The opening, or at least the beginning of the filling, of the oil pipeline of the Caspian Pipeline Consortium (CPC), from the Tengiz field in northwest Kazakhstan to Novorossiisk on the Russian Black Sea coast, received deserved if extended—indeed sensational—publicity several weeks ago. The CPC line is, after all, the first new pipeline to be built from the Caspian region since the demise of the Soviet Union. The pumping of oil into the pipeline began belatedly, but it is now expected that the first tanker will be filled in Novorossiisk in June.
All the attention paid to western Kazakhstan makes it difficult for most observers to gain an understanding of the overall energy balance in Central Asia. For example, sight is often lost of Uzbekistan's regional role as an energy producer because of its two better-endowed neighbors, Kazakhstan and Turkmenistan. Yet as explained below, Turkmenistan does not really come into play although it is certainly a regional actor; rather, Kazakhstan and Uzbekistan are the main players on the scene. This article calls attention to overlooked aspects of the Central Asian energy balance, with special attention paid to Kazakhstan and Uzbekistan and the contrasts between them and the significance of those contrasts.
1. The Caspian? Don't Look Where They're Pointing
One recent development widely noted was Kazakhstani President Nursultan Nazarbayev's statement of commitment -- in a Memorandum of Understanding signed last month with Turkey, Georgia and Azerbaijan -- to pump Kazakhstani crude into the planned Baku-Tbilisi-Ceyhan (BTC) pipeline. (The crude may come from the offshore Vostochny Kashagan field, which is still to be developed.) However, other developments in the Kazakhstani energy sector have attracted less notice. Even though these developments are more modest than the CPC and BTC projects, their potential effects are no less wide-ranging.
For example, disputes between Kazakhstan and China over the management and development of the Aktobemunaigaz (AMG) and Uzenmunaigaz (UMG) complexes have continued. As a result, it appears that plans to build a pipeline from western Kazakhstan into western China have been shelved, even though those plans were in fact an integral part of the contract that the Chinese National Petroleum Company (CNPC) signed to acquire AMG and UMG assets. Some of the oil produced by these two companies is taken by rail to the border between the two countries and then loaded for transport into China, but this is a money-losing operation that Beijing is subsidizing only to keep its hand in the game.
The game may not go on much longer. Towards the end of last month, a senior CNPC official was quoted by the Interfax agency as saying that the pipeline from Kazakhstan to China will not be built in the near future and that whether it was built at all would depend on the size of the hydrocarbon reserves found in the region.
Meanwhile, Kazakhstan's state oil pipeline operator Kaztransoil announced this month that it has established another route for oil from the region. Like Tengiz oil, AMG oil has high concentrations of sulphur compounds that require dedicated pipelines and make the use of shared pipelines impossible. Until very recently, the crude was confined to a special pipeline from the Zhanazhol field to Russia's refinery in Orsk. But a "sweetening" refinery was put into operation earlier this year at the Bestamak oil-loading rail terminal, the product of which goes to the Atyrau refinery for subsequent pumping into the Atyrau-Samara pipeline and delivery to Black Sea ports. In addition, according to Kaztransoil, AMG crude will now also be delivered through the oil-loading rack at Bestamak to the port of Aktau and then taken by tanker to Makhachkala (in Dagestan) for pumping into the Makhachkala-Tikhoretsk-Novorossiisk pipeline.
2. Uzbekistan's Regional Energy Lever
Another neglected but important event is Kazakhstan's recently announced decision to develop the Amangeldy gas field in the south of the country. The significance of this decision is that Uzbekistan's influence in Central Asia will diminish still further as Kazakhstan continues to be the motor not only of multilateral diplomacy but also of energy development. The Amangeldy field is planned to supply customers in southern Kazakhstan, where current demand for roughly 1.5 billion cubic meters of gas per year is satisfied by imports from Uzbekistan. Amangeldy and the adjacent Airykty deposits are estimated to contain reserves of 22 to 25 bcm and could provide southern Kazakhstan with 600 million cubic meters of gas per year beginning in 2003.
Although Uzbekistani energy resources are often overlooked in the focus on Turkmenistani gas and Kazakhstani oil, Uzbekistan has in recent years -- indeed in recent months -- used its gas as a political lever against other countries in the region. In particular, Tashkent has successfully used gas for leverage in seeking short-term economic fixes for its dire domestic situation. According to press reports, for example, Uzbekistan last fall agreed to deliver 850 million cubic meters of gas to southern Kazakhstan at a concessionary price of US$40 per 1,000 cubic meters in exchange for the reconnection of telephone lines with Kazakhstan and the right to have its trains pass through Kazakhstan. It obtained this agreement even though it owes a US$4 million debt to Kaztelekom and rail-transit debts of US$2 million.
So it seems that Russia is not the only state in Central Eurasia that uses energy supplies and pipelines for political arm-twisting; it just is more able to do so than most others. Uzebkistan too is using its gas supplies for leverage against its neighbors.
Meanwhile, Tashkent's version of "Realpolitik" arm-twisting is fueling the growing perception in Central Asia that Uzbekistan is seeking to become a regional hegemon. As such, antipathy to Tashkent is on the rise in the region. For example, Uzbekistan made territorial demands on Kyrgyzstan last year concerning the ethnic Uzbek enclave of Sokh while engaging in a temporary suspension of gas exports to Kyrgyzstan as winter was beginning. To make up for the gas shortages, Kyrgyzstan increased output at its hydro-electric power plants, a move that diminished water levels in reservoirs on which Uzbekistan draws to irrigate spring planting. This side-effect then led Uzbekistan to renounce its territorial claims and assert its adherence to international legal norms for the resolution territorial disputes.
The issue was especially sensitive since Uzbekistani troops in had the past violated Kyrgyzstan's sovereignty by holding military exercises on its territory without first asking permission. (Ethnic Uzbeks account for one seventh of Kyrgyzstan's population, and Uzbekistan is the predominant power in southern Kyrgyzstan, which is linked to the northern part of the country only by air.)
3. The Cultural Geography of Central Asian Energy
There is a reason why in the Soviet era the five republics we now call "Central Asia" were called, in Russia, "Kazakhstan and Middle Asia." The demography and especially the topography of Kazakhstan are split between those of Central Asia and those of southern Siberia. This split is becoming all the more evident as centrifugal forces threaten to tear the country apart.
The economic life of the western part of the country, especially the northwest (and as typified by energy pipeline flows), is becoming more closely linked with the West via trans-Caspian trade and communications flows. Likewise, western Kazakhstan's links with the South Caucasus, which is geographically part of Europe (a fact that the European Union has recently recognized publicly), are increasingly direct. The north and northeast sections of the country, meanwhile, remain connected to southern Siberia also through trade in raw materials. And the south is economically and even culturally separate from both of the other sections.
By contrast, Uzbekistan, because of its geographic situation, does not suffer so much from those types of problems. Indeed, Uzbekistan's "center-periphery" problems are of a wholly different sort. Simply put, the population is exploding most rapidly in areas where jobs are least likely to be created, even if the entire system became more receptive to foreign direct investment overnight. Five of the eight most densely populated provinces in the former Soviet area are in Uzbekistan. (Besides the region in which the capital Tashkent is located, these are Andijan, Ferghana, Namangan and Khorezm.)
Yet Uzbekistan is perhaps the most Central Asian of all five countries in the region. It is, for example, the one most affected by incursions of Islamic militants based in Kyrgyzstan and supported by Afghanistan. Yet none of the geopolitical questions most pressing to Tashkent are directly energy-related. They might be easier to handle if they were.
For the sake of completeness, mention must also be made of Turkmenistan, which, with a population of close to five million, is more easily held under the iron grip of President Saparmurad Niyazov. He experiences no political "center-periphery" problem simply because the opportunities for social mobilization of popular discontent have much less chance of reaching critical mass. For his development strategy, Niyazov had hoped to be able to export part of his country's huge gas reserves to India by way of Pakistan, but for that an export pipeline would have to traverse Afghanistan. The lack of international recognition of the Taliban regime in Kabul has made financing for such a pipeline impossible to find. Meanwhile, Niyazov also has unrealized dreams of a pipeline to China. However, as it now stands, Turkmenistan's pipelines mainly feed Russia by way of Uzbekistan.
Thus Turkmenistan is not really a player in the energy balance of Central Asia proper. With its distinctive history and ongoing "Turkmenization" of the national culture, it stands apart from both Kazakhstan and Uzbekistan (although it is in conflict with the latter over border demarcation and related issues). So Uzbekistan is more clearly Central Asian than Kazakhstan, and Turkmenistan's profile verges at times on being South Asian. But Kazakhstan is Russian, European and Asian all at the same time.
4. Conclusion: Development in Uzbekistan and Kazakhstan Contrasted
The contrast between Kazakhstan's success in developing its energy resources and Uzbekistan's failure to develop its own can be traced back to 1994, when Uzbekistan (now sinking ever deeper into the mire of economic stagnation), imposed currency-exchange restrictions in an effort to protect the national economy during a year when the cotton crop was disastrous. Those restrictions were never lifted, and they have choked the country's development to this day. The controls are quite severe and make for a very discouraging foreign-investment environment.
Recent reports from Uzbekistan to the effect that the country's banking system has made some progress on the reform front are belied by the more recent decision by the International Monetary Fund (IMF) not to replace its resident representative because of the failure to reform the exchange-rate system. The IMF has not provided assistance to Tashkent for some time but had maintained a mission there in order to facilitate communication between the two sides. Meanwhile, other reports suggest that the World Bank will reduce the value of its next three-year lending program in the country to an extremely modest US$150 million.
By contrast, Kazakhstan accepted basically all recommendations made to it by the IMF throughout the 1990s. The country has completed its banking system reform program and is set to experience real economic growth, notwithstanding the immiseration of significant segments of the population. The two clouds on the horizon for Kazakhstan are illegal immigration and domestic migration on the one hand, and, on the other hand, militant Islamic fundamentalism. Kazakhstan in general and Almaty in particular are actually a pole of attraction for economic refugees from other countries in the region.
Indeed, Kazakhstan is relatively stable, and it is actually possible to make a living in the capital. For this reason, internal population shifts are also occurring because of the absence of work in towns and villages throughout the country. The threat from militant fundamentalism -- and this will probably be the first year that it actually manifests in Kazakhstan -- comes mainly in the south of the country. That is why moves towards energy self- sufficiency in Kazakhstan, especially in that part of the country to be supplied by the Amangeldy field, are potentially so significant.
Copyright © Robert M. Cutler unless otherwise noted.
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First published in FSU Oil and Gas Monitor, No. 129 (25 April 2001): 6–8.