Prize in Eurasian Game


Prize in Eurasian Game

Mar 8th, 2008 4 min read

Director, CENRG and Senior Fellow, IAGS

Ariel served as the Director of the CENRG and Senior Fellow for IAGS

The Russian presidential election in which Dmitry Medvedev - Vladimir Putin's choice as his successor - was confirmed by the vast majority of Russian voters last Sunday, has serious geopolitical implications for the United States. Moscow has already demonstrated that there is going to be more business as usual: Anti-Medvedev demonstrators in Moscow were beaten up and arrested, and gas supplies to Ukraine several interrupted.

One area where Russia is likely to expand its influence is mineral-rich Eurasia, which many in Moscow view as their backyard. The prize of Eurasia is energy resources around the Caspian Sea, primarily in Azerbaijan and Kazakhstan.

From the Caspian Sea and the Caucasus Mountains to the Chinese border, Russia will compete with China and the United States for influence and profit. Russia and China are anxious to curry favor with Kazakhstan. They are both are interested in its energy and mineral wealth and promise multibillion-dollar investments. Kazakhstan exports most of its oil and gas via Russia, but pipelines to China are already working and will be expanded in the future. Azerbaijan is exporting its oil and gas to Turkey and beyond, bypassing Moscow.

This week, Armenia, which is traditionally supported by Russia, and the oil-rich Azerbaijan traded fire over the 1994 cease-fire line in Nagorno-Karabakh. This happened after Armenian police has killed eight demonstrators, arrested dozens and beaten up hundreds in the aftermath of the flawed presidential elections that took place last month.

The United States, which opposes Karabakh independence, has clarified to the Armenian government that both domestic violence and escalation of hostilities are unacceptable. Deputy Assistant Secretary of State Matthew J. Bryza said that he intends to deliver a stern message in Armenia: "We simply deplore the violence," he told the Associated Press. "That simply can't be repeated." Mr. Bryza said he intends to press the government to lift a state of emergency it declared Saturday. A new war in the Caucasus could disrupt supply of close to 1 million barrels of oil a day flowing from Azerbaijan into the tight global market.

Kazakhstan is far from the conflict in the Caucasus. Despite setbacks, including the spread of international financial instability, President Nursultan Nazarbayev's reform agenda, implemented by Prime Minister Karim Massimov, is largely on track. Mr. Massimov, 42, an economist fluent in English, Russian, Chinese, Arabic and his native Kazakh, has played a key role in Mr. Nazarbayev's modernization program.

The United States has done much to develop the Kazakhstani energy potential and still has much to offer, especially in macroeconomic policy development. The subprime credit crisis has affected not just Kansas, but Kazakhstan too, and its construction boom has ground to a halt.

The United States can also offer Kazakhstan support in developing innovative educational, management training and anti-corruption programs. Kazakhstan will also need U.S. assistance and investment to diversify its natural resources-based economy and develop high-tech, financial services and agriculture. Mr. Massimov is planning to sign later this year a U.S.-Kazakhstan Public-Private Economic Partnership with his U.S. counterparts to accomplish these and other goals.

Kazakhstan's potential is immense. It is 4 times as big as France, currently surpasses Kuwait in oil production, and is projected to export 3 million barrels of oil a day by 2015, more than Iran's current figure. Kazakhstan also has some of the largest reserves of uranium on the planet, and is a major exporter of grain.

U.S. companies have played a leading role in the Kazakh oil industry since 1990s, including developing the giant oil fields of Tengiz and Kashagan, where Chevron and Exxon respectively are major stakeholders. Chevron recently committed to a gigantic, $900 million environmental clean-up project, becoming Kazakhstan's exemplary corporate citizen.

Yet, some in the United States express concern about state "hyperactivity" in the Kazakhstani economic sector. President Nazarbayev announced in his Feb. 6 state-of-the-nation address, that the state would strengthen its role as an "influential and responsible participant" in the oil and gas business. A Jan. 14 agreement on the Kashagan oil field doubled state-owned Kazmunaigas' share in the project to more than 16 percent.

Mr. Nazarbayev says the state also plans to review underperforming natural resources contracts and will play a greater role in developing heavy industry and infrastructure. True, these are more moderate measures than resource nationalism sweeping the world from Venezuela to Russia, but U.S. policymakers should clarify that the private sector is always more efficient in economic development than the state. Kazakhstan needs to remain investor-friendly and competitive, and should not take U.S. political support and business sector commitments for granted.

Kazakhstan has been clear that it wants to reach out to Europe and the United States. This year, it will launch the Road to Europe economic program, aimed at becoming more compatible with European Union laws, standards and protocols. During his Washington visit, Mr. Massimov and his U.S. counterparts also will discuss Kazakhstan's accession to the World Trade Organization by 2015 or earlier.

Kazakhstan is also reaching out to the Turkic-speaking countries. Azerbaijan, Kazakhstan, Kyrgyzstan and Turkey recently signed a protocol to create an inter-parliamentary assembly of Turkic-speaking states. This assembly would seek advice from councils of elders, called White Beards, including prominent politicians, writers, artists and scholars. In another effort to highlight its cultural prowess and historic Turkic roots, Kazakhstan entered the Oscars this year with an epic film "Mongol," which tells the story of Genghis Khan, builder of the largest empire on Earth. The film got positive critical reviews.

Mr. Nazarbayev has proclaimed the ambitious goal of seeing Kazakhstan ranked as one of the world's 50 most competitive states. Meantime, Kazakhstan remains a model of ethnic stability, where Muslims and Christians, Turkic-speaking Kazakhs and Russian-speaking Slavs, Germans, Jews and Koreans live in harmony.

In 2009, the country will host its third congress of global and traditional religions, and in 2010 will chair the Organization for Security and Cooperation in Europe, in which the United States and Canada also take part.

Kazakhstan, which has engineers serving in Iraq and is providing humanitarian aid to Afghanistan, is also committed to the global war on terror. It supports moderate Islam and rejects radicals from al Qaeda, Muslim Brotherhood and Hizb ut-Tahrir.

The United States has important interests riding on the success of Mr. Massimov's visit and on improving relations with Kazakhstan and other Caspian states.

Ariel Cohen, Ph.D., is senior research fellow at The Heritage Foundation.

First appeared in the Washington Times