Ukraine Crisis puts spotlight on Kazakhstan
Russia’s war on Ukraine has helped put the spotlight on Central Asia. It is there that the new Great Game is being played out, with great powers wooing the region, even as Russia continues to remain distracted with Ukraine
By Aditi Bhaduri
Russia’s war on Ukraine has helped put the spotlight on Central Asia. It is there that the new Great Game is being played out, with great powers wooing the region, even as Russia continues to remain distracted with Ukraine. Regional powers like China and Turkey have always been jostling for power in the region; more modestly, the USA and EU have also been reaching out to the region, not least because they want Central Asian states to acquiesce to the sanctions regime imposed upon Russia. But that is as far as they can hope, to wean them away from Russia is still too early, and the US and the EU geographically too far away to fill in Russia’s place. Nevertheless, this tells of the growing geostrategic significance of the region, especially a country like Kazakhstan.
Kazakhstan is important because it is the largest – territory wise – country in the region, as well as the most resource rich. It also shares the longest border with Russia, measuring more than 7500 kms long, as well as a border with China. The first president of Kazakhstan Nursultan Nazarbayev had formulated the famous “multi-vector” policy of the country. In this the country, has remained firmly within Russia’s orbit through membership of Russian led institutions like politically the Commonwealth of Independent States (CIS), the military institution – Collective Security Treaty Organisation (CSTO); or the economic bloc – Eurasian Economic Union.Yet, it has sought partnerships with other countries both in the region and beyond – China, Turkey, USA, EU, and others. Hence, Kazakhstan, while rooting for the territorial sovereignty and integrity of the Ukraine, and declining from recognising the breakaway regions of Donest, and Luhansk, can also not upset Russia. It has also increasingly grown wary of Russia. With ethnic Russians comprising 16 per cent of its population in regions contiguous to the Russian Federation, an Ukraine like scenario cannot be ruled out.
The current government of President Kassym Jomart Tokayev is already obliged to Russia for the CSTO intervention when sudden and widespread violence wracked Kazakhstan in January 2022. Furthermore, landlocked Kazakhstan uses Russian territory through which to transfer and export its energy products. The main, and most profitable, route for oil exports from Kazakhstan to global markets, including those like Germany, remains the Caspian Pipeline Consortium (CPC), via a Russian Black Sea terminal. Supplies via CPC in 2022 represented more than 80% of total oil exports from Kazakhstan giving Russia sufficient economic leverage over it. Twice last year Russia had stopped the flow of oil via the CPC.
But, Kazakhstan is also one of those countries which has benefitted immensely from the western imposed sanctions on Russia. Last year in September the media quoted Kazakh President Qasym-Zhomart Toqaev as saying that more than 50 international companies had relocated from Russia to Kazakhstan. According to Prime Minister Alikhan Smaiylov, dozens more firms are in the process of negotiating such a move. According to Kazakh government statistics: Russian direct investments into Kazakhstan increased to 1.3 billion USD at the end of the third quarter in 2022, while for the last 17 years Russian direct investments into Kazakhstan had been to the tune of 17 billion USD. As of December 2022, the number of registered legal entities with Russian participation and the number of Russo-Kazakh joint ventures in Kazakhstan have increased since the preceding year by 41.7 per cent amounting to 23179 companies. This has been possible because a) many multinational corporations like Honeywell moved their operations to Kazakhstan once the Ukraine war began and sanctions regime imposed on Russia; b) many Russian businesses moved to Kazakhstan in order to circumvent the sanctions regime; and c) the influx of Russian citizens to Kazakhstan bringing in resources, cash transfers, and contributing to the economy with higher purchasing power.
According to Daulet Argandykov, president of the Human Resources Development Center in Kazakhstan, such companies have created 4,000-6,000 jobs and have a total capitalization of $27 billion. As of October 10, deposits held by Russian citizens in Kazakh banks totaled $1.42 billion, while in June the deposits of all foreigners (Russians and non-Russians) in Kazakhstan amounted to $692 million.
At the same time trade volumes between Russia and Kazakhstan for 2022 reached a record $26,1 billion USD. Exports from Kazakhstan to Russia increased by 25 per cent estimated to be 8.8 billion USD while imports decreased by 1,5 per cent at $17,3 billion USD. THis sudden spurt has been on account of re-exporting of goods and items from the west which are banned for export to Russia, like computers, data processing machines, vehicles. At the same time, the export of such items from EU to Kazakhstan have also seen sudden increase. Since Kazakhstan is part of the Eurasian Economic Union, together with Russia, goods to and from Kazakhsttan to Russia and vice versa can move with minimal border checks. All this has resulted in Kazakhstan recording 3.2% GDP growth in 2022, driven by non-oil exports to neighboring countries and investment growth of 7.9%, primarily in resource sectors, as also by an inflow of Russian tourists/immigrants. This has led to the threat of sanctions by the EU and US on Kazakhstan, on one hand, and on the other, dangling the carrot of defence aid, to ease out Kazakhstan’s military dependence on Russia.
This, however, may be easier said than done. So far the US has only granted $50 million to the region to mitigate the fallout of sanctions on Russia, which amounts to only $10 million per country. For Kazakhstan, this would be a pittance. Of course, the West also remains important for Kazakhstan. In May this year it signed the €9 million EU–Kazakhstan Cooperation Facility Financing Agreement on the implementation of various economic projects, while the EU remains one of its largest trading partners. Total foreign direct investment from the U.S. surpasses $62 billion, with about 590 businesses running on American capital. And of course Astana wants to avoid the secondary sanctions it is being threatened with for helping Russia skirt sanctions.
To that end, Kazakhstan has begun taking some measures like introducing an electronic monitoring system for goods exported to the EEU. But beyond some token measures it may not do much more; instead it may continue to balance relations between Russia and the West. For instance, Kazakh president Tokayev attended the St. Petersburg Economic Forum last year, when all the West had boycotted it. He did not do so this year, but turned up in Moscow alongside Russian President Putin for the 9 May Victory Day parade last month. Meanwhile, it will continue to watch the Ukraine war, the outcome of which will be critical to deciding how the country and other Central Asian states determine the future trajectory of their relations with Russia and other powers.
