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Kazakhstan between East and West

When Nursultan Nazarbaev was re-elected president of Kazakhstan earlier this month, there was little surprise in the West and some disappointment. The disappointment was not that he won the election—the result was never really in doubt—but rather that he held the election at all, on short notice and ahead of schedule.

He would certainly have won re-election if he had waited to finish his term of office, which would have ended in only a couple years. Why didn't he wait, and what does it mean for Caspian energy development?

One reason was to neutralize as quickly as possible the eventual competition from his former prime minister and energy minister, Akezhan Kazhegeldin. Another reason may have been to solidify his power before the two zeroes rolled up on the calendar next year.

A third reason could well be that the fall-out in Kazakhstan from the Russian financial crisis is expected to deepen this year. In addition to these reasons—and beyond all the stereotyped "cultural" reasons given for authoritarianism in Central Asia generally—it must also be acknowledged that all the signals from the West over the past seven years have given no real incentives to pursue democratization.

The Caspian Pipeline Conundrum

Kazakhstan's policies on oil exploration, development, and pipeline transport mirror the general development of the country's foreign policy. The difficulty of the Caspian Pipeline Consortium (CPC) in realizing the construction of any export pipeline from the Tengiz field in northwest Kazakhstan is emblematic. Originally formed by Russian, Kazakhstani and Omani partners behind Chevron's back earlier in the decade, it was unable to raise the necessary capital to begin construction.

Kazakhstan has had oil-swap deals in small quantities with Iran and has explored the idea of laying a pipeline across the bottom of the Caspian Sea to Azerbaijan. Last year, increasing labor unrest in Kazakhstan (due to nonpayment of back wages) made a large signature bonus for a contract with China irresistible to Nazarbaev. This was for the project to construct a pipeline from northwest Kazakhstan all the way across the country into Uighur lands in western China (Xinjiang).

The implementation of this agreement immediately encountered significant political, technical and organizational obstacles that have not yet been fully resolved. Yet the Caspian Pipeline Consortium (CPC) focused its attention on the planning and implementation of its own project only after that contract with China was signed. Since then, expert opinion has concluded that the chances are really very good for the CPC project indeed to be built (sometime soon). Nevertheless, outstanding issues remain, including taxation regimes in the local Russian administrative regions and also their desire to put some of their oil production into the pipeline.

Centrifugal Forces In Kazakhstan

Nazarbaev is faced with the task of guaranteeing the integrity of his country against the multifarious forces threatening to tear it apart. The oil-rich regions of western Kazakhstan look to export to Western markets and draw Western capital. The provinces in the north-central region are indissolubly tied to the regions across the Russian frontier in southern Siberia. In the south, the ties with Uzbekistan and Kyrgyzstan and Tajikistan are strong.

The need to assure the unity of these separate regional centers, complicated by the relative absence of communications links, is one major explanation of the multifaceted decision to relocate the capital of the country to Astana (formerly Akmola). Before the East Asian crisis, this decision was also meant to be a way to draw capital investment into the center of the country, where Nazarbaev began his political career in the late 1960s.

Also, the huge country is underpopulated. It is already a target of illegal Han Chinese immigration. The word Lebensraum has been used to describe the Chinese policy, which is not official but appears to be tacitly encouraged by the highest circles. The vast majority of the immigrants are young working-age males. The level of unemployment in Kazakhstan, combined with competition for marriageable young women, gives this phenomenon an unappreciated potential for explosive social conflict with the indigenous Kazakh population.

Towards Another Trans-Caspian Pipeline?

Against this background, Kazakhstan's recent increased interest in an undersea oil pipeline to Baku is no surprise. Now that Azerbaijan is on line for early oil export via Supsa, it is Tengiz oil that holds the potential to make Baku-Ceyhan the obvious choice for late oil. Perhaps it is not a coincidence that Almaty's discussions with Ankara on this possibility now occur at the ministerial level. Kazakhstan has begun an overall assessment of its export routes, which it expects to complete in late summer or early autumn—about the time when the energy consortia have scheduled the next round of major capital investment decisions.

Copyright © Robert M. Cutler unless otherwise noted.
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URL:  http://www.robertcutler.org/blog/1999/01/kazakhstan_between_east_and_we.html
First published in FSU Oil & Gas Monitor, No. 16 (26 January 1999): 4–5.

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This page contains a single entry from the blog posted on January 26, 1999 8:49 PM.

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