that some would assume to be in favor of sanc­tions takes a dif­fer­ent point of view. On November 19, Ukrainian President Volodymyr Zelenskyy called for “strong sanc­tions” in his address to the European Parliament’s extra­or­di­nary ple­nary ses­sion  mark­ing 1,000 days since Russia’s inva­sion of Ukraine.

“For a thou­sand days, it has been cru­cial to rad­i­cal­ly reduce Russia’s abil­i­ty to fund its war through oil sales,” he said. “Oil is the lifeblood of Putin’s regime.”

Russian oil enters the CPC pipeline pri­mar­i­ly from Lukoil’s off­shore fields in the Russian sec­tor of the Caspian Sea, as well as through rail trans­port from small­er fields in south­ern Russia. In July 2022, advo­ca­cy group Global Witness revealed that a Russian oil com­pa­ny with ties to sanc­tioned oli­garch Roman Abramovich was export­ing oil through the CPC system.

Still, Agia Zagrebelska, pol­i­cy direc­tor of the Economic Security Council of Ukraine, explained to ICIJ in an inter­view why Ukraine had not called for sanc­tions on CPC or the CPC pipeline.

“The work of the CPC is reflect­ed both at the European lev­el and in [oth­er] coun­tries,” she said. “Therefore, today we are forced to look not only at what Americans and Europeans think, but also what Central Asia thinks.”

U.S. offi­cials are still push­ing for a pipeline route that bypass­es Russia while try­ing to move Kazakhstan toward the West polit­i­cal­ly. “It’s in our DNA,” said Manning, the for­mer State Department offi­cial. “We’re always try­ing to pro­mote democ­ra­cy in places that are very dif­fer­ent from us. It hasn’t turned out very well.”

Russia’s war in Ukraine is in its third year, with 30,000 civil­ian deaths;  3.7 mil­lion peo­ple inter­nal­ly dis­placed; and 6.5 mil­lion hav­ing fled the coun­try. Amidst all that car­nage and loss, the pipeline, through hun­dreds of mil­lions of dol­lars in tax­es that CPC pays to Russian author­i­ties, helps to boost arms pro­duc­tion and pay state offi­cials’ salaries and pensions.

Meanwhile, Putin con­tin­ues to keep Western gov­ern­ments on edge. Russia’s nuclear threats are ever-present, and there are wor­ries of an inva­sion of Kazakhstan under the pre­text of reunit­ing “Soviet” lands. All of this plays out amid sanc­tions on Russian oil and pipelines being selec­tive­ly exempt­ed, help­ing to keep the Russian econ­o­my afloat.

For Putin, the end of the Soviet Union was, as he told Russians in his 2005 state of the nation address, “the great­est geopo­lit­i­cal cat­a­stro­phe of the cen­tu­ry” — and the ulti­mate show of weak­ness. From the begin­ning, Putin intend­ed to dis­play strength how­ev­er and wher­ev­er he could. With the CPC pipeline, his deter­mi­na­tion to serve only Russia while under­min­ing the West wasn’t just an ear­ly test of his auto­crat­ic style of lead­er­ship. It was about a new dis­play of pow­er. And a warn­ing to the world of what he might do with such power.

Contributors: Carola Houtekamer, Karlijn Kuijpers (NRC); Stefan Melichar (Profil); Carina Huppertz, Frederik Obermaier, Bastian Obermayer, Hannes Munzinger (Der Spiegel/Standard/Paper Trail Media); Anuška Delić (Oštro); Roman Badanin, Mikhail Rubin (Proekt); Denise Ajiri, Naubet Bisenov, Kathleen Cahill, Jelena Cosic, Marcos Garcia Rey, Whitney Joiner, Karrie Kehoe, Marcia Myers, Delphine Reuter, Matei Rosca, David Rowell, Richard H.P. Sia, Dean Starkman, Thomas Rowley, Gerard Ryle, Nicole Sadek, Fergus Shiel, Annys Shin, Tom Stites, Peter Stone, Angie Wu (ICIJ)

Original full arti­cle: ICIJ

By Sydney P. Freedberg, Agustin Armendariz, Tanya Kozyreva and Thomas Rowley

Image: Ben King / ICIJ

November 22, 2024