Analytical Articles

On December 16, when Kazakhstan was celebrating the 20th anniversary of its independence, the small industrial town of Zhanaozen situated in the western Mangystau region was rocked by bloody demonstrations organized by local oil industry workers. With the official count reaching 17 killed and about 100 wounded, some critically, this episode of social unrest sparked negative reactions in both national and foreign media. It also revealed the existence of serious social problems in a region largely believed to continually provide economic opportunities for its population due to the constant inflow of petrodollars.

The NATO attack on a Pakistani outpost on November 26 has resulted in another cold phase in the relations between Pakistan and the U.S. Pakistan reacted strongly to the attack and blocked all NATO supplies to Afghanistan, asked the U.S. military to vacate the Shamsi base and boycotted the Bonn conference. The main question now is whether the two states will still be able to find avenues to improve their relations. Much depends on whether the U.S. will prove willing to address Islamabad’s concerns regarding the future of Afghanistan.

A major CSTO military exercise took place in September 2011, involving Russia and some of the Central Asian members. The exercise was officially aimed at countering threats posed by the potential spread of jihadists from Afghanistan. However, it also involved naval exercises aimed at preventing the construction of an alternative gas line between Azerbaijan and Turkmenistan. This implies that the CSTO, which does not have a track record of efficiency, is unlikely to ensure stability in Central Asia in the case of major crisis. It is also unlikely that Putin’s recent initiative to create a Eurasian Union will enhance the prospects for creating a viable military alliance in Central Asia.

The November 26 NATO air assault against two Pakistani border posts, killing two dozen Pakistanis, was the most serious “friendly fire” incident along the Afghanistan-Pakistan border in the decade-long NATO intervention. But the likelihood of cross-border incidents has increased since the involvement of Pakistan-based insurgents in the fighting in Afghanistan has prompted the Afghan and NATO governments to adopt a more vigorous policy along the frontier. The worsening relations between NATO and Pakistan and the closure of the border to NATO convoys has increased the importance of the Northern Distribution Network to the allied mission in Afghanistan, and has underscored the need to draft more effective rules of engagement in the border region.

In 2009, Kazakhstan emerged as the world’s leading producer of uranium ore, outpacing long-time leaders Canada and Australia. Kazakhstan will probably close 2011 with a production of uranium ore reaching 20,000 tons, roughly a third of the world’s production.   Kazakhstan’s state-run producer of uranium, Kazatomprom, has its sights set on moving beyond Kazakhstan’s historical role of being a raw materials supplier by transitioning into the more advanced role of processing uranium and selling nuclear reactor fuel.  Kazatomprom’s business model is focused on winning a major share of the growing nuclear fuel market in Asia. However, a newly emergent form of uranium enrichment technology threatens to undermine Kazakhstan’s ability to compete in the high-tech market.  

On November 22, a court in Tajikistan released two foreign pilots, including a Russian citizen, whose imprisonment on questionable charges two weeks earlier had infuriated the authorities in Russia and prompted them to respond in a way that threatened to ruin Tajikistan’s economy. Moscow’s harsh reaction to the incident appears to have been motivated mainly by the ruling party’s calculations ahead of the elections. Although Russia’s punitive action that focused on Tajik migrant workers was mainly designed for domestic consumption, it angered a large part of Tajikistan’s population and the political elite.

Turkmenistan is once again at the focus of Central Asian energy geopolitics. While the country’s capital Ashgabat hosted its annual international forum Oil and Gas of Turkmenistan – 2011, President Berdimuhammedov embarked on a quick succession of visits to Pakistan and China. In mid-November, he visited Islamabad to keep Turkmenistan in the game for entering the fast-growing energy markets of Pakistan and India. Only a week later, he went on a four-day visit to Beijing, Guandong and Hong Kong, where he agreed to expand the volumes of natural gas supplied to China. Turkmenistan’s strategic push to diversify its gas exports has already produced shifts in the power balance in Central Asia and beyond.

Azerbaijan and Turkey have announced plans to construct a pipeline from the South Caucasus across Turkey to carry natural gas from Azerbaijan’s offshore Shah Deniz Two deposit to Southeastern Europe. At first glance, this would seem to leave Nabucco and two other candidate pipeline projects that have already submitted bids, out in the cold. However, what is involved is the creation of a format for bargaining where Azerbaijan can assert its strategic interests more convincingly against the pipeline consortia, which by their project-oriented nature have not been inclined to take a broader view.

One reason why the Russian and Central Asian governments have become increasingly supportive of NATO’s mission in Afghanistan is their concern regarding the export of Afghan narcotics into and through their countries. These governments have become increasingly worried that NATO’s ongoing withdrawal of combat troops from Afghanistan will result in their having to confront the problem of narco-trafficking largely by themselves. Mutual concerns about Afghanistan are helping to drive Moscow and Washington to cooperate despite their persistent differences over other issues, but major disagreements over the U.S. role in Central Asia continue.

With economic recovery, the governments of Armenia and Georgia managed to reduce budget and current account deficits; however, the gross government and external debts still remain to be significant.  To reduce the debt risks, their governments need to increase attractiveness of their economies for investments and boost exports. The other Caucasian republic, Azerbaijan, due to high oil revenues, does not experience any problem with balancing its budget and maintaining external sustainability. However, in order to secure fiscal and external sustainability in future, the Azerbaijani government has to accelerate the diversification of the national economy.