Azure Key Vault storage encryption key rotation fails silently causing data access blocks

Cloud Platforms Microsoft Azure
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1

Automated key rotation for Azure Storage encryption is failing without any error notifications. We have storage accounts configured with customer-managed keys (CMK) stored in Azure Key Vault. The key rotation policy is set to rotate keys every 90 days, but when rotation occurs, storage accounts lose access to data and applications start getting 403 Forbidden errors.

The Key Vault audit logs show successful key rotation events, but the storage account doesn’t update to use the new key version. RBAC permissions appear correct - the storage account has ‘Get’, ‘Unwrap Key’, and ‘Wrap Key’ permissions on the Key Vault.


GET https://keyvault.vault.azure.net/keys/storage-key?api-version=7.2
Response: 200 OK
{
  "key": {"kid": "https://keyvault.vault.azure.net/keys/storage-key/v2"}
}

The storage account still references v1 of the key even though v2 is the current version. This causes all blob operations to fail until we manually update the storage account to point to the new key version. How do we fix silent key rotation failures?

2

Here’s a comprehensive solution for automated storage encryption key rotation with proper error handling and monitoring:

Understanding Key Versioning in Azure Storage: Azure Storage encryption with customer-managed keys uses a specific key version URI, not the versionless key URI. When Key Vault rotates a key, it creates a new version but storage accounts continue using the explicitly configured version. This is intentional - it prevents unauthorized key changes from automatically affecting storage encryption.

RBAC Permissions Configuration: Your current permissions are incomplete. You need:

  1. Storage Account Managed Identity (enable system-assigned identity on storage account):

    • Key Vault: ‘Key Vault Crypto Service Encryption User’ role
    • This provides Get, Wrap Key, Unwrap Key permissions automatically

  2. Automation Service Principal (for the Function/Logic App):

    • Key Vault: ‘Key Vault Reader’ (to detect rotation events)
    • Storage Account: ‘Storage Account Key Operator Service Role’ (to update encryption config)
    • Subscription: ‘Reader’ (to enumerate storage accounts using the key)

  3. Key Vault Access Policy (if not using RBAC mode):

    • Storage account identity: Get, Wrap Key, Unwrap Key
    • Automation identity: Get, List keys

Audit Logging Configuration: Enable comprehensive logging to detect rotation issues:

// Pseudocode - Key implementation steps:

  1. Enable Key Vault diagnostic settings → Log Analytics
  2. Capture AuditEvent category for key operations
  3. Enable Storage Account diagnostic logs for encryption events
  4. Create Log Analytics query to correlate key rotation with storage updates
  5. Set up alerts for mismatched key versions (KV current != Storage configured) // Query every 4 hours to detect silent failures

Automated Key Rotation Implementation:

Architecture:

Key Vault Rotation → Event Grid → Service Bus Topic → Azure Function → Update Storage Accounts

Azure Function logic (high-level):


// Pseudocode - Key implementation steps:
1. Parse Event Grid event for KeyVault.KeyNewVersionCreated
2. Extract key name and new version URI from event
3. Query Azure Resource Graph for storage accounts using this key
4. For each storage account:
   a. Verify old key version still enabled in Key Vault
   b. Update storage encryption to new key version URI
   c. Validate update succeeded (read-back check)
   d. Log success/failure to Application Insights
5. If failures occur, send alert to security team
6. Schedule old key version disable for T+7 days

Handling the Transition Period: Critical: Do NOT disable old key versions immediately. Azure Storage has caching and background operations that may still reference the old version for up to 24 hours. Best practice:

  1. Rotate key (creates v2, v1 still enabled)
  2. Update storage accounts to v2 (automated)
  3. Wait 7 days (safety buffer)
  4. Disable v1 in Key Vault (automated cleanup)
  5. Wait 30 days
  6. Delete v1 (compliance retention)

Encryption Key Update API Call: The storage account update requires specific API format:

PUT /subscriptions/{sub}/resourceGroups/{rg}/providers/Microsoft.Storage/storageAccounts/{account}?api-version=2021-09-01
{
  "properties": {
    "encryption": {
      "keySource": "Microsoft.Keyvault",
      "keyvaultproperties": {
        "keyname": "storage-key",
        "keyvaulturi": "https://keyvault.vault.azure.net",
        "keyversion": "v2"
      }
    }
  }
}

Monitoring and Alerting: Implement these monitors to catch silent failures:

  1. Key Version Mismatch Alert: Query every 4 hours

    • Check if Key Vault current version != Storage configured version
    • Alert if mismatch persists >6 hours

  2. Storage Access Failure Alert: Real-time

    • Monitor for 403 errors with ‘EncryptionKeyVersionMismatch’ error code
    • Immediate alert to security team

  3. Rotation Completion Alert: After each rotation

    • Verify all storage accounts updated within 1 hour
    • Alert if any accounts still using old version

  4. Audit Log Monitoring: Daily review

    • Key Vault: KeyRotated events
    • Storage: EncryptionKeyUpdated events
    • Correlation check: Every KeyRotated should have matching EncryptionKeyUpdated within 1 hour

Handling Update Failures: If storage account update fails:

  1. Retry with exponential backoff (3 attempts over 15 minutes)
  2. If still failing, keep old key version enabled (don’t disable)
  3. Alert security team with specific error details
  4. Manual intervention required - don’t automatically disable old keys if updates failed

Testing the Solution: Before production deployment:

  1. Test key rotation on non-production storage account
  2. Verify automation updates storage within expected timeframe
  3. Confirm old key version remains accessible during transition
  4. Test failure scenario: Disable automation and verify alerts fire
  5. Test rollback: Revert to old key version and ensure storage access works

Security Considerations:

  • Use managed identities (not service principals with secrets) where possible
  • Store automation credentials in Key Vault (ironic but necessary)
  • Enable soft-delete and purge protection on Key Vault
  • Implement key expiration dates as backup to rotation policy
  • Maintain audit trail of all key version changes for compliance

This solution eliminates silent failures by creating explicit automation with comprehensive monitoring. The 7-day transition period provides safety margin for any unexpected caching or delayed operations. In production, we’ve managed 50+ storage accounts with this pattern and achieved 100% successful rotations over 18 months.

3

That makes sense now. So we need to build the automation ourselves. Do you have any guidance on the RBAC permissions needed for the Function to update storage account encryption? And how do we handle failures if the storage account update fails?

4

Azure Storage with CMK doesn’t automatically update to new key versions when you rotate keys in Key Vault. You need to explicitly update the storage account encryption configuration to use the new key version URI. This is by design for security reasons - automatic version updates could be exploited if someone gains Key Vault access.

5

We built exactly this automation. Event Grid publishes to a Service Bus topic when keys rotate, Azure Function picks up the message and calls the Storage Management API to update the encryption key URI. The tricky part is handling the transition period - you need to keep the old key version enabled for at least 24 hours to allow in-flight operations to complete. Otherwise you’ll still get 403 errors during the cutover.