KZBlog

President Vladimir Putin was in Kazakhstan yesterday and he and President Nazarbayev will be traveling to Turkmenistan this week together. Two issues are on the agenda. First, Russia will be assisting Kazakhstan in enriching uranium for its nuclear energy power center. The two countries will be setting up a joint-uranium enrichment center. It looks like Kazakhstan will provide the uranium and Russia will provide the enrichment center at Angarsk (under the supervision of the International Atomic Energy Commission), and that the goal is to sell the uranium to other countries. Russia had previously offered to enrich uranium for Iran as part of a compromise to allow Iran to continue its nuclear energy program. While the offer fell through, the fact that Russia’s offer was accepted by the US and other nations means that Russia is generally trusted in the area of enrichment, so it seems like this might be a good move for Kazakhstan, to let experienced Russian scientists handle enrichment, while hopefully at the same time, building their own capacity slowly: by learning how to do it from the Russians and by sending their students to the US and other leading nuclear engineering countries. Nothing too controversial here.

The second purpose of the visit may ruffle some feathers in Washington and elsewhere however. Hint: It involves oil
It is no secret that Russia wants to keep its powerful hold over Kazakhstan oil by being the main distributor. Except for a few tankers to Iran across the Caspian, all Kazakhstany oil went through Russia until recently. Now Kazakhstan oil goes through the new China-Kazakhstan pipeline opened and the Caspian Pipeline Consortium which runs through Russia, to be sure, but is jointly-owned by a number of companies as opposed to being fully owned and controlled by Russian companies. Trans-Caspian trade has also expanded. Even so, last year 80% of Kazakhstan oil went through Russia.

The US and Europe want Kazakhstan to join the Baku-Ceyhan (Zheyan) pipeline, which would take the oil across the Caspian to Azerbaijan, and from there across Georgia, down to Turkey and out to the Mediterranean, bypassing Russia, enriching Georgia and providing competition to Russian oil in Europe. The Kremlin has not kept its opposition quiet, despite the fact that simple market principles dictate that the more outlets Kazakhstan has, the more stable its market will be and the more likely it is to get a fair market price.

However, Nazarbayev said yesterday:

“Oil and gas cooperation (with Russia) is strategically important, specifically in transporting Kazakh oil to global markets, using Russian trunk pipelines and joint refineries…Kazakhstan is committed to transporting most of its oil, if not, all of it, across Russian territory.”

from The Washington Times/UPI

Obviously geopolitics play a role here, where the Kremlin is physically much closer to Astana than even Beijing (and has more of its troops and missions in the Central Asian region) and of course Russia and Kazakhstan have strong historical and cultural ties. In recent years, it has been no secret that Russia views its hydrocarbon resources as a political weapon and that it is not opposed to strong-arm tactics where necessary. This no doubt extends to distribution of hydrocarbons.

Putin and Nazarbayev will be leaving for Turkmenistan to discuss yet another option however; to build a gas pipeline from Turkmenistan, through Kazakhstan and Russia, and from then on to Europe. Kazakhstan has already agreed to have its gas processed in Russia. According to the article in the Energy Business Review “the project would boost Turkmenistan’s gas export capacity to Russia by at least 20 billion cubic meters.” Whether this is good for Turkmenistan or not is unclear. Again from a market point of view, the fastest route from Turkmenistan to Europe is not via Kazakhstan and Russia, but via the Caspian Sea (and then maybe via Russia, granted). But as Turkmenistan is looking at a pipeline across the Caspian, and Georgia, Russia is threatening potential sanctions for accepting this plan (or at least offering positive incentives to reject it). So Russia is creating an artificial market situation by causing other options than the ones it supports to be nonprofitable, whereas without Russian interference, the other options would be naturally profitable (or at least more profitable).

In any case, regardless of the outcome or what is really profitable for the nations and economies involved, Washington will be extremely unhappy about this and so will Austin, Texas. Expect some saber-rattling and more incentives for Kazakhstan to join Baku-Ceyhan on the negotiating table soon. And that may be why exactly Nazarbayev is giving vocal support to Russian pipelines. The Great Game goes on.