katerina ivascenkova - new geopolitics of oil in central asia russian-kazakh relations

New geopolitics of oil in Central Asia, Russian-Kazakh relations

Student: Katerina Ivascenkova 6257046 [email protected]

MSc. Political Science, International Relations

Research Project: The Political Economy of Energy

International School for Humanities and Social Sciences

University of Amsterdam

Supervisor: Dr. Mehdi Parvizi Amineh

Second reader: Dr. Laszlo Mmaracz

June 2011

Katerina Ivascenkova I University of Amsterdam I Summer 2011

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CITATION

I always have been saying: First-is an economy, and then -politics.

(Nazarbayev, 2003)


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CONTENTS

CITATION .......................................................................................................................................................... 2

LIST OF ILLUSTRATIONS .................................................................................................................................... 5

LIST OF ABBREVIATIONS ................................................................................................................................... 7

ACKNOWLEDGEMENT ...................................................................................................................................... 9

ABSTRACT ...................................................................................................................................................... 10

1. INTRODUCTION .......................................................................................................................................... 11

1.1 THEORETICAL FRAMEWORK ............................................................................................................................... 15

1.2 METHODOLOGY........................................................................................................................................... 18

1.3 THESIS STRUCTURE ........................................................................................................................................... 20

2. RUSSIAN FOREIGN POLICY TOWARD KAZAKHSTAN ............................................................................... 21

2.1 HISTORICAL BACKGROUND OF RUSSIAN-KAZAKH RELATIONS ................................................................................. 22

2.1.1 The dissolution of the USSR and New Geopolitical Order ................................................................... 22

2.1.2 The Concept of Eurasianism ............................................................................................................ 23

2.2 NEW RUSSIAN FOREIGN POLICY UNDER VLADIMIR PUTIN ..................................................................................... 24

2.2.1 Official concepts of Russian foreign and security policy ..................................................................... 24

2.2.2 Vladimir Putins new realism .............................................................................................................. 25

2.2.3 Russia as a normal power................................................................................................................ 26

2.2.4 From 9/11 to new Russian foreign and security policy ....................................................................... 27

2.2.5 International Reconstruction of Russian position ............................................................................... 28

2.3 RUSSIAN DIPLOMATIC AND SECURITY RELATIONS WITH KAZAKHSTAN ...................................................................... 29

2.3.1 Historical background of Russian-Kazakh diplomatic relations .......................................................... 29

2.3.2 Increasing influence of Russia in Central Asia after 9/11 ................................................................... 30

2.3.3 The regional security organisations .................................................................................................... 31

2.3.4 Legal status of the Caspian Sea .......................................................................................................... 33

2.4 ECONOMIC RELATIONS WITH KAZAKHSTAN ................................................................................................... 35

2.4.1 Historical background of economic relations and mutual trade ........................................................ 35

2.4.2 Regional Economic organisations ....................................................................................................... 37

2.5 CONCLUSION .......................................................................................................................................... 39

3. POLITICAL SYSTEM AND FOREIGN POLICY IN KAZAKHSTAN ........................................................................ 40

3.1 HISTORICAL BACKGROUND OF THE CENTRAL ASIAN REGION ...................................................................................... 41

3.1.1 The Kazakhstan Soviet Socialist Republic [1936-1991] ....................................................................... 41

3.2 NATION-STATE BUILDING AND POLITICAL SYSTEM ................................................................................................... 42

3.2.1 Nation-building in Kazakhstan ............................................................................................................ 43

3.2.2 Political system and leadership of Nazarbayev .................................................................................. 45

3.2.3 Constraints to the process of the nation-state building ...................................................................... 48

3.3 KAZAKHSTAN FOREIGN POLICY AND RELATIONS WITH MAJOR POWERS ........................................................................ 50

3.3.1 Kazakhstan foreign policy concept ..................................................................................................... 50

3.3.2 Factors shaping Kazakh foreign policy ................................................................................................ 53

3.3.3 Multilateralism in Kazakh foreign policy ............................................................................................ 54


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3.3.4 Kazakh relations with Russian Federation .......................................................................................... 55

3.3.5 Kazakh relations with the USA ............................................................................................................ 56

3.3.6 Kazakh relations with China ............................................................................................................... 58

3.4 CONCLUSION .................................................................................................................................................. 59

4. GEO-ECONOMICS AND GEOPOLITICS OF OIL IN KAZAKHSTAN .................................................................... 61

4.1 POLITICAL ECONOMY OF KAZAKH OIL INDUSTRY ........................................................................................ 62

4.1.1 Trade .................................................................................................................................................. 63

4.1.2. Oil sector ......................................................................................................................................... 66

4.1.3. The management of oil revenues .................................................................................................... 73

4.2 OWNERSHIP OF KAZAKH OIL INDUSTRY ...................................................................................................... 77

4.2.1. National Oil Companies (NOCs) ........................................................................................................ 78

4.2.2 Foreign oil companies and their relations with KMG ......................................................................... 83

4.3. MAJOR POWERS STRUGGLE OVER KAZAKH OIL AND THEIR INTERESTS .................................................... 92

4.3.1 The US interest in Kazakhstan ............................................................................................................ 93

4.3.2 The Chinese interest in Kazakhstan .................................................................................................... 94

4.3.3 The Russian interest in Kazakhstan .................................................................................................... 96

4.4 CONCLUSION .................................................................................................................................................. 98

5. CONCLUSION .............................................................................................................................................. 99

BIBLIOGRAPHY: ............................................................................................................................................ 107

APPENDICES ................................................................................................................................................. 119


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LIST OF ILLUSTRATIONS Maps

MAP 1: POLITICAL MAP OF THE REPUBLIC OF KAZAKHSTAN

MAP 2: POLITICAL MAP OF THE RUSSIAN FEDERATION

MAP 3: POLITICAL MAP OF CENTRAL ASIA

MAP 4: CENTRAL ASIAN OIL PIPELINES

MAP 5: NUCLEAR BASES IN KAZAKHSTAN

MAP 6: THE CASPIAN PIPELINE CONSORTIUM

MAP 7: KAZAKHSTAN-CHINESE PIPELINE

MAP 8: THE CASPIAN SEA LEGAL REGIME - NATIONAL SECTORS

Figures

FIGURE 1: KAZAKHSTAN OIL BALANCE IN THE NEW POLICIES SCENARIO

FIGURE 2: CPC SHAREHOLDERS

FIGURE 3: SHARE OF CASPIAN OIL RESERVES (2006)

FIGURE 4: SHAREHOLDERS STRUCTURE OF KMG EP

Tables

TABLE 1: KAZAKHSTANS MAJOR IMPORTS PARTNERS (2010)

TABLE 2: KAZAKHSTANS MEMBERSHIP IN THE MOST IMPORTANT REGIONAL AND INTERNATIONAL ORGANISATIONS

TABLE 3: KAZAKHSTAN GDP GROWTH (2003-2011)

TABLE 4: PRINCIPAL EXPORTS AND IMPORTS OF KAZAKHSTAN

TABLE 5: DESTINATION OF EXPORTS AND ORIGIN OF IMPORTS (2006)

TABLE 6: PRODUCTION OF OIL IN KAZAKHSTAN

TABLE 7: FOREIGN DIRECT INVESTMENT (MILLION US DOLLARS)

TABLE 8: LIST OF MAJOR ENERGY PROJECTS WITH TYPES OF THE CONTRACTS

TABLE 9: MAJOR CASPIAN OIL PROJECTS


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LIST OF ABBREVIATIONS

BG British Gas

BP British Petroleum

BTC Baku-Tbilisi-Ceyhan piperine

CIS Commonwealth of Independent States

CNPC China National Petroleum Corporation

CPC Caspian Pipeline Consortium

EAEC Eurasian Economic Community

EBRD European Bank of Reconstruction and Development

EIA Energy Information Administration

EU European Union

FDI Foreign Direct Investment

GDP Gross domestic product

IEA International Energy Agency-nepouila

IMF International Monetary Fund

KCO Kazakhstan North Caspian Operating Company

KMG Kazmunaigaz state oil Company

KCTS Kazakhstan Caspian Transportation System

KPO Karachaganak Petroleum

NATO North Atlantic Treaty Organisation

NFRK The National Fund of the Republic of Kazakhstan

NGO Non-governmental organization

NOC National Oil Company

OECD Organisation for Economic Cooperation and Development

OIC Organisation of the Islamic Conference

OPEC Organization of Petroleum Exporting Countries

PSA Production Sharing Agreement

TNC Trans-national Company

TNOC Trans-national Oil Company

US(A) United States (of America)

USSR Union of Soviet Socialist Republics


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WTO World Trade Organization WTO World Trade Organization


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ACKNOWLEDGEMENT

This thesis could not have been finalized without the valuable contribution of several people.

First of all, I would like to express my deep gratitude to my dedicated supervisor M. Mehdi

Parvizi Amineh whose patience, useful advice and explanations provided me throughout this

long work. Also, I am extremely grateful towards Dr. Lszl Marcz, the second reader of my

thesis for his time and patience.

Last but not least, I do address my acknowledgements to some of my relatives and friends, in

particular my mother who created suitable conditions for me to accomplish this unforgettable

performance, Mr. J. Ramauger for his patient support and P. Antlova for the stylization of the

text.


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ABSTRACT

This research thesis analyses the Russian interests in Kazakhstan and Central Asia as such.

Despite the common history and similar cultural development, the region is composed of new

independent states. Therefore it represents for Russia a new international environment, where

many external actors are involved and compete between themselves to get an influence on

local policy-making. Kazakhstan possesses large oil reserves and its latest discovery of

Kashagan oil field, which is believed to be the fifth largest in the world, even intensifies the

competition among external actors due to the scarcity of natural resources. Moreover the

strategic position of the country, which has common border with Russia and China, plays a

significant role. The aspects of the geographical location of natural resources and strategic

position of the territory will bring us to the geopolitical issue which tends to highlight global

politics from the perspective of political geography.


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1. INTRODUCTION

The importance of the possession of natural resources has been significantly growing in the

last decades. The main reasons for this phenomenon are the increasing demand for oil and gas

and the scarcity of such resources. The very high demand is due to the escalating consumption

among new emerging countries such as China and India. Therefore the regions which abound

with these natural resources become often the sphere of interests or sometimes even a matter

of rivalry among the biggest oil and gas consuming countries.

Global politics is also changing very deeply. The world of international relations has moved

from the bipolar political system during the Cold war through the unilateral US dominance

towards nowadays new international system, which has been hardly defined yet. The major

powers are no more interested about the ideological supremacy. They rather aspire to the

economic primacy and the access to the few natural resources remaining. The expression of

geopolitics is weakening and geo-economics is becoming stronger in nowadays concept of

international relations. Therefore the energy plays a crucial role in world economic system

and world politics as well. Moreover there are new actors on the international scene.

Russia had to adopt a new foreign energy policy to address adequately the challenges that

international relations are bringing today. After the economic and political decline in Russian

Federation at the end of the 20th century, Vladimir Putins new government has revalued

blind eagerness to join the West and tried to find a compromise between the radical voices,

calling for resurgence of Russian super-power by military means, and the liberal opinions,

supporting the cooperation with the Western countries and the idea of joining the West

(Sakwa, 2008: 242). Natural resources have markedly started to gain on importance on the

Russian political scene since the beginning of Putins presidency. The new Russian President

has emphasized the importance of oil and gas in order to reconstruct national economy, but

also the position of Russia as a former superpower in the international order (Balzer, 2005:

212).


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Moreover during his second presidential term Putin has also reconsidered the relationship

with Asian countries. Central Asia1 has a strategic importance for the Russian Federation.

Therefore Putin foreign policy strategy aimed to integrate this region into the Russian security

sphere and maintain its influence over this geographical area. Many institutions have been

founded to promote the integration of the region. The Commonwealth of the Independent

States (CIS) was the first one. However this Russian driven institution has never been very

effective. The other effort of Moscow was to promote cooperation in the military sphere. The

Collective Security Treaty Organisation was established in 2002 after the agreement was

signed by Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Belarus and Armenia (Freire, 2009:

139). The result of this agreement was to preserve territorial integrity of the Central Asian

region. It also allows Russia to have this region closer to its security system. However some

countries such as Turkmenistan, Georgia and Azerbaijan are not members of this treaty.

Despite that, they often stay attached to some extend to Russia, because of the dependency on

Russian gas pipelines and need to transport oil and natural gas towards the lucrative markets

of many European countries. Moreover the Single Economic Space (SES) was established a

year later among Russia, Kazakhstan, Belarus and Ukraine (Freire, 2009: 141). This is one of

the first institutions reflecting the Russian tendency of abandoning the adherence on military

alliances and starting cooperation on economic basis.

Central Asia is, however, the object of great interest from many countries or other groups of

actors such as international companies. Many American and European companies have

invested a lot of money in the development of Kazakhstan oil and gas fields. However, Russia

is now getting economically stronger and therefore many Russian companies are purchasing

large share in Kazakh oil and gas firms.

Many external powers among which the United States are very interested in the region due to

its strategic position between Europe, Asia and Middle East. Its interest is mainly focused on

the access to the natural resources which abound in the region. The issue of the influence over

the Central Asia plays a crucial role in foreign policy strategies of involved countries. The

growing competition is obvious among China, Russia and the US over this territory and its

1 Central Asia consists of five countries: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.


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natural resources. The US is, moreover, promoting integration of Kazakhstan into the

structure of NATO. These American attempts create tensions between Russia, on one side,

and the US and the EU, on the other side. The EU is largely dependent on the Russian gas.

However after several crises between the gas transit states (Ukraine, Belarus) and the Russian

Federation, the EU has realised the unreliability of its main gas supplier. Therefore the

European countries are searching for some alternatives to its current energy supply routes and

they are very interested in cooperating with Central Asia.

Furthermore we can observe significant changes in the Russian foreign policy towards Central

Asian countries. American scholar Harley Balzer argues that in order to counterbalance the

Western efforts to get access to natural resources in Central Asia, the Russian Federation

established new relations with China over this region. The Shanghai Cooperation

Organization meeting has laid the foundations for a partnership with China in order to contain

the Western influence in Central Asia (Balzer, 2005:220). Russia has started to change its

policy towards the Central Asian region. Trying to build more equal relationship, it proposed

more advantageous conditions within the energy sector to Kazakhstan and other Central Asian

countries.

The reason of the research is the geopolitical change in the Central Asian region, which

appeared at the end of the Cold war. New independent states have emerged in Central Asia

with their own governments and types of democracies after the fall of the Soviet Union.

However Russia as a former leader of the Soviet space has kept a great influence over the

policy-making in the region

The Central Asian region represents the sphere of main priority for the Russian foreign policy.

From the geo-economic perspective, the region is very interested because of its oil and gas

reserves. Therefore the struggle for the access to these commodities is present and includes

many state but also non-state actors. Geopolitically the region has a real strategic position

because it is located on the crossroads which link Europe and Asia. For Russia the security

aspect of its relations with Central Asian countries is predominant. For a long time Russia has

been promoting the reintegration of Kazakhstan into its security system. Moscow has initiated

the foundation of many security alliances such as the Collective Security Treaty Organisation


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(CSTO) and other treaties which enable military cooperation between both countries.

Therefore any activities from the US or the EU in the region are observed by Russians as a

possible threat to its zone of influence. China is also establishing some links with the region

but purely on the economic basis. For the purpose of our research we would examine only

Russia, the US and the China. The EU will be excluded because of the need to narrow down

the research.

Kazakhstan is the largest and economically very fast developing post-Soviet country. Due to

its significant oil and gas reserves it gains an importance on the international scene. In order

to attract foreign investors Kazakhstan has been trying to pursue the foreign policy of balance.

Therefore it is a member of many eastern but also western international organisations. The

country has even established a partnership for cooperation with NATO, which aroused the

concerns of Russia.

To stabilize the situation and secure the region, Russia is trying to influence the region

through advantageous economic contracts and agreements. Many Russian companies

(especially oil and gas ones) such as Lukoil, Gazprom, Rosneft are operating in the country

and have several stakes in the Kazakhstan oil fields and pipeline consortiums. However the

competition from the western companies is very high as they have the greatest resources to

invest, and their financial leverage is backed by the military capabilities of the United States

(Auty, 2006:237). Therefore it is really interesting to observe to what extend Russia changes

its foreign policy in answer to the presence of external actors in the region.

The goal of this research is to analyse the actual interests Russia has in Kazakhstan and how

these interests shape Russian foreign policy towards the Central Asian region. The central

research question in this thesis will be:

What are the Russian interests in Kazakhstan in the context of comprehensive Russian foreign

policy in Central Asia?

In order to answer this question, first several sub-questions need to be explored and answered

so as to create a better understanding of the main question.


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1. What is Russian foreign policy towards Kazakhstan?

2. What kind of the political system has been formed in Kazakhstan and what are the

factors shaping Kazakh foreign policy?

3. What are the interests of the TNOCs and major powers in Kazakhstan?

4. What is the Russian response to the activity of other global actors in the region and

how that shapes Russian interest in Kazakhstan?

1.1 Theoretical Framework

International relations is a very broad and diverse discipline, therefore we

need theories to enable us to understand it. Realism, Liberalism, Constructivism and Marxism

represent the main theoretical schools of the IR. They all discuss the nature of international

system, the factors influencing political decision making and the actors involved in the world

politics. The debate between Realism and Liberalism has been so far the most long-standing

and well-developed (Baylis, 2008:159). Therefore I dare to discuss these two approaches

further. Realism is defined mainly as a state centric theoretical approach, which is based on

struggle for power in the anarchical international state system. This theory provides

something like a manual to maximise the states interests outside its borders in order to

survive in world anarchy (Waltz, Mearsheimer, in: Baylis 2008). Therefore the military

strength is highly important in this context. On the other side, liberalism stresses the

importance of market driven economy and emphasizes the cooperation among the states

through the international institutions in order to promote peace and liberal values such as

order, liberty and justice (Doyle, Cobden, in: Baylis 2008). However all of these theories

neglect the importance of the geographic space and the access to natural resources.

This research thesis will analyse the Russian interests in Kazakhstan and Central Asia as such.

Despite the common history and similar cultural development, the region consists of new

independent states. Therefore it represents for Russia new international environment, where

many external actors are involved and compete between themselves to get an influence on

local policy-making. Kazakhstan possesses large oil and gas reserves, which intensify the


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competition among external actors due to the scarcity of natural resources. Moreover the

strategic position of the country, which has common border with Russia and China, plays a

significant role. The aspects of the geographical location of natural resources and strategic

position of the territory will bring us to the geopolitical discourse, which tends to understand

global politics from the perspective of political geography. Therefore the geopolitics will be

the most relevant theoretical perspective for this thesis.

Geopolitics discusses the relationship between political power and territory. Classical

geopolitics as the theoretical approach emerged already in the 19th

century and it has

developed in the context of realism paradigm. It analysis politics in relations with

geographical features such as the access to the ocean or natural resources (see Mackinder, in:

Bassin and Aksenov, 2006). However it is the state centric theory. The core idea of traditional

geopolitics is that state is the main actor in International Relations (see Tuathail, Dalby,

2006).Therefore it is not relevant for this research as we consider that non-state actors play a

significant role in global politics. Moreover old conceptual maps of geopolitics do not work

anymore in a world of speeding flows, instantaneous information, and proliferating techno-

scientific risks (O Tuathail, 1999: 107-123). Therefore many critics of traditional geopolitics

have started to appear and led to the formation of Critical geopolitics.

The most significant difference between classical geopolitics and critical geopolitics is the

units of the analysis. The former perceives state as the principal unit of global politics.

However the latter looks at the role of non-state actors, such as international institutions,

transnational companies or terrorist organisations. The representatives of critical geopolitics

(Amineh, Agnew, O Tuthail) argue that international economic integration relatively reduced

the power of state on economic and political level. On the other side, the new actors such as

transnational corporations reinforced its position in global politics. According to this theory

the economic globalisation is a significant element in International Relations. The geo-

economics is a part and parcel of the critical geopolitics. This concept is based on the

assumption that role of economy in order to achieve the control over the space is predominant

than the use of military forces promoted by classical geopolitics. If the external country can

connect with the host economy, she would be able to control space by economic power.

Therefore the transnational companies (TNCs) play an essential role in the classical


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geopolitics. In other words, control over the natural resources will enable external country or

TNOCs, which is often backed by the nation-state, to exercise the leverage on policy-making

of the host country and thus control the course of events in the region. Many critical

geopolitical thinkers (Amineh, Agnew) stresses that Foreign Direct Investment (FDI) is a

crucial factor in the global economic integration. Moreover they emphasize the importance of

International Political Economy (IPE) in current world politics. In contrast classical

geopolitics did not really follow the economic and political changes which globalisations

brought. Critical geopolitics, moreover, aims to understand global politics in terms of the

ways in which elites and public actively construct the spaces of political action and how these

constructions change over the time. It is based on the assumption that world politics are

directly dependent on various physical-geographical determinants such as the access to the

oceans or natural resources, for instance (Agnew, 2010:569).

Critical geopolitics also tackles the issue of New Great Game in the Central Asian region.

Comparing to the 19th

century, nowadays the game is more complex, because there are many

state and non-state actors interested in control over the oil and gas resources in the region. The

other aspect, which contributes to that complexity of the game, is the trans-nationalisation of

the production and finance on the global level (Amineh, 2003: 25). Central Asian countries

are, likewise, newly independent states and they had to face many challenges after the fall of

the Soviet Union. The political environment has changed dramatically due to the

globalisation, new technological discoveries and fast spread of information. We are in the

outset of the new international system, whose form is not known yet.

To examine the interests of the Russian Federation and other actors involved in the region we

will make distinction between the geo-economic and geo-political logic following Mercille

and Jones (2009). The former is driven by the Russian desire to control energy reserves in

Kazakhstan and Central Asia in general. Therefore we could notice the shift in Russian

foreign policy toward the softer approach in its bilateral relations with Kazakhstan. Russia

seeks to maintain a friendly regime in power. Therefore it firmly supports the government of

Nazarbayev and is trying to fasten Kazakhstan through advantageous economic and energetic

cooperation. Russia pursues the economic cooperation in order to increase its influence in

Kazakhstan and to promote its interests through the economic relations. On the other hand


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there is also an evident geo-political logic, which is based on the fact that region has a great

geo-strategic position. Therefore Russia tends to keep its credibility and position of major

external power in Kazakhstan. By doing so, it tries to limit the efforts of other external actors

to influence local policy-making.

Critical geopolitical perspective will serve us as a framework for understanding the politics

behind the bilateral relations of Russia and Kazakhstan. This theoretical approach will enable

me to answer the question of Russian actual interests in Kazakhstan and the way how

Moscow tries to achieve it. For this purpose we will have to analyze the economic aspects of

this bilateral relation with the focus on investment and trade. Moreover we will look at the

International Political Economy, the engagement of international institutions and transnational

companies operating in Kazakhstan. Russian foreign policy will be seen as a tool to achieve

its goals in Kazakhstan. Critical geopolitics will help us to understand the competition among

the external actors and tension in the region.

1.2 Methodology

This thesis will include both a qualitative as well as quantitative research method. The paper

will be mainly literature review based, involving theoretical literature and empirical one.

Therefore a main part of the thesis will consist of the analysis of documents and materials.

The journal of Eurasian Geography and Economics together with the very recent book:

Kazakhstan oil and politics represents the main source of current economic and political

situation in Kazakhstan and Central Asia. The journal of Energy policy focuses on the issue of

energy and the role of natural resources in politics. Europe-Asia studies and Asian Survey

studies bring us the overview of Chinese engagement in Central Asia. The most important

journals to understand the current foreign policies of focused countries, and the geopolitics in

the region are International Affairs, Post-Soviet Affairs. The journal of Communist and Post-

Communist studies examines the historical background of the political system in Post-Soviet

region. The official documents of the Russian Federation and Kazakhstan will be also studied.

This literature review represents the qualitative part of the research.


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The quantitative research method will mainly consist of the data analysis, energy economy

outlook, the economic figures and the development of oil and gas prices. The International

Energy Agency (IEA) is a relatively independent source of information; therefore in many

cases it would be a more relevant source than official documents of studied countries, which

will be also examined. The IEA World Energy Outlook together with the BP Statistical

Review of World Energy will be used for data on energy consumption, production, import

and export. The crucial elements for the observation of economic relations between

Kazakhstan and Russia will be the reports of the biggest Russian companies such as Lukoil,

and Rosneft, which are highly active in Kazakhstan oil projects. Western oil companies such

as Chevron will not be left out either. The analysis of the activities of Kazmunaigas, Kazakh

national oil company, will be essential to understand the geopolitics in the region. In addition

this research thesis will examine the data of international institutions and organisations, and

security alliances of which Kazakhstan is member. The Economic Cooperation Organization

will provide us with the information on the regional cooperation and common efforts to

develop the regional infrastructure, to establish a single market and to attract the foreign

investors. The Eurasian economic community (EAEC or EurAsEc) with its members Russia,

Kazakhstan, Kyrgyzstan and Tajikistan is very important for studying the efforts to reintegrate

the region on the economic basis. The following institution to be examined is the Single

Economic Space on which Russia, Kazakhstan and Belarus have agreed in 2009. These

countries would like to join WTO together as a custom union, which is also very interesting to

study for my research. Moreover some military alliances (ex. Collective Security Organisation

Treaty) will be considered to understand Russian strategic interest in the region. Then it

would be essential to include the study of several pipelines or pipeline projects, among the

most important Caspian Pipeline Consortium or Kazakh-Chinese pipeline.

The combination of both methods will allow us to understand the impact of geopolitics on the

dynamics of the energy economy but also the impact of the global financial economics and

transnational market on geopolitics in certain countries and regions. These two methods also

aim to response the sub-questions and finally the central research question.


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1.3 Thesis structure

The research thesis is divided into five chapters. The first chapter provides us with the

introduction to the topic and theoretical framework that is relevant to the research theme.

Chapter two introduces to the Russian approach to Kazakhstan. It further analysis the Russian

foreign policy towards Kazakhstan and studies their mutual relation on diplomatic, economic

and security level. This chapter aims to depict the development of Russian attitude towards

Kazakhstan and Central Asia as such. For that purpose we also examine the regional

organizations that show the institutionalization of the Russian-Kazakh cooperation.

Chapter three brings us a deep analysis of our second actor - Kazakhstan. It examines its

process of nation-state building and depicts the challenges the newly independent Kazakhstan

has met. The crucial part of this chapter takes closer look at the Kazakh foreign policy. The

latter is firstly analysed in general and then towards the major powers involved in the country

- the US, Russia and China.

The fourth chapter is the core of the research as it tackles the geopolitics in the region and

studies its impact on the Russian foreign policy towards Kazakhstan. Moreover it gives an

overview of the Kazakh oil industry, which is crucial for understanding of such a foreign

interest and a so important involvement of the TNOCs and NOCs in the country. In order to

assess the power of several external actors, the section on the ownership of Kazakh oil fields

and pipelines is included.

The conclusion forms the last chapter where the findings are presented.


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2. RUSSIAN FOREIGN POLICY TOWARD KAZAKHSTAN

The region of Central Asia has a great geopolitical importance because of its energy aspect.

The energy resources of the region are located in Caspian littoral states2 which are very rich in

oil and gas. Therefore these states represent a region of major interest for many powers such

as Russia, the Unites States, China, Iran, Turkey, but also the European Union. Most of the

main powers, precisely the industrialised countries and regions (the US, China and the EU)

have been trying to get access to oil crude and natural gas, and to participate in the

exploration of such commodities. Moreover the general tendencies to diversify supplies and

the fierce changes in the development of the oil prices have conferred to the region a larger

significance. However the rise of Islamic fundamentalism and the events of September 11th

in

the US gave a different dimension to the region, which is situated near Afghanistan, Iran and

countries of Persian Gulf. The US had engendered the war against terrorism and many new

actors have become involved in the region. Therefore Russia had to adjust its position in the

region and adopt a new approach with Central Asian countries in the context of a new

geopolitical situation (Kubicek, 2004:207). In this chapter, I will examine the changes in the

Russian foreign policy towards Kazakhstan, which is the main oil producer in the region.

Moreover I will look at the general development of Russian foreign policy in Central Asia. In

order to answer the question what are the changes in Russian post-cold war foreign policy

towards Central Asia, we will have to search which factors and actors have influenced the

shifts in Russian foreign energy policy.

2 Azerbaijan, Iran, Kazakhstan, Russia, Turkmenistan


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2.1 Historical background of Russian-Kazakh relations

2.1.1 The dissolution of the USSR and New Geopolitical Order

After the fall of the Soviet Union a new Russian government had to adopt a new approach

towards the Central Asian region. The Commonwealth of the Independent States (CIS) was

established on December 21st 1991 as a descendent to the USSR. It was a regional

organisation with the goal to maintain cooperation on several levels. Nevertheless the results

of the cooperation were rather zero-sum or highly ineffective. On the other side, the Russian

foreign policy took so called westernisation course3 in the early 1990s, which was to the

detriment of the relations with Kazakhstan and other post-soviet countries. We could hardly

talk about some closer political or economic cooperation between Russia and Kazakhstan.

Central Asia was rather neglected by the Kremlin as less developed region. Some Russian

elites were afraid that these states may slow down the implementation of the economic

reforms taken by new Russian government. However the cooperation in the energy sector

remained almost inalterable (Kubicek, 2004:209). The main reason for the maintenance of

this business was the fact that all the pipelines were constructed during the Soviet regime and

led through the territory of the Russian Federation. Nevertheless Russia itself possesses the

largest reserves of natural gas and oil. Therefore it has no need to import these commodities

for its domestic use. In the beginning of the 1990s the demand for Caspian oil and natural gas

has dramatically fallen due to the decreasing political importance of the region for Kremlin.

However Kazakhstan remained a relatively important country for Russia with the abundant

Russian population counting for 6 227 549 millions in 1989 (Zardykhan, 2004:63), which

represented almost 50% of the total population living in Kazakhstan. With the collapse of the

USSR and the establishment of Kazakh as the State language, many Russian speaking ethnics

returned to their home countries.

3 Westernisation is a political and economic orientation towards the western countries.


[23]

2.1.2 The Concept of Eurasianism

To understand post-Cold war Russian foreign policy we have to look at the discourses on

geopolitics and discourses on Eurasianism4, which emerged at the same time during the

Yeltsin era. The former was defined by Russian foreign Minister Andrei Kozyrev as a

balanced, non-ideological assessment of Russias national interests (Morozova, 2009:668).

Geopolitics in this term was rather perceived as an ideology-free approach (to International

Relations) rather than some territorial struggle. However nationalist and military circles have

raised a concern about the Russian territorial integrity and emphasized the importance to

pursue Russian national interests which would reflect geopolitical realities of post-Cold War

politics (Morozova, 2009:668-669). Therefore Yeltsin has started to use the traditional

geopolitical rhetoric in order to avoid the rise of nationalists tendencies among the

opposition. He has identified the region of Central Asia as the space of potential conflicts,

which could menace the territory of Russia. According to Morozova, this geopolitical

discourse represented the solution for the issue of securing new Russian boarders.

The significant shift in the Russian foreign policy towards the Central Asian region has

occurred in the mid 1990s. The opposition to the western orientation and Yeltsins experiment

with the democratisation of his country has strengthened. The disenchantment from the West

has started to be more obvious. Moscow has realised that Russia rather gave than gained from

the cooperation with the West. Moreover the ground for more assertive Russian foreign policy

was set up as the democratic model adopted by Yeltsin did not approve like the best variant

for new Russian state. Therefore the concept of Eurasianism re-emerged as an alternative to

the excessive Russian foreign policy of westernisation led by Andrei Kozyrev

(Rangsimaporn, 2006:378). It evolved as a will to differ from the West and as a reaction to the

emergence of new independent states in Central Asia. The latter has reinforced Russian

awareness of Asia. Some experts (S. Goncharov) have even claimed that the stability in Post-

Soviet Russia could be achieved only through the engagement with Asian countries (Kerr,

1995:981).

4 Political movement, which claims that Russia is culturally closer to Asia than Europe.


[24]

The core idea of Eurasianism consists in Russian attribute as a bridging power between

Europe and Asia. Eurasianists stress Russias geographic, strategic and worldwide cultural-

political distinctiveness (Morozova, 2009:669). Moreover from the perspective of the

historical economic development Russia might be ranged among Asian countries. However,

culturally Russian ethnic would be closer to European countries. Eurasianism provided

Russian government with the legitimisation of its foreign policy in order to accomplish its

mission of insuring the stability between Asia and Europe. Above all it accorded Russia the

possibility of re-gaining some of its influence and helped to position Russia as the regional

major power. The concept of Eurasianism could be also perceived as the continuance of

traditional geopolitics, but with the focus on the territory of Europe, Central Asia, the

Caucasus and East Asia. The Russian Federation of the 1990s did not aspire to compete with

the US over the world hegemony but rather to settle its position within the region of Eurasia.

To re-establish its position in Kazakhstan, Russia has started to use the nationalist rhetoric of

protecting the rights of Russian population living abroad. Therefore Nursultan Nazarbayev,

the President of Kazakhstan, was pressured to provide both citizenship and other rights to the

numerous Russian ethnic. Otherwise Moscow would have limited the amount of Kazakh oil

and gas fluctuant through Russian pipelines or shut it off completely (Kubicek, 2004:208-209)

which happened in fact. This shows how effectively Russia uses energy as a tool of its foreign

policy. In order to promote its interests Russia can easily take an advantage of Kazakh

dependency on Russian transit pipelines. From this, we can assume that the Russian energy

policy towards Kazakhstan is mainly dependent on the geopolitical situation in the region

rather than on the shortage of fossil fuels.

2.2 New Russian foreign policy under Vladimir Putin

2.2.1 Official concepts of Russian foreign and security policy

The election of Vladimir Putin as the President of the Russian Federation has brought a

significant turn in Russian foreign policy. His goal was to establish the conceptual and

organisational order within all important spheres of Russian foreign policy (Kazantsev,

2008:1075). Shortly after his accession in 2000, three new strategic documents were


[25]

introduced: the National Security Concept (January 2000), the Military Doctrine (April 2000)

and the Foreign Policy Concept (June 2000). The latter defined the relations with the Post-

Soviet countries, especially with Central Asia and the Caspian littoral states, as the main

priority of Putins foreign policy. The main issues discussed in the Foreign Policy Concept

were security and the economic cooperation with these countries. The former was put in the

context of fighting transnational terrorism and Islamist fundamentalist (mainly Taliban and

Al-Qaida in the south of the Central Asian region). The importance of the economic

cooperation was also highlighted. The new President, moreover, emphasised the need to solve

the problem of legal status of Caspian Sea (Kazantsev, 2008:1075). However there were also

some week points of these doctrines. Firstly the documents were too broad and general.

Secondly all of these strategic concepts were prepared during the Yeltsin regime and before

the events of 9 September 2001 (Poti, 2008:29). Therefore new doctrinal documents, which

would better correspond to the new geopolitical situation and international challenges, were

waiting to be elaborated in the early future.

2.2.2 Vladimir Putins new realism

Russian foreign policy under Putin was highly aware of the fundamental changes in the post-

Cold War international system and in Russia itself. Hence the new President sought to

redefine Russian national interests and objectives of foreign policy. He aimed to develop a

new approach which would combine the traditional Russian realpolitik5 with the

international economic integration. The integration without the accession (Sakwa, 2008:

266) was the political course of the new Russian administration which means that Kremlin

was willing to join the Western structure but at the same time to preserve its full autonomy.

Consequently Putin tried to overcome the ideological vector of the Soviet days and ameliorate

the international prestige of Russia. Therefore the power projection rested on domestic

stability and national economic growth, which was maintained by increasing revenues from

fossil fuels (Freire, 2009: 128). Thus the following question arose: what theoretical approach

Putin stands for? According to Sakwa, Putin is often incorrectly described as an Eurasianist.

Although the former President often expresses the need to strengthen the Russian position in

5 Realpolitik is a diplomacy based on power and material factors rather than on ideology.


[26]

Central Asia, he differentiates obviously from the Eurasianist stream. He does not aspire for

global hegemony but rather tends to integrate economically into the international system and

become a regional leader. In fact we cannot talk about one integral concept of Eurasianism.

Nowadays there are so many different strands such as pragmatic Eurasianism, neo-

Eurasianism, civilizational or intercivilizational one6, that the concept has lost any intellectual

coherence (Sakwa, 2008: 244). Likewise some academics (Morozova) argue that the concept

of Eurasianism itself is declining. Putin should be rather ranked within the new realism

thinking. How Putins new realism differs from the neo-realism? New realism is significantly

influenced by the idealist stream promoting Russian ties with Western structures and

emphasizing the need for cooperation on the economic level and security issues. This

ideology is strongly supported by Vladimir Putin unless it would not menace the autonomy of

Russian policy. New realism is based on the principle that Russia is a part of a European

civilizational identity and therefore it should be accepted on its own terms as an equal

member of international community (Sakwa, 2008: 245). In the beginning of the twenty

century Dmitri Trenin (2011) even proclaimed the end of Eurasia and pointed out that the

only meaningful relations could be developed with the West.

2.2.3 Russia as a normal power

In this context Vladimir Putin has presented Russia as a normal power and tried to

normalize the debate on Russian Federation foreign policy (Sakwa, 2008: 245). Putin has

tended to give a new image to statistic and monolithic Russia in world politics. His strategy

and objectives are perceived as that of normal great power. It follows the policy of moving

further away from Soviet isolationism and aims to become an equal member of international

community while maintaining its own sovereignty. Putin strategy consists mainly in three

objectives: concentration of state power in Russia, reengaging the West after 9/11 and

strengthening Russian influence in post-Soviet Eurasia (see Tsygankov, 2005:142). The latter

should have been materialised by the engagement of Russian companies in the region. In the

same time Putin has attempted to divide Russian foreign policy from formidable Eurasianist

claims based on traditional geopolitics and revisionist aspirations. In the beginning of 2001

Sergei Ivanov, secretary of the Security Council, proclaimed the adoption of a new pragmatic

6 For an overview and every definition, see Sakwa (2008), p. 244.


[27]

approach towards the Central Asian region, which would be funded on the bilateral relations

and common fight against terrorist threats. Moreover he expressed the deception over the

Russian ineffective and very costly attempts to integrate the CIS countries (Tsygankov,

2005:142). However the geopolitical situation has changed after 9/11 and together with

growing importance of Caspian natural resources, the region re-emerged as an area of great

interest.

2.2.4 From 9/11 to new Russian foreign and security policy

The terroristic attack on World Trade Centre, which took place on September 9th

2001,

brought the US military presence into the Central Asian region in order to destroy Taliban.

Russia, expressing its condolence to the US, accepted deployment of Western allies soldiers

on the territory of Central Asia. Both countries opened up for more cooperative approach in

the security level with the goal to eliminate the terrorist threat. However some specialists

(Allison, 2004:279) argue that Russia was working under the rubric of the anti-terrorist

campaign to seek to bolster its influence in CIS states. The period of honeymoon between

the US and the Russian Federation lasted until March 2003, when the administration of

George Bush unleashed the war in Iraq. This situation was favourable for Kremlin in the

concern to the security issue. Justifying its steps by possible danger from the increasing US

presence in the region, Russia was preparing the ground to rebuild a buffer security zone in

Central Asia. In late 2003 the Russian Ministry of Defence has introduced revised military

doctrine elaborated by S. Ivanov. This document represented a new concept of Russian

security policy, which reserved to Moscow the rights to carry out pre-emptive strikes

anywhere in the world and suggested significantly that Russia could take military action in

CIS states.., if it felt under threat(Allison, 2004:280). Hungarian specialist Laszlo Poti7

presents the overview in which he sums up the key elements of Russian doctrine. Firstly it is

the identification of new trans-boarder threats (terrorism, traffic of drugs and weapons) and

increasing world-wide importance of non-state actors (transnational companies, NGOs). Both

features were produced by the globalization. Furthermore the document refers to the regions

of Russian natural interest, which are Central Asia, Europe, Middle East and Pacific. The

important message of this doctrine is the growing significance of military forces. It is also

7 Senior Research Fellow at the Institute of Strategic and Defence studies in Budapest


[28]

stated that Russia will no more continue in extensive reduction of army forces and will

completely stop by 2005 (Poti, 2008:30). This Russian security policy concept basically

means the implementation of more assertive Russian foreign policy in Central Asia and

Caspian littoral states. In addition it is strongly supported by the presidential administration

and represents an interest for military elites.

2.2.5 International Reconstruction of Russian position

In 2005 a new debate about Russian foreign policy emerged with focus on energy. The main

idea was to create from Russia an energy superpower, which was in coherence with Putins

vision about the reconstruction of Russian position on the international scene. Thus Russian

foreign policy has also turned more significantly towards energy-rich Caspian Basin and even

more importance was given to the strengthening of Russian position in the Caspian littoral

states. Kremlin has developed a great effort to prevent these states from building the

pipelines, often sponsored by the US and some western countries, across the Caspian Sea8.

Moreover the colour revolutions9, highly supported by the US, have led to the escalation of

tensions between Washington and Moscow. Therefore the need to redefine Russian foreign

policy strategy, particularly towards Central Asia, where the interests of the US and Russia

have been interfering, emerged. In 2006 Sergei Ivanov has introduced new principles of

Russian national ideology which consist of three elements: sovereign democracy, strong

economy and robust military force. The first component was identified by focusing on

specific Russian model of democracy. Moreover the stress was laid on the importance of

political and economic autonomy in order to integrate Russia into the world economy (Poti,

2008: 39-40). Russian military forces were in the phase of strong growth already from 2003

following the US war in Iraq. However this time, the tensions with Washington escalated due

to the US meddling in the internal affairs of post-Soviet countries, which led to colour

revolutions in several of these states. The result of this struggle for the influence in the

region was evident from the content of Putins speech during the 43rd Munich Security

Conference on Security Policy in 2007, which was directed against the presence of the US in

the region. President Putin has warned from the danger of establishing the uni-polar world,

8 More about the economic engagement of Russia in the section on economy.

9 More about colour revolutions in section on security and geopolitics


[29]

which US has been trying to promote. He said that "The United States has overstepped its

borders in all spheres - economic, political and humanitarian, and has imposed itself on other

states"(BBC, 2007).

To conclude on Russian foreign policy towards Central Asia, we have to mention that Putins

administration did not officially draw up any regional strategy for Central Asia that would

integrate Russian security, political, energy and economic interest.(Allison, 2004:283)

Therefore it is difficult to coordinate a coherent Russian foreign policy towards the region and

an effective cooperation through several regional institutions Russia is a member of. In spite

of Russian increasing interest in several spheres such as economic and security ones,

cooperation is evident. Therefore we will examine these dimensions in the way how Russia

promotes its interests.

2.3 Russian diplomatic and security relations with Kazakhstan

2.3.1 Historical background of Russian-Kazakh diplomatic relations

Russia and Kazakhstan have officially established diplomatic relations in 1992, hardly a year

after the dissolution of the USSR. Despite Russian initial disinterest towards the region, the

international recognition of new independent post-Soviet countries brought a need to

formulate a certain Russian approach towards its largest southern neighbour. The very first

cooperation started in the area of security by signing a Collective Security Treaty (CST) in

1992, which was perceived as a milestone of the regional integration. The signatory states

were Russia, Kazakhstan, Armenia, Tajikistan, Uzbekistan, and Kyrgyzstan. Later

Azerbaijan, Georgia and Belarus have also signed this treaty that became operative in 1994.

The President of Kazakhstan Nursultan Nazarbayev was one of the greatest proponents and

supporter of the Eurasian union10

, for which he needed the strong engagement of Russia.

Therefore he took his first official journey to Moscow in 1994, where he made great efforts to

develop bilateral relations in many sectors. During this fruitful visit many documents were

signed, especially those promoting the economic integration. Among them the Agreement on

10

Kazakh initiative to integrate CIS countries in order to affiliate with world community.


[30]

the Basic Principles and Conditions of Use of the Baikonur Launching Site or the Agreement

on the Enhancement of Economic cooperation and integration of Kazakhstan and Russia

(Vinokurov, 2010:4). Russian foreign policy increased its cooperation with Kazakhstan and

other Central Asian countries in the second half of the 1990s due to the disillusion with the

West. Besides there were other factors which brought both countries closer. Firstly it was the

growing transnational threats such as terrorism or drug trafficking. Moreover we could notice

a significant rapprochement over the Caspian oil issue (Legvold, 2003:41). Therefore the

Agreement on Delimitation of the Sea Bottom in the North Caspian for Exercising Sovereign

Rights to the Utilisation of Subsoil and the Declaration on Eternal Friendship and Alliance

Oriented towards the 21st Century was signed. Afterwards, in 1998 Boris Yeltsins official

visit to Kazakhstan followed, which meant the reinforcement of economic ties between Russia

and Kazakhstan. The ground for a new phase of mutual cooperation in the sphere of free

trade, energy and information technologies was prepared. One year after, the new Prime

Minister Vladimir Putin has graced the President Nazarbayev with his official visit during

which the agreement on cooperation between the border regions of Kazakhstan and Russia for

the period from 1999 to 2007 was signed (Vinokurov, 2010:5). What we can certainly infer

from this mutual development and frequency of official visits between both countries is the

growing importance of Kazakhstan for Moscow. Vladimir Putins accession to the post of

President of the Russian Federation brought closer cooperation with its larger southern

neighbour the Republic of Kazakhstan. The most important issues in their diplomatic relations

were the status of the Caspian Sea and the cooperation on the security and economic levels.

2.3.2 Increasing influence of Russia in Central Asia after 9/11

The beginning of the 21st century was marked by the terrorist attacks in several Central Asian

states and the US afterwards. The fight against this transnational threat became a driver for

the following Russian involvement in the region (Freire, 2009: 140). In the early 2000s, after

the events of 9/11, Russian military elites accepted the cooperation with the international

community (US military forces, its western allies and China) on the counter-terrorist activities

in Central Asia. However Moscow used this rationale of joint anti-terrorist action as a mean to

promote Russian military influence over the region. Many common counter-terrorist projects

on the international level were advocated by Russians but there was a lack of coordination and


[31]

they often led to inefficiency. On the other hand Vladimir Putin made significant effort to

promote bilateral and multilateral relations with the regional leaders. Bilateral relations with

Kazakhstan have been always one of the priorities for Moscow. Kremlin considers President

Nazarbayev as the closest partner of Russia among the Central Asian leaders. The security

relations were based on the need to safeguard a peaceful use of nuclear facilities, which

remained in Kazakhstan after the collapse of the USSR. Moreover there were some

agreements signed about the export of the uranium, which was crucial for Russian industrial

sector, towards Russia. The military cooperation between both countries was also growing till

the beginning of 2000s, when Moscow started to reduce some of its military programs at the

Baikonur Spaceport. The issue of the Baikonur Cosmodrome played a very important role in

the security relations between Russia and Kazakhstan (Legvold, 2003:41-43). The significant

success was achieved in 2004 by signing the extension of Russias lease of Baikonur

Cosmodrome until 2050 (TengriNews, 2011). Nevertheless some boarder disputes, related to

the illegal flow of people and goods from Kazakhstan to Russia, have appeared along their

7,600 km long frontiers, which made difficult the realisation of any bilateral military and

political alliances between Russia and Kazakhstan (Allison, 2004: 288-289). On the

multilateral level two crucial regional organisations were founded: the Shanghai Cooperation

Organisation (SCO) and the Collective Security Treaty Organisation (CSTO). The other

section will introduce both of them.

2.3.3 The regional security organisations

The Shanghai Cooperation Organisation was established in June 2001 with the goal to

mobilise Central Asian leaders in united fight against regional terrorism. It emerged from the

regional informal agreement called Shanghai Five (1996) about the border security between

China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan. Two treaties adopted by these

countries helped to solve the border disputes and reduce the military forces on the common

borders. Moreover it demonstrated Chinese and Russian concern about the growing Islamic

radical movement in the region. In 2001 Uzbekistan joined the Shanghai Five group and the

declaration on the establishment of the SCO followed. Beijing has formulated the main goal

of the organisation as the fight with the three evils - separatism, fundamentalism and


[32]

terrorism. In the framework of the SCO, Russia and China have succeeded to expand the

regional military cooperation and Beijing created important links on different levels with the

member countries (Marat, 2011:83).

Russia was, however, rather interested in monitoring Chinese actions and growing influence

in Kazakhstan and Central Asia as such. The SCO was seen by Kremlin as a means of a

possible control of the Chinese activities in Kazakhstan. Russia has been also aspiring to the

regional cooperation on the energy issues via the SCO. Therefore Moscow has initiated the

creation of the Energy club that was founded in 2007 after the agreement was achieved

among the all SCO members (Matusov, 2007:84). The goal of this club is to coordinate the

national energy policies and to lay the ground for discussion among the member states. The

cooperation within the SCO in the domain of energy might provide Russia, as one of the

major power in the organisation, with the power to influence the energy strategies of Central

Asian countries.

Maria Freire (2009) argues that Russia has been trying to use the SCO in order to demonstrate

its active presence in Central Asia while containing the rise of newly industrialised China in

the region and hinder the US to fully infiltrate into the security system of Central Asian states.

However we could also perceive the SCO as the factor which contributes to the weakening of

Russian dominant position in some spheres in the region, particularly in the economic sector,

where Moscow has to share its influence with China.

The organisation has also a global importance, especially on the security level as it cooperates

with Iran, Pakistan but also with India, a potential energy importer of Kazakh oil. All these

mentioned countries have an observer status in the SCO.

The Collective Security Treaty Organisation (CSTO) was established in 2002 and signed by

the Presidents of Russia, Kazakhstan, Armenia, Belarus, Kyrgyzstan and Tajikistan. The main

aim of the organisation was to address new threats and challenges through a joint military

command located in Moscow, a rapid reaction force for Central Asia, a common air defence

system and coordinated action in foreign, security and defence policy.(Allison, 2004: 286)

However the CSTO grew up from the CIS Collective Security Treaty (1992), which failed to


[33]

unify the region on a security level. The new organisation was perceived as a reaction on the

increasing terrorist threat and mainly as a response to the growing US military presence in the

region. Moscow replied to the interest of member states by purchasing them cheap military

equipment. Russia was the only major power initiating the foundation of the CSTO and thus

has a leading position within its framework.

Together with The Collective Security Treaty Organisation (CSTO), the SCO aspired to

establish transnational security regimes, which could counter-balance NATO activities in

Central Asia. They represent an important mean of sustaining regional security but most of

the Central Asian leaders directed towards political authoritarianism with the aim to reinforce

the rights of president, increase public propaganda and reduce the role of civil society (Marat,

2011:81) Putin has used both organisations to raise the demand for the withdrawal of the US

forces from the military bases in Kyrgyzstan and Uzbekistan. However Beijing stood up

against Moscow and emphasized that the SCO is not anti-Western directed bloc. For all, the

SCO and the CSTO remained in good terms. In 2007 they have even agreed on broader

cooperation over the issues such as security, drug trafficking and crime in the region

Russian efforts to reintegrate the region on the security level had to challenge the formation of

the alternative bloc called GUAM Organisation for Democracy and Economic Development.

The current members of this organisation, established in 1997, are Georgia, Ukraine,

Armenia, and Moldova. Uzbekistan entered the GUAM in 1999, changing its name on

GUUAM, but later withdrew from the organisation. In spite of the US support, GUAM did

never really endanger the interests of the Russian foreign policy in the region.

2.3.4 Legal status of the Caspian Sea

What markedly shaped bilateral relations between Russia and Kazakhstan were the disputes

over the legal status of the Caspian Sea which emerged after the dissolution of the USSR. The

Caspian Sea is considered as an immense lake or an inland sea. There are different parts of the

Caspian Basin; some of them are more likely to be explored than others (Amineh, 2003:185-

189). The Caspian Sea has common borders with five littoral states Azerbaijan, Iran,

Kazakhstan, Russia and Turkmenistan. However, the Caspian Sea was originally shared only


[34]

by Iran and the Soviet Union. In 1991 three new independent states were established around

the Caspian Basin. Western oil companies, willing to explore the Caspian Basin were highly

involved to mobilize newly emerged countries in order to solve the problem of Caspian Sea

legacy. Azerbaijan was the first to propose the division of Caspian Sea into national sectors.

Shortly Kazakh concept of the territorial waters followed defining the Caspian Basin as the

inland sea in contrast with the Azerbaijan vision of a boarder lake. However Iran and Russia

strongly disagreed with this definition proclaiming the Caspian Sea as a unique water basin,

whose legal status comes from their bilateral treaty from 1941 stating that the exploitation by

other party was prohibited. This treaty, moreover, established a ten-mile offshore band for

exclusive fishing rights. Besides that no boarders or division were drawn on the Caspian Sea.

However, in 1996 Azerbaijan and Kazakhstan have signed a significant declaration

recognizing each others rights to exploit the natural resources in appropriate sectors of the

Caspian Sea. The united reaction followed by Iran, Russia and Turkmenistan, who

encouraged the establishment of 45-mile band of national sector and common ownership of

the middle part of the Caspian (Amineh and Houweling, 2007:371). However the other two

littoral states did not accept this proposition. Kazakhstan, moreover, has declined the deal

with Western oil companies about the exploitation rights in its sector. This caused immediate

reaction from Russian side which led towards the intensive talks and final compromise. Both

countries agreed on common ownership of the surface and water basin of the Caspian and

division of the Caspian seabed on national sections with the rights to exploit oil and gas

resources. This agreement is considered as the first international legal document about the

Caspian Sea. Iran, however, shocked by Russian distinct shift from traditional Iran-Russian

approach over the Caspian status, advocated either common ownership of the Sea or its

division into five equal parts. The Russian emphasis to solve the problem and start to exploit

the energy reserves in the Caspian increased after the accession of the President Vladimir

Putin. First, the bilateral agreement with Azerbaijan was signed, which proclaimed the

demarcation of the seabed according to the median line. The question of the Caspian surface

had to be resolved later and in the meantime it remained under joint control. In November

2001 several bilateral negotiations between Azerbaijan, Kazakhstan, Russia and Turkmenistan

took place with the result that the Caspian Sea should be divided along lines acceptable to

bordering and opposite countries, i.e. in a bilateral format (BBC Monitoring service 2001 in

Amineh, 2003:191). Northern part of the Caspian seabed was eventually divided in 2003


[35]

following bilateral agreements between Russia and Azerbaijan (2002) about the common

Caspian boarders and between Azerbaijan and Kazakhstan (2003). These two agreements

complemented the original Russian-Kazakh cooperation from 1998 and established a so called

trilateral agreement about the exploitation rights over the north Caspian seabed. Therefore

the openness of the northern part for foreign investments and exploitation works meant a great

shift in the economic development of Kazakhstan and Azerbaijan, whose hydrocarbon

resources are located mainly in the Caspian Sea. On the other hand, Russia already possesses

large reserves of natural gas and oil, which are situated in the midland of the country, mostly

in Siberia. However the access to the Caspian Sea is strategically important for Russia.

Despite the mutual agreement of the northerners, Iran is still demanding the equal division

of the Caspian Sea into five parts. Due to the unresolved situation in the south, the possible

conflicts and disputes are more likely to occur among the Caspian littoral states (especially

Iran, Turkmenistan and south of the Azerbaijan).

To conclude, Russia has markedly increased its cooperation in the security sphere with

Kazakhstan and even developed multilateral relations within the region after mid 1990s. The

milestone for Russian foreign policy in Central Asia was the events of 9/11 which introduced

new transnational threat terrorism into the world and brought the US presence to the Central

Asian region. This served as a rationale for Russians to assert its influence over the region and

create a counter-balanced system to the Western activities in the Central Asia. The legal

regime over the Caspian Sea was still not set up. However there exist bilateral agreements

among northern Caspian states, which make the investments and exploitation of oil and gas

possible.

2.4 Economic relations with Kazakhstan

2.4.1 Historical background of economic relations and mutual trade

The Kazakhstan economy, during the Soviet regime, was mainly based on agriculture

products and livestock farming. Apart from this, the coal mining and metal industry were also

very significant sources of finance for the Soviet government. Kazakhstan was a part of

Soviet centrally plan system within which it specialized in metallurgy, mineral extraction and

wheat production (Lycos). After the dissolution of the USSR the trade system between both


[36]

countries collapsed and caused a severe downturn in Kazakhstan economy during 1990s. The

contribution of industrial sector to the GDP has declined from 31% to 21% in this period and

the agriculture share of the GDP fell from 35% to 7.4% (Mongabay).

The economic relations and mutual trade between Russia and Kazakhstan have rather

stagnated in the 1990s. Newly established Russian Federation was mainly preoccupied by the

reconstruction of its national economy during the 1990s. Less developed Caspian region did

not really represent a priority for Russian elites. Therefore, initially no Russian oil companies

were interested in the development of Kazakh oil fields. Therefore the Kazakhstan Ministry of

Energy and Mineral Resources had to turn towards the Western investors and finish the

agreements mainly with the US oil companies about financial support to tap the oil reserves in

the major oilfields Karachaganak and Tengiz. However Lukoil Company has, finally,

acquired a minority stake in Tengiz field and even substituted Russian state giant Gazprom in

Karachaganak field (Gorst, 2007:21). By 1996 trade was 31% of 1991 levels (Legvold,

2003:20). The following decade was accompanied by several economic crises and worldwide

fall in oil prices in 1998. However the situation changed following Putins accession to the

post of Russian President and consequential amelioration of Russia-Kazakhstan relations in

the beginning of 2000s. The new President brought along the pragmatic strategy for the

Caspian Sea region based on the economic interests. Putin has even established the post of a

special presidential envoy to this region to which former fuel and energy minister Viktor

Kalyuzhny was appointed (Akiner, 2004:247-248). The President has also started to support

the Russian oil companies participating in the Kazakh oil projects. Nowadays the Russian

Federation represents the main importer partner for Kazakhstan following by China (26,1%)

and EU27 (25,1%). Russia covers almost 30% of Kazakhstan total import according to the

IMF statistics from 2009 (DG Trade Statistics).).


[37]

Table 1: Kazakhstans major imports partners (2010)

Source: DG Trade (2011) Kazakhstan. EU bilateral trade and trade with the world

2.4.2 Regional Economic organisations

The economic cooperation between the Russian government and Kazakhstan has developed

throughout the years mainly around three regional organisations: the Customs Union and the

EurAsEc. Before embracing the content of these organisations, we have to emphasize the

Kazakhstans bad economic situation in the beginning of 1990s. Kazakhstan was the last

country to proclaim independence after the fall of the Soviet Union and many elites wished to

remain under the USSR regime. So far, most of the economic links led to Russia and

neighbouring post-Soviet countries. Moreover Russian own economic problems and

westernisation course of the early 1990s have caused a significant decline in Kazakhstan-

Russian bilateral relations and their mutual economic trade. Kazakhstan suddenly lost its

steady market of goods and energy. Therefore Nazarbayev sought to reintegrate the economic

union with Russia in order to escape the systematic crisis. The Kazakhstan leader has

proposed to form a so called Eurasian Union, which was however unacceptable for Russia as

it undermined its position among the CIS countries (Vinokurov, 2010:7).

In the mid of 1990s preliminary documents were signed to establish a Custom Union between

Kazakhstan, Russia, Belarus, Kyrgyzstan, Tajikistan but it was never fully supported by all

the members. The increasing frequency of the diplomatic visits between both countries has

brought a number of inter-governmental agreements in the domain of economic cooperation,

especially in the energy sector. Some protocols were signed to limit restriction and promote

free trade in the power sector (Vinokurov, 2010:4). However Russia was not anymore

perceived as the only strategic partner. Astana has developed cooperation with many Western


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oil companies, which have largely invested in the Kazakhstan energy sector and in the early

2000s Kazakhstan has already experienced a significant economic growth.

With the change of Russian leadership the efforts for regional economic integration re-

emerged. In 2000 the Eurasian Economic Community (EurAsEc or EAEC) was established by

five post-Soviet countries: Russia, Kazakhstan, Belarus, Tajikistan and Kyrgyzstan. Five

years later, Uzbekistan has also joined the Community. According to the foundation

agreement of EAEC, the principal goal was to promote the process of formation of Custom

Union and Single Economic Space. In other words the free trade regime had to be introduced

with the unified system of custom regulations and tariffs. Among other objectives was to

create a common energy market with the equal rights for foreign investment. However the full

operationalisation of EurAsEc goals have not been implemented earlier than in 2010, when

Customs Union was signed between Russia, Kazakhstan and Belarus. This was considered as

the biggest achievement of the regional economic cooperation since the USSR dissolution.

The establishment of Single Economic Area was envisaged by 2012. All three countries are,

moreover, planning to synchronize its policies in order to enter the WTO together (Sharip,

Jamestown, 2010). Apart from the EurAsEc Russia, Kazakhstan and Belarus have signed an

agreement with Ukraine in Yalta on the establishment of the Single Economic Space (SES) in

2003. Although the agreement had to challenge many problems, the creation of such a

regional body was important because of the Ukrainian membership. Kiev, however, aimed to

create a free trade zone and did not put any emphasis on the monetary union as the other

members did (Bohr, 2004:493). Therefore many disputes occurred and the formation of an

effective economic space was postponed for later.

This is only the overview of the most significant regional organisations founded during the

last two decades. Many others (CACO, GUUAM) have been forming and disintegrating

katerina ivascenkova - new geopolitics of oil in central asia russian-kazakh relations

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