nationalism in kazakhstan and russia

A Comparative Study of Resource

Nationalism in Russia and Kazakhstan

2004ndash2008

PAUL DOMJAN amp MATT STONE

Abstract

In neighbouring countries like Russia and Kazakhstan resource nationalism that may look similar to

outside observers has a different character and is driven by different circumstances in each state To

assess the underlying nature of state-centric models of resource-led development in the two post-Soviet

states we contrast recent state interventions into their respective resource sectors In Russia

heightened state involvement in the resource sectors including oil and gas pipeline networks is

characterised mainly by political goals whereas Kazakhstanrsquos resource nationalism is primarily

motivated by economic goals More specifically Russia leverages its energy sector to achieve

geopolitical objectives and domestic political stability By contrast Kazakhstan seeks widely dispersed

economic development

SINCE THE 2004 SEIZURE AND NATIONALISATION OF Yuganskneftegaz the main

production arm of the Russian oil company Yukos many commentators have argued

that Russia has been consumed by lsquoresource nationalismrsquo Conventional wisdom holds

that governments of resource-rich states attempt to capture a greater share of the

resource rent when prices rise only to beat a retreat when prices fall and they need to

attract new foreign investment However while this paradigm has some analytical

utility it should be couched more clearly in a broader strategic context One must be

mindful that each resource-rich state nevertheless has unique cultural ideological

historical political and economic reasons for the policies it enacts This lesson is

especially pertinent to the cases of Russia and Kazakhstan where resource

nationalism may look similar to outside observers but has a different character and

is driven by different circumstances in each state

Russiarsquos form of resource nationalism diverges from the phenomenonrsquos historical

incarnation in which there was a shift in bargaining power from investor to host

government after investment costs have been sunk (in other words after substantial

capital investments have been made that cannot be recovered by the investor if the

terms of the investment have changed) (Vernon 1971) Rather the Russian state is

EUROPE-ASIA STUDIES

Vol 62 No 1 January 2010 35ndash62

ISSN 0966-8136 print ISSN 1465-3427 online10010035-28 ordf 2010 University of Glasgow

DOI 10108009668130903385374

actively using its energy production and transportation systems to reassert its primacy

in domestic and foreign affairs By consolidating control of hydrocarbon production

and altering the geography of its oil and gas transportation network the Russian state

has been able to provide political patronage to remote areas and co-opt alternative

centres of political power Looking abroad Russia has made alterations to the

geography of its energy transportation system in an attempt to increase its geopolitical

leverage over both the energy-producing states of Central Asia and the energy-

consuming states of Europe This approach to its hydrocarbons is part and parcel of a

broader project under Vladimir Putin to reinstate Russia as a great power in a

multipolar world order (Gaddy amp Kuchins 2008 Pipes 2009) The beginning of the

increase in oil prices in 2003 presented the opportunity to develop Russia as an lsquoenergy

superpowerrsquo a concept propagated by the Russian state that reflects the countryrsquos

psychological need to be seen as powerful once again1

However observing Russia in isolation risks confusing those traits that are unique

to Russia and derive from its particular post-Soviet experience with those that are

shared either by all countries pursuing a strategy of resource nationalism or even all

natural resource producers in the post-Soviet space In Kazakhstan by contrast

President Nursultan Nazarbayev has explicitly modelled his political legitimacy on

that of Singaporersquos Peoplersquos Action Party by focusing on strong economic growth and

the diffusion of the benefits of growth to the population (Anacker 2004 Nazarbayev

2006) The Kazakh government has come to realise that the confluence of high oil and

gas prices and increased international competition for oil and gas resources allow the

Kazakh state to capture a larger portion of the financial benefit of hydrocarbon

production as well as expanding the Kazakh role in oil production and setting a

precedent for Kazakhstanrsquos uranium industry While Kazakh energy policy is still

motivated by a lsquomulti-vector foreign policyrsquo changes in policy over the last five years

particularly those that have been seen as disadvantaging international oil companies

are driven primarily by economic concerns to maximise the benefit of natural resource

production to Kazakhstan

In sum while both countries have employed state-centric models of economic

development in their natural resource sectors during the period 2004ndash2008 the

Russian variant tends to focus on power and prestige by way of economic growth

whereas the Kazakh variant focuses on economic growth and development as a basis

for strengthening the political legitimacy of the ruling elite

The first section of this article offers a comparison of case studies and this is

followed by a review of some of the main conceptual understandings of resource

nationalism Third a case study of Russia is introduced to demonstrate the political

impetus behind that countryrsquos variant of resource nationalism in particular the

importance of oil and gas pipelines to the overall strategy Fourth the authors analyse

the case of Kazakhstan where resource nationalism has been more about economic

gains than the broader political project observed in Russia The examples of

1The term lsquoenergy superpowerrsquo was used infrequently in relation to Russia during the 1990s but

gained wide currency when US scholar Fiona Hill used it in 2002 It was taken up in Russian

publications in 2003 and by Russian officials since 2006 Rutland (2008) appropriately points out that

the term is analytically useless even contradictory

36 PAUL DOMJAN amp MATT STONE

MangistauMunaiGas and the Kazakh uranium sector are telling in this regard The

article concludes with thoughts on the future of resource nationalism in Russia and

Kazakhstan and the contribution that understanding these cases can make to the

wider literature on resource nationalism

Methodology

Russia and Kazakhstan have been chosen for comparison because they have a

common Soviet past and geographical similarities but a different recent political

evolution2 Although the two countries began with significantly different initial

conditions in the immediate post-Soviet period there were still sufficient similarities by

2004 to illuminate an analysis of the motivation behind differing approaches to

resource nationalism Both Russia and Kazakhstan are vast countries the worldrsquos first

and ninth largest respectively They are both sparsely populated and possess sub-

stantial and diverse natural resource wealth In each state natural resource wealth is

distributed across the country with significant concentrations located far from their

largest cities

Both countries have had significant problems with maintaining political control and

state integrity in their farthest regions These problems are far worse and ongoing in

Russia where Moscow faced calls for independence in the North Caucasus and the

Russian Far East As a federal state Russia must constantly manage the tension

between effective implementation of the central governmentrsquos policies and the

devolution of some political powers to regional officials In Kazakhstan problems

of political integrity came in the immediate post-Soviet period through tension

between ethnic Kazakhs in the south and ethnic Russians in the north leading to the

moving of the capital to Astana in 1997 While the relocation of the capital was seen

by ethnic Kazakhs as comprehensive evidence of the unity of the countryrsquos Russian

north and Kazakh south some Russians appear to have seen itmdashespecially in

combination with the Kazakhisation of many place names and the dismantling of

statues of the Russian settlers of the steppemdashas evidence that the Kazakh majority

would assert itself against any prospect of Russian separatism or cultural autonomy

(Peyrouse 2008)

In different ways both countries were traumatised by the collapse of the Soviet

Union For Russia this was a cataclysmic event that shattered its sense of itself as a

superpower For Kazakhstan which was very much a creation of the Russian empire

and an integral part of the Soviet Union with little sense of national past this left the

country adrift with serious questions about how and in what form it should constitute

itself as an independent state Kazakhstan was the last of the Soviet Socialist

Republics to declare independence from the Soviet Unionmdashafter it was already clear

the USSR was dissolvingmdashand quickly became an early leader in pursuing economic

and security integration within the post-Soviet space (Cummings 2003)

2We are by no means unique in comparing Russia and Kazakhstan Fiona Hill (2005) for example

has argued that Kazakhstan is more comparable politically and economically with Russia than with its

Central Asian neighbours

A COMPARATIVE STUDY OF RESOURCE NATIONALISM 37

This comparison does not mean to overstate the similarities between the two

countries Russia is an ethnically diverse federation with a strong need for political

tools to enable the centre to maintain control of the periphery Kazakhstan by

contrast is a unitary state dominated by two main ethnic groups whose official

rhetoric is of a single non-ethnic lsquoKazakhstani nationalismrsquo (Anacker 2004)

Historically speaking Russia inherited the Soviet Unionrsquos century-long experience

of oil production By contrast Kazakhstan experienced relatively limited oil

production during the Soviet period Chevron signed its agreement to develop the

Tengiz field during the late Soviet period because the Soviet Union lacked the

domestic capability and resources to develop the field on its own (Gustafson 1989) As

such from 1991 to 2004 Kazakh oil production more than doubled from 569000 to

1297000 barrels per day largely on the basis of new production whereas Russian

production fell from 9326000 in 1991 to a low of 6114000 barrels per day in 1996

before recovering to 9287000 barrels per day in 2004 through the application of

Western technology to existing Soviet-era fields (BP 2009)

Resource nationalism

Despite the differences described above a comprehensive comparison of resource

nationalismrsquos evolution in each country yields some useful insights Resource

nationalism came into its own in the second half of the twentieth century In the

early post-World War II period Keynesian economic thought the conceptualisation

of market failure and the apparent economic growth of the Soviet Union constituted

an intellectual justification for state intervention in the economy (Stevens 2008) In the

so-called Third World this intellectual rationale was combined with concerns over

sovereignty resource nationalism especially in the oil sector during the 1970s was

pursued as an assertion of state sovereignty in the aftermath of decolonisation

Around this time Ray Vernon identified and described the lsquoobsolescing bargainrsquomdashthe

shift in relative bargaining power from investor to host government after investment

costs have been sunk (Vernon 1971)mdashwhich approximates the logic underpinning the

phenomenon of resource nationalism Mommer (2000) suggests that the resource

nationalism of the 1970s was about shaping the relationship between the host

government and the international oil company into a landlordndashtenant relationship A

broader contextual understanding of the phenomenon comes from Paul Stevens who

characterises resource nationalism as the lsquobattle between national interests and foreign

influencesrsquo as played out in the oil and natural gas sectors (Stevens 2008 p 8)

Resource nationalism is understood today as referring to a wide range of strategies

that domestic elites employ in order to increase their control of natural resources In

practice resource nationalism encompasses both the reassertion of state control prior

to the end of the construction phase of a development (before all or even most

investment costs have been sunk) and the outright exclusion of foreign participation

depriving the nation of the benefits of foreign investment Bremmer and Johnston have

recently proposed a framework for understanding resource nationalism that proves

useful for understanding the cases of Russia and Kazakhstan (2009) They identify

four varieties of resource nationalism and provide examples of each a revolutionary

type tied to broader political upheaval (as for example in Russia and Venezuela) an


economic type driven by a more measured desire to improve economic terms (for

example Kazakhstan and Algeria) a legacy type inherited as a consequence of a

reassertion of a historical legacy of national control (for example Kuwait and Mexico)

and a soft type conducted through legal channels without threats to tear up contracts

(as in Canada and the United Kingdom)

Bremmer and Johnstonrsquos framework makes the same distinction between types of

resource nationalism as our more in-depth analysis of Russia and Kazakhstan It also

raises important questions for our study of Russia and Kazakhstan Will Russiarsquos

revolutionary resource nationalism subside in favour of a more innocuous economic

one or lead to an economically debilitating legacy type of resource nationalism that

structurally constrains Russian resource production Will Kazakhstanrsquos economic

resource nationalism evolve into a more predictable rules-based soft resource

nationalism or a more revolutionary variety

Humphreys et al focus more on the fiscal elements of resource nationalism (2007

pp 323ndash24) They argue that resource nationalism is a result of the failure of

governments to insist on contract terms that guarantee an acceptable return for the

government in the event that prices rise This scenario is clearly analogous to the

situation in Kazakhstan where contracts were signed under very favourable terms

during a period of low prices in order to attract investment and were later seen as

unacceptably harsh in the light of higher prices However this approach fails to

explain the rise of resource nationalism in Russia where ideological and political

factors seem more significant than fiscal ones in determining the statersquos approach to

asserting control over private firms Throughout the detailed case studies that follow

we will use the framework of economic as opposed to political (revolutionary)

resource nationalism to help characterise the two countriesrsquo approaches and

motivations

The Russian Federation

Resource nationalism in the Russian Federation is driven first and foremost by

political concerns The economic rationale for an increased state role in the oil and gas

sector is subordinate to political goals that are designed to reassert the primacy of the

state in domestic and foreign affairs The mechanism for doing so is what Gaddy and

Ickes (2005) have identified as the centralisation of informal resource rent sharing By

capturing a greater share of the resource rent associated with hydrocarbon

development and administering its distribution Moscow secures itself domestic

stability and geopolitical influence both of which are self-reinforcing Domestic

stability is served by ensuring that lsquothe commanding heightsrsquo of the economymdashin this

case the energy sectormdashdo not generate centres of political power outside the purview

of the central government Geopolitical influence is served by controlling the majority

of Eurasian gas and oil export pipelines enabling the Russian government

simultaneously to exert influence over Central Asian energy producers and European

energy consumers

Whereas governments of other countries exhibiting a surge in resource nationalism

tend to focus primarily on the production aspects of petroleum the linchpin of the

Russian Federationrsquos strategy is its energy transportation network and more


importantly its export pipelines The governmentrsquos control of export pipelines

provides leverage over both private companies producing petroleum inside Russia and

Central Asian governments wishing to export through Russia This is a matter of

geopolitics and history not only has geography blessed European Russia with a prime

location between an energy-producing region (Central Asia and West Siberia) and an

energy-consuming region (Europe) but political complications some deliberately

initiated by the Russian government have prevented the full realisation of a southern

energy corridor that would bypass Russia by way of the Caspian Sea the Caucasus

and Turkey Moreover the enormous network of oil and gas pipelines transiting

Russian territory is a legacy of Russian political dominance in Central Asia especially

during the Soviet period

In addition to geopolitical influence Russiarsquos recent rise of resource nationalism is

also a matter of the governmentrsquos political survival During the rally in oil prices since

2003 Russiarsquos development has taken on aspects of a rentier state wherein the

economy is dominated by rents from the production of oil and gas that are largely

distributed in an opaque sequence of political machinations and business deals3

Indeed Moscow has acted as if the true threat to the leadership cadrersquos hold on power

is not the countryrsquos populace but rather its political and business elite4 Under Putin

the state pursued many so-called oligarchs with holdings in the media and petroleum

sectors (Hoffman 2003) Now heightened state involvement in Russiarsquos energy sector

allows the government through resource rent distribution to co-opt the constellation

of elites that might potentially pose a threat to domestic political stability

Transportation networks

Russiarsquos energy transportation infrastructure is critical to this strategy The countryrsquos

oil and gas pipeline networks are dominated by two state-owned companies the oil

pipeline monopoly OAO Transneft and the open joint stock gas company OAO

Gazprom which in addition to production assets monopolises Russiarsquos natural gas

pipeline network The government effectively retains full ownership of Transneft and a

50-plus-one-share holding in Gazprom High-level government officials sit on the

boards of both companies including a former prime minister now First Deputy Prime

Minister Viktor Zubkov (Gazprom) Minister of Economic Development Elvira

Nabyullina (Gazprom) and Minister of Energy Sergei Shmatko (Gazprom and

Transneft) Many high-level government officials including Arkady Dvorkovich and

Dmitri Ryzhkov formerly sat on the boards of the two companies Current President

Dmitri Medvedev served as the chairman of Gazpromrsquos board during the Putin

presidency5

3Gaddy and Ickes (2005) identify three means of distributing the resource rent profits to owners and

shareholders formal taxes to the government and informal lsquotaxesrsquo which entail a host of illegal

transactions like bribes and lsquokickbacksrsquo as well as legal but coerced transactions like companiesrsquo

lsquovoluntaryrsquo contributions to causes favoured by the government4This calculation might be changing during the current economic downturn as popular protests have

taken place in for example Vladivostok and Pikalyovo5President Medvedev to his credit has advocated a policy of no more than two government officials

on state-owned company boards to increase accountability (Vesti TV 2 July 2008)


Due to the high level of interconnectedness between the companies and the

government both firms enjoy a privileged position in the Russian domestic market in

which political rather than commercial logic drives investment in and access to

pipeline infrastructure The strategic rationale of state control of pipeline networks

especially export pipelines is predicated on the geography of the Eurasian landmass

Sources of energy supply such as West Siberia and Central Asia are usually distant

from centres of energy demand like Europe and China Because pipeline infrastructure

is a state-sanctioned monopoly energy producers on Russian territory usually have no

other transport option to reach distant export markets As a result Transneft and

Gazprom serve as state-sanctioned lsquochokepointsrsquo for the multitude of producersmdash

some state-controlled and some privatemdashthat operate on Russian territory For

Central Asian states the Russian pipeline network for oil and gas has historically been

the only export option This is gradually changing as Central Asian energy exporters

discuss and develop alternative export routes to China across the Caspian Sea and

into Iran or Afghanistan

Since 2003ndash2004 the state has reinforced its hold on oil and gas pipelines and shown

that private export pipelines will not be tolerated in Russiarsquos current political

environment The famous case of Mikhail Khodorkovsky former head of the private

Yukos oil company was partially connected to the struggle for private pipelines in

Russia6 In 2002 and 2003 Yukos proposed to build a private oil pipeline from East

Siberia directly into China while Transneft favoured a longer Pacific-bound route In

May 2003 Yukos signed a 20-year delivery contract with China lsquoacting as if [it were]

a sovereign powerrsquo (Goldman 2008 p 111) The 2003ndash2004 imprisonment of

Khodorkovsky and dismemberment of Yukos effectively extinguished any promise of

a privately financed and privately operated eastern oil pipeline Around the same time

Yukos Lukoil Sibneft and TNK were lobbying the Russian government to construct

a private oil pipeline from West Siberia to the ice-free port of Murmansk on the

Barents Sea The companies proposed constructing the pipeline and then handing over

its management to Transneft Nevertheless the Kremlin declined the proposal

Additionally ExxonMobil sought to construct a private gas export pipeline to China

from its Sakhalin-1 oil and gas project in the Russian Far East In late 2007 the

Russian government decided not to approve funding for such a project Instead

Gazprom has offered to purchase ExxonMobilrsquos gas output for domestic sale though

export to China is more likely once Moscow and Beijing resolve their differences over

pricing

The only example of a private export pipeline on Russian territory the Caspian

Pipeline Consortium (CPC) has been subject to governmental interference Originat-

ing at the Tengiz oil field in northern Kazakhstan and terminating at the Russian

Black Sea port of Novorossiisk CPC was commissioned during the Yelrsquotsin

administration and commenced operations in 2001 Russian-imposed constraints on

the pipelinersquos construction were only eased when Russian equity participation in the

pipeline was agreed (Ahrend amp Tompson 2007) Since then former Transneft head

Semyon Vainshtok periodically criticised the pipeline and tried but failed to take over

6There are many theories as to why the state targeted Khodorkovsky and Yukos Private export

pipelines provide only one of many reasons


its chairmanship in April 2006 Instead the former deputy general director of the

state-owned oil pipeline company Zarubezhneft Vladimir Razdukhov was elected to

the post by CPC shareholders as a condition for eventual expansion of the CPCrsquos

throughput capacity In 2007 the Russian government transferred its 245

shareholding in the CPC to Transneft The CPC remains a private pipeline but its

future private status and throughput capacity expansion are clearly contingent on

Moscowrsquos political needs not the commercial rationale of its shareholders

In the natural gas sector Gazprom owns and operates the Unified Gas Supply

System (UGSS) a 155000-kilometre integrated network of main and branch gas

pipelines that extends westwards from West Siberia Independent and private gas

producers are expected to connect to the UGSS in order to sell their output to either

Gazprom or other domestic customers The company is usually content to share the

domestic market with independent gas producers This is a function of the below-

market prices Gazprom is required by law to charge domestic consumers Independent

gas producers are not subject to the same price regulation and therefore Gazprom is

willing to cede some domestic market share in favour of export markets where

revenues and profits are more lucrative (Stern 2005) In 2008 the European export

market accounted for just 32 of Gazpromrsquos total gas volumes sold but 68 of its

total sales revenue7 Exporting gas to Europe is far more profitable than domestic

sales and as such Gazprom logically favours the European market

Gazpromrsquos privileged position is enshrined in the 2006 Law on the Export of Gas

which designates Gazprom as the lsquounified export channelrsquo for Russian natural gas

This is better known as an export monopoly and provides the state with substantial

heft in its dealings with major Central Asian gas-producing countries major European

gas-consuming countries and independent gas producers operating inside Russia8

During the summer of 2008 the Russian government indicated that non-discri-

minatory access to Gazpromrsquos gas export infrastructure was under consideration This

was an initiative of the Federal Antimonopoly Service (FAS) at the urging of Deputy

Prime Minister Igor Sechin who also chairs state-owned oil major Rosneft which

produces but cannot export substantial quantities of associated gas9 The opaque

deliberations over the issue probably point to some access for the politically well-

connected Rosneft but hardly ordain a broader liberalisation of the Russian gas sector

due to its strategic importance to the state10 Indeed the strategic importance of both

7Authorsrsquo calculations based on Gazprom IFRS consolidated financial statements 2008 available at

httpgazpromcomfposts718794032ifrspdf accessed 2 October 20098The notable exception to this lsquounified export channelrsquo is the presence of intermediaries in the

TurkmenndashUkrainian gas trade Three companiesmdashItera Eural Trans Gas and RosUkrEnergomdashhave

profited handsomely from this business since the 1990s and each has been tied in some way to senior

Gazprom management leading many scholars to believe that these middleman trading companies are

designed to enrich a privileged few and avoid the Russian governmentrsquos taxation of Gazprom (Global

Witness 2006)9Rosneft is the second largest non-Gazprom producer of natural gas in Russia after the nominally

independent Novatek (Stern 2009)10In May 2009 the FAS announced that it would lsquoopen inquiries into the violation of anti-monopoly

legislation if it receives information to that effect from independent companiesrsquo regarding restricted

access to Gazpromrsquos gas pipeline infrastructure However the promise to open inquiries if information

is provided by independent companies does not yet entail non-discriminatory access to Gazpromrsquos gas


Gazprom and Transneftrsquos pipeline networks was highlighted by the passage of a law

by the State Duma on 4 July 2007 that allows both companies to create their own

security forces to protect pipeline infrastructure11 These corporate security forces

would operate with fewer legal restrictions than conventional private security

contractors

Additionally the State Duma is considering draft legislation on trunk pipelines

which stipulates that private investors may build pipelines as long as the state owns a

50-plus-one-share stake in gas pipelines and at least 75 of the shares in oil and oil

product pipelines (Andriash 2008) While this may help attract investment capital to

the aging Russian pipeline infrastructure it avoids sacrificing the governmentrsquos

strategic control over their use Once the investment is sunk private pipelines still face

the risk of expropriation

Policy imperatives

The Russian statersquos preference for the control of oil and gas pipeline networks is a

matter of economics and geopolitics

The economic imperative Pipelines are a form of redistributive largesse While the

Russian state captures a share of the resource rent by virtue of participation in some of

the upstream activities and its full control of the transport of petroleum the

development of pipelines is a way of redistributing resource rents to a host of

companies with Kremlin connections as well as local politicians and bureaucrats

Gaddy and Ickes (2005 p 566) point out that the construction of oil tanker rail cars in

Russia during the upward trend in oil prices since 2003 has been expanded through

informal rent sharing redistributing resource rent to the ailing inefficient railways

The construction of pipelines is a similar example In particular the development and

construction of the East SiberianndashPacific Ocean (ESPO) oil pipeline the worldrsquos

longest at approximately 4700 kilometres originating at Taishet and terminating on

the Sea of Japan coast at Kozmino Bay offers numerous opportunities for the

involvement of subcontractors local bureaucrats and politicians

In an economy as corrupt as Russiarsquos all construction activities are facilitated by a

series of payments from the federal government to inefficient firms and regional

bureaucracies Tellingly Transneft lobbied for the longest ESPO route possible

because it stands to gain from the inflated costs associated with a long pipeline route

Costs can inflate over time and with distance because each subcontractor and local

bureaucrat seeks to exploit Transneft for as much as it can In turn Transneft claims

cost overruns to receive a larger dispensation from the federal government often

arranged via loans from state-owned banks like VTB Bank that share many of the

export pipelines Most independent companies will be loath to provide such information at the risk of

angering the gas giant A politically well-connected firm like state-owned Rosneft might be less bashful

however (AFP 26 May 2009)11The law has not passed the Federation Council or been signed by the president


same board members as the state-owned energy firms Since the commencement of

ESPO construction cost estimates have risen from $115 billion to over $20 billion12

Moreover the evolving decision over a final terminus for ESPOmdashfrom Nakhodka

to Perezovnaya Bay or to Kozmino Baymdashis predicated partly on the real estate

interests of different local elites vying for the opportunity to sell their land at a

substantial premium to the Russian government (Stone 2007) In this sense it is

revealing that the Russian government rejected the private oil pipeline to Murmansk

discussed above Even though Transneft would have operated the pipeline the

Russian government preferred an alternative Transneft-constructed route to Indiga

presumably because the construction and laying of the pipeline is an important way of

redistributing resource rents to ensure the loyalty of regional politicians to the centre

The geopolitical imperative In addition to acting as agents of the Kremlin in a rentier

economy Gazprom and Transneft act as proxies for the Russian government in

export markets allowing the government to exercise influence on the politics of some

energy-importing states The most visible examples of this are in the Russianndash

Ukrainian gas disputes that led Gazprom to cut off gas exports to Ukraine in January

2006 for three days and most recently in January 2009 for 20 days (Pirani et al

2009)13 While the post-Soviet period has been marked by many mostly unnoticed

gas disputes between Russia and other countries of the Commonwealth of

Independent States (CIS) especially Ukraine and Belarus the 2006 and 2009

Ukrainian affairs concentrated the minds of Western leaders and the international

press on the reliability of Russia as a gas supplier For its part Gazprom maintains

that it is still a reliable supplier of gas to European markets but the result of ongoing

disputes with Ukraine was to provoke a debate in European capitals about how to

become less dependent on Russian energy flows In the past few years several

countries have experienced the suspension or reduction of oil and gas flows from

Russia coincident with political or economic disputes these include Latvia in 2005

Lithuania and Georgia in 2006 Estonia and Belarus in 2007 and the Czech Republic

in 2008

In order to bypass transit states like Ukraine the Russian government is pushing

costly gas pipeline alternatives like Nord Stream and South Stream (under the Baltic

and Black Seas respectively) The danger for Europe is that the realisation of these

alternative export pipelines particularly Nord Stream would enable Gazprom to

manipulate gas flows to Central and Eastern European members of the European

Union (EU) while the more influential Western European members remain unaffected

The geography of Russiarsquos gas export pipelines suggests that the Kremlin would like to

undermine European unity vis-a-vis Gazprom instead giving incentives for each

nation to ignore the EU and pursue its own short-term national interest This of

course results in incoherence even incompatibility among EU member states

12Part of this increase is attributed to global cost inflation in the energy industry but the effect of

rent-seeking is not negligible13lsquoGazprom Stopped the Supply of Natural Gas to Ukraine on January 1 2009rsquo CEE Focus

1 January 2009


regarding relations with Russiamdasha tactic that might allow Moscow to reconsolidate

influence in Central and Eastern Europe in the coming decades

The short-term political and economic gain for Russia from energy disputes with its

neighbours is dubious and the long-term efficacy is uncertain On the one hand many

commentators and policy makers in Europe have come to support Nord Stream and

South Stream as practical alternatives to Russian gas transited through Ukraine

despite the potential costs for Central Europe On the other hand the threat of future

disputes gives added impetus to develop alternatives to Russian gas A major non-

Russian alternative Nabucco suffered a major setback with the 2008 Russian

incursion into Georgia but found reinvigorated political backing following the 2009

RussianndashUkrainian gas dispute Indeed during the summer of 2009 the Nabucco

intergovernmental agreement was signed and gas-rich Turkmenistan expressed interest

in supplying the project

Moscowrsquos reaction to alternative export pipeline arrangements out of Central Asia is

illustrative of the strategic importance Russia places in maintaining its near monopoly

on the export of Central Asian gas and oil The development of a southern energy

corridor that bypasses Russian energy transport infrastructure an active goal of US

foreign policy in the region has been fiercely contested by the Russian government

both in rhetoric and action The advent of the Blue Stream gas pipeline that ships

Russian gas along the bottom of the Black Sea to Turkey was in many ways

strategically designed to kill the prospects of the Trans-Caspian Gas Pipeline from

Turkmenistan to Azerbaijan In lieu of a legal framework governing the Caspian Sea

the Kremlin has argued that the Trans-Caspian Gas Pipeline would be illegal as well as

environmentally harmful In the meantime Gazprom went ahead with the Blue Stream

pipeline in the face of great technical risk to saturate the growing Turkish gas market

with Russian gas and to dampen the economic viability of the Trans-Caspian Gas

Pipeline Similarly the proposed KazakhndashCaspian Transportation System (KCTS) a

trans-Caspian oil pipeline connecting to the operational BakundashTbilisindashCeyhan (BTC)

oil pipeline has been contested by Russia for want of a multilateral Caspian legal

regime and by offering better incentives for export through the CPC (Baran 2005)

Moscowrsquos August 2008 military incursion into Georgian territory under the

pretence of protecting Russian passport-holders in the separatist regions of Abkhazia

and South Ossetia has damaged the prospects of additional oil and gas pipelines

transiting the Caucasus The military manoeuvres significantly exacerbated political

instability in the region thereby raising financing costs and undermining Central

Asian confidence in the export route Barring Turkish and Azeri rapprochement with

Armenia or the sudden advent of USndashIranian friendship the expansion of the

southern energy corridor out of Central Asia will require an even greater outlay of

political and financial capital on the part of the West

Even to the east where the Russian government has yet to deliver on promises of oil

and gas pipelines the development of competitivemdashand thus strategicmdashthreats has

spurred action For many years the Russian government dithered on the planning and

implementation of ESPO When the AtasundashAlashankou oil pipeline from Kazakhstan

to China opened in December 2005 the Russian government finally pushed the ESPO

feasibility study through Particularly important from the Russian standpoint was the

fact that Kazakh crude alone could not fill AtasundashAlashankou to capacity instead


some West Siberian crude oil could also be exported through the pipeline to China It

was duly noted in Moscow that one of Russiarsquos largest oil companies Lukoil

suggested that it might export some of its West Siberian crude oil by way of the new

non-Russian-controlled pipeline After nearly 10 years of fitful planning for ESPO

construction commenced in April 2006 a mere four months after oil began to pump

through AtasundashAlashankou The proposed Altai gas pipeline originating in the gas-

rich Nadym-Pur-Taz region of West Siberia and terminating in the Xinjiang region of

China was only agreed in March 2006 two weeks before China signed an agreement

to build a gas pipeline from Turkmenistan While the TurkmenistanndashChina pipeline

has raced ahead progress on the Altai pipeline has been hampered by SinondashRussian

disagreements over pricing environmental concerns and Gazpromrsquos delayed upstream

investment schedule

These responses to alternative energy export channels for Central Asian producers

are illustrative of Russiarsquos view that alternative export pipelines that do not involve the

Russian state-owned energy companies are not merely a commercial threat but a

strategic one as well

From pipelines to the upstream

The consolidation of the Russian governmentrsquos control over its pipeline infrastructure

has coincided with the statersquos increased involvement in upstream activities (Hanson

2009 pp 15ndash16) In particular instances the state-owned energy companies have

leveraged control of pipeline networks to force concessions from private energy

companies that seek access to transportation networks The Russian government has

also interfered in the upstream by claiming environmental violations by private

companies revoking licenses or putting pressure on these companies to sell a majority

stake of the project to either Rosneft or Gazprom In most cases the actions of the

Russian government or the state-owned energy firms are forms of rent-seeking While

the short-term increase in revenues brought about by this strategy may be large the

additional state involvement in the upstream undermines investor confidence and thus

investment Tellingly domestic oil production since 2005 has stagnated at just above 9

million barrels per day (Considine 2008) with insufficient projects in the development

phase to compensate for the decline of more mature oil fields14 For potential investors

14Gaddy and Ickes (2009 p 2) argue that the Russian government has deliberately sought to

undermine investor confidence to lsquocurb output growth as world oil prices rosersquo since Russia is a high-

cost oil producer In this view resource nationalism is designed for the sake of macroeconomic

stability especially in an environment of oil price volatility This argument while novel presupposes

unity within the ruling class on the question of resource rents It is not clear who originated the strategy

of resource nationalism though received wisdom suggests that Igor Sechin and a group of like-minded

policy makers drawn from the Russian security agencies known as the siloviki devised the takedown

of Yukos Nevertheless during the most recent economic turmoil this group has generally argued for

greater spending from Russiarsquos foreign currency reserves scrupulously amassed during the high oil

price environment at the behest of Finance Minister Alexei Kudrin Indeed the economic liberals

surrounding Kudrin seem to be more concerned about macroeconomic stability than the siloviki If the

siloviki are the primary originators of the strategy of resource nationalism the argument of Gaddy and

Ickes would be difficult to accept because it would assume that the siloviki are forward-thinking

macroeconomic stabilisers not rent-seeking kleptocrats However an alternative view is possible that


the Russian governmentrsquos involvement in the hydrocarbon-upstream has pushed

above-ground factors like political risk and the tax regime to the fore over below-

ground factors of geology and crude quality Russiarsquos domestic oil production may

actually fall before growth resumes

The 2003 arrest imprisonment trial and conviction of Khodorkovsky was a strong

indicator of the Kremlinrsquos intentions for the energy sector Private ownership of

upstream energy assets would be tolerated only insofar as it was in line with broader

political goals In 2005 fellow oligarch Roman Abramovich sold his oil company

Sibneft to Gazprom forming the oil-producing subsidiary Gazpromneft In 2006 and

2007 the government pursued Russneft the seventh largest oil company in Russia for

alleged fraud and tax evasion prompting a sale to the Kremlin-friendly oligarch Oleg

Deripaska The sale has not yet been approved by the FAS and rumours abound of a

resale to Gazpromneft15 In April 2009 Gazpromneft also began buying up shares of

oil producer Sibir Energy with an apparent view to a full takeover Since 2000 the

Russian statersquos share of crude oil production has grown from 16 to approximately

50 (Goldman 2008 p 99) a figure that is likely to rise during the current economic

contraction

Foreign participation in the upstream oil and gas sectors has also been discouraged

In the Sakhalin-2 integrated oil and gas project majority shareholder and operator

Royal Dutch Shell sold a controlling stake to Gazprom in December 2006 following

announced cost overruns of over 100 and investigations into environmental

violations of the consortium These investigations were dropped following Gazpromrsquos

entry into the project The ExxonMobil-led Sakhalin-1 oil and gas project has also

faced complaints of a similar nature though it has not been burdened with cost

overruns of Sakhlin-2rsquos magnitude As noted above the government denied

ExxonMobil the right to build a gas export pipeline to China in hopes of purchasing

Sakhalin-1rsquos gas output for sale in the domestic market The Kharyaga production

sharing agreement (PSA) operated by Total has also been targeted by the Russian

authorities for contract and environmental violations16 The primary complaint has

been Totalrsquos unwillingness to produce the minimum amount of oil stipulated in the

PSA However Total will not produce at full capacity until Transneft builds an export

pipeline with sufficient export capacity to Indiga on the Barents Sea

A similar charge faced TNKndashBPrsquos Kovykta gas condensate project in East Siberia

TNKndashBP was threatened with license revocation because it was not producing the

amount of gas stipulated in its contract However Gazprom would not provide

TNKndashBP with the necessary pipeline infrastructure to export to East Asian markets

the economic liberals devised the strategy of resource nationalism probably for the reasons Gaddy and

Ickes provide Balzer (2005) analysing Putinrsquos 1997 PhD thesis on mineral resources and the Russian

economy which argues for a variant of resource nationalism speculates on whether Kudrin and his

team wrote the thesis on Putinrsquos behalf (pp 214ndash15) If so the Gaddy and Ickes argument would fall

within the realm of possibility15Nefte Compass 25 June 200916As Krysiek (2007 p 7) points out the Russian government is still unsure whether to pursue

greater state control or encourage more private investment in its environmentally complicated Arctic

regions This helps explain the Kremlinrsquos more ambivalent approach to Kharyaga in comparison to

Kovykta or Sakhalin-2


and the East Siberian domestic market could not absorb the quantity of gas TNKndashBP

was required to produce Further the Russian government at Gazpromrsquos behest

would not allow TNKndashBP to build a private export pipeline Thus TNKndashBP was

caught between government complaints of underproduction and a state unwilling to

provide the transport infrastructure that would allow the company to produce at full

capacity In the face of growing pressure from the Russian authorities TNKndashBP

finally agreed to sell its stake in Kovykta to Gazprom in 2007 a sale that has yet to be

finalised This would prove to be only the beginning of TNKndashBPrsquos troubles with the

Kremlin17

At the Zapadno-Malobalykskoe (ZMB) oil and gas project a joint venture between

Hungarian energy firm MOL and Russneft the Russian authorities have accused the

license holders of failing to meet their contractual requirements for associated gas

utilisation In response MOL and Russneft allege that they cannot fully utilise the

associated gas because Rosneft will not allow access to its Yuganskneftegaz gas

transportation system The recent regulatory activity surrounding ZMB coincides with

Russneftrsquos troubles as well as MOLrsquos resistance to a surprise purchase of a 212

stake in the company by Surgutneftegaz a Russian firm with close ties to the political

elite18 The confluence of restricted access to state-controlled pipeline infrastructure

and regulatorsrsquo complaints of contractual violations is a common tactic in the struggle

for the Russian upstream

These attacks on foreign interests in the Russian upstream have recently been

combined with changes in legislation to centralise government control of future

foreign investment in the sector In May 2008 in the week before Vladimir Putin

stepped down as president and began his term as prime minister the law on

foreign investment in strategic enterprises took effect This law states that proposed

foreign investments in lsquostrategic companiesrsquo must be vetted by a special commission

chaired by the prime minister In particular an investment that leads to a foreign

investorrsquos stake of 10 or more in an oil field with reserves of at least 70 million

tons or gas fields with reserves of at least 50 billion cubic meters or any additional

voting shares beyond 10 is subject to approval by the special commission (Panov

2008) This new law further centralises control of the hydrocarbon sector and the

relationships that domestic oil and gas producers build with potential foreign

investors

By controlling the transportation networks for oil and gas it is clear that the

Russian state is able to undermine the economics of particular projects in the interest

of rent-seeking and increasing direct state control of resources seeking either a

17In 2008 the TNKndashBP joint venture (half-owned by BP and half-owned by Russian shareholders)

faced more difficulties when the state became involved in a shareholder dispute making BPrsquos position

in the joint venture increasingly untenable For instance in June 2008 the Kremlin denied visas to most

of TNKndashBPrsquos British staff TNKndashBP CEO Robert Dudley on loan from BP later fled the country in

an attempt to run the company from a secret location The dispute between BP and the Russian

shareholders has since been resolved but the coercive methods employed by the authorities on behalf

of the Russian shareholders in the joint venture illustrate Moscowrsquos broader approach to the oil and

gas industry18Russian commentator Stanislav Belkovsky claims that Prime Minister Putin owns a 37 stake in

Surgutneftegaz (Aslund 2007)


renegotiation of the contract terms or the sale of the assets at a discount It is not

outright expropriation per se but rather an underhand form of it that generates many

of the same short-term benefits for the state with less negative press In this way the

Russian government has leveraged control of its energy transportation networks to

achieve domestic centralisation of resource rent distribution and external manipula-

tion of energy flowsmdasha revolutionary form of resource nationalism that goes beyond

the coercive renegotiation of contracts for fiscal gain

Kazakhstan

The regional context

In the Caucasus and Central Asia politicisation of resource production took a

different direction In Azerbaijan and Kazakhstan resource production was politicised

(or perhaps geopoliticised) in the early years after the collapse of communism as the

leaders of these newly independent states used natural resources as a means to attract

foreign investment to balance Russian influence In the early 1990s oil prices remained

below $20 per barrel and some commentators expected that prices would fall into the

single digit range In order to attract international investment to a newly opening

landlocked region during this period of low oil prices Azerbaijan and Kazakhstan

initially implemented PSA arrangements that promised favourable investment terms

and long-term contractual stability in order to encourage international involvement in

the energy sector These PSAs19 would certainly match the criteria of Humphreys et al

for PSAs that are likely to give rise to resource nationalism as they offered generous

terms to the investor and relatively limited opportunity for the national government to

receive a larger share of oil revenue if prices rose substantially from their level when

the PSAs were signed20

Meanwhile Turkmenistan and Uzbekistan took political decisions not to follow this

course (Jones Luong amp Weinthal 2001) Uzbekistan has remained closed to foreign

investment due to political factors combined with limited oil and gas resources and

Turkmenistan only slowly began to open up to substantial foreign investment in late

2006 following the death of President Saparmurat Niyazov In Azerbaijan

disappointing geological surveys and ongoing Caspian delimitation disputes have

prevented major expansion into a second generation of projects and the industry

remains dominated by its first investor BP which operates all of the major post-

communist projects in Azerbaijan

In Kazakhstan by contrast a range of attractive projects is currently under

development and there is significant scope geologically for further expansion

Kazakhstan with its much less mature oil and gas industry and practically empty state

coffers was not comparable to Russia in the 1990s By 2004 however Kazakhstan

19For example Agreement on the Joint Development and Production Sharing for the Azeri and

Chirag Fields and the Deep Water Portion of the Gunashli Field in the Azerbaijan Sector of the

Caspian Sea (AIOC PSA) Baku (1994)20Azerbaijanrsquos main PSAs have been published while Kazakhstanrsquos remain secret as is normal

practice in much of the world


invited a number of companies both domestic and foreign (including US European

Russian and Chinese) to develop a range of projects of differing geological complexity

and scale Kazakhstan had also succeeded in building a national oil company

KazMunaiGaz (KMG) which while far less experienced than Gazprom could still

be presented as a Kazakh partner or alternative to foreign investment Finally

Kazakhstan had begun to amass substantial financial resources to enable it to develop

projects without foreign finance including establishing a sovereign wealth fund (the

National Fund) assets of which rose from $51 billion in February 2004 to $278

billion in July 2008 and a range of national development funds21 This wealth of

opportunities the developed ecology of oil and gas firms including a national oil

company and growth in the statersquos financial resources make Kazakhstan the most

appropriate of the post-Soviet states to contrast with Russia

The post-Soviet energy industry in Kazakhstan

Since the end of communism Kazakhstan has consistently pursued a so-called lsquomulti-

vector foreign policyrsquo that emphasises maintaining good relations with Russia while

also courting the interest of other great powers In the 1990s this policy focused on

developing relations with the US and Western Europe Today it extends to include

growing Asian interest in Kazakhstan At independence Kazakh officials had

practically no foreign policy experience to speak of The country had few diplomats

and its diplomatic representation was initially handled almost entirely by Russian

embassies In 1992 1993 and 1994 President Nazarbayev signed major agreements

with Russia China and the US respectively While Russia came first Kazakhstan

made a concerted effort to reach out to China and the US in order to achieve balance

in its foreign policy This early expression of multilateralism developed into the multi-

vector approach which was enshrined as the core doctrine of Kazakh foreign policy

and incorporated into Nazarbayevrsquos Kazakhstan 2030 strategy (Cummings 2003) The

multi-vector policy was then and remains to this day a key driver of the international

component of Kazakhstanrsquos energy policy (Ipek 2007)

International oil companies face a paradox in Kazakhstan On the one hand the

Kazakh governmentrsquos capacity for policy implementation has increased steadily since

independence and is arguably at its greatest under the current government of Prime

Minister Karim Massimov On the other hand as government professionalism has

increased international oil companies have faced escalating pressure on their terms in

increasingly sophisticated ways On the surface this might seem to be a similar sort of

resource nationalism to that in Russia Unlike in Russia however this pressure on

international oil companies is driven by primarily economic concerns While

Kazakhstan continues to adhere to the principles of the multi-vector foreign

policymdashwhich in the energy area involves balancing oil and gas concessions among

foreign powers in order to achieve international autonomymdashthe Kazakh government

has also put increased pressure on international oil companies most notably during

the Kashagan dispute in order to capture a bigger share of the profits from rising

21Ministry of Finance of the Republic of Kazakhstan lsquoMinistry of Finance of the Republic of

Kazakhstanrsquo available at httpwwwnationalfundkz accessed 5 July 2009


energy prices by enabling Kazakhstanrsquos state companies to take a larger share in the

industry These changes do not represent a rejection of the multi-vector foreign policy

that originally led Kazakhstan to welcome Western investment but rather a

rebalancing of the fiscal terms in view of rising oil prices and as discussed below

rising project costs

The Kazakh leadership remains disappointed with the limited benefits that

international oil company investment has brought Kazakhstan especially when

compared to the visible tangible direct benefits of the booming construction and

banking sectors As oil prices rose from the end of the 1990s the government became

gradually more assertive most notably in 2002 when it alleged environmental damages

at Chevronrsquos Tengiz field22 This resource nationalism came to its peak in 2007 when

the Kazakh government accused the consortium developing the massive Kashagan

field of failing to meet their obligations under the PSA and threatened to nationalise

the project When it was initially drilled in 2000 Kashagan the biggest oil field

discovered worldwide in more than 20 years was hailed as an unprecedented find that

would revitalise interest in the Caspian and produce oil as early as 200523 However

due to extensive project delays in the best case this oil will only flow in 2011

(McMahon amp Clint 2008) As in the case of Sakhalin-2 discussed above cost overruns

have caused the overall expected project costs of an already notoriously expensive

project to at least double24 While project delays and cost overruns have been endemic

in the oil industry during the period 2004ndash2008 Kashagan is in the view of the

International Energy Agency (IEA) a truly exceptional case delaying roughly five

times the aggregate oil volume of the next largest delay surveyed by the IEA

(International Energy Agency 2008a)25 More importantly the general global trend of

cost overruns and project delays does not reduce the immediate pain the Kashagan

delay has caused Kazakhstan

This is particularly troubling for Kazakhstan because under the terms of the

original PSA the consortium of investors is entitled to recover its costs before the

Kazakh government begins to receive revenue from the project (Gorst amp Crooks

2007) In short the project will start producing much later and cost much more than

expected which means that under the original terms Kazakhstan would receive a

smaller total amount of revenue at a later date This failure has led the government to

question the claims that international oil companies bring superior technical and

project management expertise to projects relative to other operators whether Russian

Chinese or Kazakh

Kazakh resource nationalism between 2004 and 2008 is best understood as

essentially economic in character The aim has been to improve economic terms and

long-term economic benefit for the country Kazakhstan has done this in three ways

22lsquoUSndashKazakh Oil Giant Faces Fine for Environmental Damagersquo Interfax-Kazakhstan 21 February

200223lsquoOil Find Re-opens Debate about Export Routesrsquo Petroleum Economist June 2000 lsquoKazakhstan

KashaganmdashMad Bad and Dangerous to Knowrsquo Petroleum Economist August 200224lsquoKazakhstan KashaganmdashMad Bad and Dangerous to Knowrsquo Petroleum Economist August

2002 lsquoEastern Promisesrsquo Petroleum Economist April 200725While Kashagan is likely to be delayed by half a decade the IEA has measured delays in the

Middle East in months rather than years (International Energy Agency 2008b)


first by increasing the state share of ownership in major projects second by placing

more of the burden of cost overruns and delays on the international oil companies

and third by increasing the statersquos control of the project through KMG

Notably Kazakhstan has implemented a legal framework for nationalisation

whereas Russia has not However since the economic downturn began there is initial

evidence of the possible beginning of the sort of national economic upheaval that

Bremmer and Johnston argue characterises revolutionary resource nationalism as in

Russia In particular the state has taken over or purged the management of the firms

connected to Mukhtar Ablyazov a former opposition leader and former Chairman

of BTA Bank accusing a range of people connected to Ablyazov of corruption

and embezzlement While the episode has not impacted on the oil sector or seen

outright nationalisation26 it has impacted on the uranium sector as the head of

Kazatomprom Mukhtar Dzhakishev and a number of his associates have been

arrested27 Were this reassertion of state control to continue beyond assets connected

to Ablyazov particularly to encompass all firms involved in natural resource

production it would only then be appropriate to say that Kazakhstan had shifted

toward revolutionary resource nationalism

The politics of resource wealth in Kazakhstan

In developing its oil and gas resources Kazakhstan has had two key goals avoiding

reliance on Russia and ensuring that economic growth delivers tangible benefits to the

growing middle class In order for Kazakhstan to pursue an independent foreign policy

that allowed it to balance Russian influence with the interest of other powers and to

maximise its return on its oil and gas resources Kazakhstan needed to ensure that it

was not exclusively dependent on Russia for the key strategic oil and gas sector of its

economy28 In addition to its obvious concern to avoid extending Soviet-era reliance on

Moscow by encouraging international investment and developing international

political alliances Kazakhstan is landlocked leaving it reliant on international

pipelines to reach international markets In 2004 while Azerbaijan was completing the

BakundashTbilisindashCeyhan pipeline which gave it access to international markets without

transiting Russia Kazakhstan relied on Soviet-era pipelines and the new CPC pipeline

that connected the Tengiz field with the Russian port of Novorossiisk

President Nazarbayevrsquos strategy for Kazakhstan has been based on using natural

resource wealth to fund improvements in standards of living economic competitive-

ness infrastructure and the functioning of government institutions This focus was

institutionalised at least as early as 1997 in the Kazakhstan 2030 economic plan

(Nazarbayev 2006) While polling data from Kazakhstan are very limited evidence of

focus groups and opinion polls conducted in 2007 by the International Republican

26BTA Bank was taken over by the state along with a number of other banks following a bailout

similar to those in the US and Europe27lsquoThe Knock on the Doorrsquo Economist 18 June 200928Tellingly Nazarbayev stated in 1994 lsquoI do not think that in todayrsquos world weapons can do

anything to protect a country Our main security guarantee will be a powerful Western business

presence in Kazakhstanrsquo (Mommer 2000)


Institute suggest that Kazakhstanrsquos voters are primarily focused on economic growth

and that improving personal and national economic circumstances explain the fact

that more than 70 of the respondents polled say that the country is on the right track

(International Republican Institute 2007)

These twin goals of economic independence and development have driven

Kazakhstan to encourage international competition both to produce and to export

its oil and gas In the first place competition to produce oil and gas enables the

Kazakh government to maximise its share of revenue and to force firms into adopting

strict local content policies which are seen to benefit economic development In the

second place competition for exports ensures that although Kazakhstan is

landlocked it is not forced by lack of substantial alternative export options to take

a below-market price for its oil29

The focus on the energy sector as a springboard for Kazakhstanrsquos economic

development is particularly clear in value-added activities like equipment manufac-

ture financing and refining Although these activities usually occur outside the borders

of Kazakhstan the government and its state companies are attempting to expand

domestic activity and acquire equity participation in value-added activities abroad In

the first case this can be seen through local content requirement the policy of

establishing a Regional Financial Centre in Almaty and the emphasis of KMG taking

a leading role in future projects (Domjan 2005 Regional Financial Centre of Almaty

City 2008) In the second case examples include the purchase of the Rompetrol

refinery in Romania by KMG Kazatompromrsquos joint venture with Rosatom on

uranium enrichment and Kazatompromrsquos purchase of a stake in reactor manufacturer

Westinghouse (Yermukanov 2006)30

In addition to expanding its activities throughout the value chain the Kazakh

government appears to want domestic firms most notably KMG to take an active

technical role in most energy projects to develop local expertise similar to Saudi

Arabiarsquos prescription for lsquoparticipation not nationalisationrsquo in the late 1960s and

1970s (Parra 2004) This is shown in the policy of reserving new operatorships for

Kazakh companies while leaving open the option of foreign companies jointly

participating with the Kazakh operator This approach may be designed to help KMG

gain the necessary technical and project-management capability to work in the shallow

water Kazakh zone of the Caspian to develop future projects similar to Kashagan As

such this approach is consistent with Kazakhstanrsquos policy of economic resource

nationalism as the goal is to capture a larger share of the value of its energy

production

Such an approach is further suggested by the fact that Kazakhstan has not agreed

any PSAs with international oil companies on major oil fields (those with more than

29Turkmenistan by contrast accepted a below-market price for its gas exports through Russia

before construction began on a second export route to China in 2008 prompting Russia to offer to pay

European market prices for Turkmen gas in order to encourage Turkmenistan not to develop

additional alternative export capacity lsquoRussia Ready to Buy Turkmen Gas at Market Pricesrsquo 3 June

2008 available at httpenrianrurussia20080703112914252html accessed 10 July 200830lsquoKazMunaiGaz Snaps Up Rompetrolrsquo Petroleum Economist October 2007 lsquoKazakhstan to Buy

10 percent of Westinghouse from Toshibarsquo AFP 13 August 2007


one billion barrels of oil in place) since 2000 In fact the Kazakh government has

delayed repeatedly the conclusion of a PSA with Statoil for the Abai field which

KMG and Statoil began exploring cooperatively in 200531 It did however sign a PSA

in 2005 with KMG and Rosneft for the offshore Kurmangazy field and another in

2008 with KMG alone for the offshore Nursultan block lsquoNrsquo (Energy Information

Administration 2008a) This behaviour suggests that the Kazakh government is testing

whether KMG is capable of undertaking major offshore projects on its own before

awarding further contracts to international oil companies

Changes in the governmentrsquos interest in foreign participation in oil and gas

production have been mirrored in transportation Westward export capacity has not

increased markedly since the CPC pipeline opened in 2001 Expansion of westward

exports is stalled by CPC expansion difficulties and delays in concluding an agreement

on funding and constructing the KCTS to carry Kazakh crude into the BTC pipeline

(Cutler 2009) Meanwhile the AtasundashAlashankou pipeline delivered its first crude to

China in 2006 Having extended this pipeline to connect to oil fields in western

Kazakhstan operated by the China National Petroleum Corporation (CNPC)

Kazakhstan is now planning to double capacity to 400000 barrels per day and

construct a gas pipeline to China as well (Auyezov 2009)

However the Kazakh government appears to recognise that this does not provide

direct exposure to international markets but rather leaves Kazakhstan potentially

reliant on Chinese purchase price offers As such alternative export routes are

required that give Kazakhstan direct exposure to world market prices thus

ensuring that Kazakhstan maintains favourable pricing terms on exports to China

Kazakhstanrsquos continued discussions of KCTS and CPC expansion are evidence that

Kazakhstan understands the importance of exposure to world market prices While

international oil companies perceive Kazakhstan as making strong moves towards

China continued Kazakh interest in possible expansion of westward export routes

suggests that the government perceives China as one of a number of foreign actors

that must be kept in balance through active government-led natural resources

management

The emerging role of China

The dual goals of international balancing and economic development are encapsulated

in Kazakhstanrsquos relations with China While Western international oil companies

perceive Kazakhstan as currently favouring China Kazakhstan is in fact torn in its

approach to its eastern neighbour On the one hand during a period of very high oil

prices revenue maximisation goals were not being served by IOC cost overruns

production delays and the PSA regime China offered both another source of

international support and potentially more favourable fiscal terms than Western

international oil companies Thus a role for Chinese firms helps Kazakhstan to

maximise both influence with its neighbours and short-term oil revenue On the other

hand Chinese firms are less technologically advanced than Western international oil

companies and have a worse track record of investing in local content and human

31lsquoKMG and Statoil Explore Caspian Fieldrsquo FSU Energy 23 September 2005


capital development This is shown both by anecdotal evidence received by the authors

in Kazakhstan anecdotal evidence from other countries (Taylor 2007) and the low

ranking of Chinese companies in The Goldman Sachs Energy Environmental and Social

Index (Ling et al 2004) Thus giving a large share of the energy sector exclusively to

Chinese firms would not serve the goal of long-term economic diversification and

development

This tension can be seen through actual Chinese participation in major upstream

projects in Kazakhstan All but one of the major projects that are currently in

production with the participation of Chinese firms were acquired through the

acquisition by CNPC of PetroKazakhstan rather than granted directly by the Kazakh

government (Energy Information Administration 2008a 2008b) While Kazakhstan

has granted roles to Chinese firms in several attractive projects that are currently in the

exploration stage this has not been to the exclusion of Western international oil

companies Furthermore China has established a joint investment fund with

Kazakhstanrsquos Kazyna development fund to bankroll domestic infrastructure in

Kazakhstan outside the oil and gas sector similar to Chinarsquos infrastructure

construction in other oil and gas producing states32 China and Kazakhstan may be

growing closer but the multi-vector foreign policy is still alive and well

MangistauMunaiGas the Kazakh Yukos

In addition to the extension and expansion of the pipeline connections between the

two countries China has provided Kazakhstan with a $10 billion loan in return for a

stake for CNPC in MangistauMunaiGas (MMG) CNPC has extended a further $5

billion loan to KMG perhaps $15 billion of which will be used to fund KMGrsquos stake

in MMG (Silk Road Intelligencer 2009a) The story of MMG although it only came

to an apparent conclusion in 200933 and thus falls somewhat outside of our period of

analysis provides a useful contrast to the nationalisation of Yukos and shows how

economic motivations and the continued strength of the multi-vector foreign policy

shape Kazakhstanrsquos particular variety of resource nationalism

MMG was founded in 1995 as an independent vertically integrated Kazakh oil and

gas company In 2006 the company produced approximately 115000 barrels of oil per

day (77 of Kazakhstanrsquos total) on a recoverable reserves base of more than 13

billion barrels of oil (3 of Kazakhstanrsquos total) By contrast in 2004 the year that

Yukos was nationalised Yukosrsquos planned production of 172 million barrels per day

would have accounted for 185 of Russiarsquos total production (Arvedlund 2004)

MMG was an integral part of the business empire of Dariga Nazarbayeva the

daughter of President Nazarbayev and her former husband Rakhat Aliyev34 Since

1997 the company has been formally controlled by Central Asia Petroleum Ltd of

32For example lsquoChina to Fund Tehran Metro Linersquo International Railway Journal August 2000

lsquoKazakhstanrsquos Kazyna Chinarsquos CITIC to Set Up Investment Fundrsquo 5 June 2008 available at http

wwwinterfaxcnnewsnews2995 accessed 10 July 200833At the time of this writing the MMG deal has been delayed but it appears likely that the

acquisition by CNPC will eventually be completed (Silk Road Intelligencer 2009b)34lsquoOil Find Re-opens Debate about Export Routesrsquo Petroleum Economist June 2000


Indonesia which initially purchased a 60 stake35 The stake is rumoured to have

risen to 99 by 2007 (Silk Road Intelligencer 2007)

In 2007 Rakhat Aliyev was accused of racketeering dismissed from his dual posts

as Ambassador to Austria and to the OSCE and divorced by Dariga Nazarbayeva

(Lillis 2007) He is currently in Austria which has thus far refused to extradite him to

Kazakhstan where he has been sentenced in absentia to two 20-year sentences

(Sidorov 2009) Although MMG is not as closely tied to the person of Aliyev as Yukos

was to Khodorkovsky it is still notable that Central Asia Petroleum Ltd announced in

December of 2007 that it would sell a controlling stake in MMG to KMG

However the conduct of KMGrsquos acquisition of MMG over the following 18 months

was dramatically different from the Russian Federationrsquos approach to Yukos and

reflects the multi-vector foreign policy and economic resource nationalism From the

beginning KMG made it clear that it wanted to acquire a controlling stake in MMG

and then bring in a foreign joint venture partner Throughout 2008 talks appear to

have been held with potential Russian American and Chinese partners In July 2008

Gazpromneft announced that it was prepared to purchase a minority stake in MMG

following its acquisition by KMG (Silk Road Intelligencer 2008) Ultimately however

MMGrsquos upstream arm was sold to KMG and CNPC for a combined $33 billion

(Mortished 2009) The multi-vector foreign policy is evident in Kazakhstanrsquos approach

to a range of potential investors in order to secure the best deal for both the specific

project and the Kazakh state more broadly Using the framework of Bremmer and

Johnston the form of resource nationalism evident here is economic verging on soft

Not only was MMG not nationalised outright but Central Asia Petroleum Ltd and

thus its ultimate beneficial owners including perhaps Rakhat Aliyev received a

respectable though by no means generous $250 per barrel of reserves While the

simplest explanation is that these favourable terms reflect a preference for using

economic and legal vehicles to assert national control there are a number of possible

alternative explanations for these favourable terms perhaps Rakhat Aliyev was able

to leverage some remaining influence within the Kazakh elite perhaps Dariga

Nazarbayeva holds a substantial stake in MMG Regardless of the reasons for the

terms of the acquisition both the process and the outcome set a far more positive

precedent for other foreign and domestic investors than the takeover of Yukos

The dynamics of uranium another perspective on resource nationalism in Kazakhstan

As in oil and gas Kazakhstan faces two challenges in developing its uranium industry

reliance on Russia and developing value-added industry Mukhtar Dzhakishev

President of Kazatomprom until he was arrested in May 2009 argued that

Kazatomprom needs to ensure that it has capability throughout an integrated value

chain (linking every stage of the process from mining of uranium through processing

into reactor fuel to construction and operation of nuclear power plants) rather than

simply producing fuel that it exports for processing abroad for use in power plants

built by foreign companies (Smith 2008) This is particularly important in the nuclear

industry because low fuel requirements and extensive refining of nuclear fuel mean

35lsquoCentral Asia Petroleum Buys Kazakh Oil Stakersquo The New York Times 13 May 1997


that fuel processing adds much more value to uranium than oil refining does to crude

oil

Kazatomprom began implementing this strategy in 2006 with the establishment of

three joint ventures with Rosatom for the extraction and enrichment of uranium

(Yermukanov 2006) At the same time Kazatomprom established an extraction joint

venture with Japanrsquos Sumitomo Corporation and Kansai Electric Power Co which

the Japan Bank for International Cooperation characterised as a means of lsquoSecuring

Japanrsquos Energy Resourcesrsquo (Japan Bank for International Cooperation 2006)

Cooperation with Japan was strengthened the following year in August 2007 when

Kazatomprom purchased a 10 stake in US nuclear power plant manufacturer

Westinghouse from Japanrsquos Toshiba which retains a 67 stake in Westinghouse36 In

the most recent example in June 2008 in conjunction with President Nazarbayevrsquos

visit to Paris Kazatomprom and Areva signed an agreement to cooperate on the front

end of the nuclear fuel cycle particularly the production of high value fuel assemblies

(Kazatomprom 2008) Kazakhstan now has strong connections with all major nuclear

reactor manufacturing nations apart from South Africa

Moving to participate in the entire value chain helps Kazakhstan in two ways Just

as the multi-vector foreign policy has ensured that Kazakhstan can achieve world

market prices for its oil and gas Kazakhstan wants to ensure that it has direct

exposure to uranium consumers and does not become a captive supplier to Rosatom

Furthermore simply preserving exposure to the uranium price is not sufficient Not

only is the commodity cost of uranium a small fraction of the total generation cost

but demand for raw uranium may fall as the processing of used nuclear fuel becomes

more prevalent and effective (World Nuclear Association 2008)

Because Kazakhstan started developing its nuclear industry much later than its oil

and gas industry the experience in the oil and gas industry has informed strategy in

the nuclear industry In particular there has not been the same perceived need to

redress unfavourable past contracts Consequently strategy in the nuclear industry

shows how Kazakhstanrsquos thinking about the role of natural resources in economic

development has evolved since it signed its first international PSA (for the Tengiz field)

in 1993 Accordingly Kazakhstanrsquos expectations from foreign investors in the nuclear

industry particularly access to diverse markets access to new technology and a greater

share in the entire value chain provide a useful illustration of what it may look for

from future oil and gas investors and joint venture partners Moreover the consistent

similarity between the approaches in the oil and gas and nuclear sectors suggests a

coherent state strategy of economic resource nationalism from 2004 to 2008

In 2009 however the nuclear industry took a very different course from the oil

industry In contrast to the MMG case where the economic resource nationalism of

the 2004ndash2008 period seems to have taken a softer turn the arrest of Dzhakishev and

other key managers at Kazatomprom suggests a more revolutionary approach There

are several possible ways to interpret this divergence At the most basic level it could

be attributed to uncertainty arising from the financial crisis which has had a strong

impact on Kazakhstan More likely it could also be attributed to the different

36lsquoKazakhstan to Buy 10 percent of Westinghouse from Toshibarsquo Agence France Press 13 August

2007


approaches being taken towards the key oligarchs involved Aliyev in the MMG case

and Ablyazov in the Kazatomprom case In either case Dzhakishevrsquos arrest does not

strictly constitute an act of resource nationalism as Kazatomprom has always been a

state-owned agency Furthermore the professional approach that appears to have

been taken to restructuring the BTA Bank of which Ablyazov was chairman suggests

that even if the means of taking control of the bank reflect some of the elements of

revolutionary resource nationalism Kazakhstanrsquos subsequent approach to managing

the bank is essentially economic focusing on maximising the value of the firmrsquos

remaining assets and restructuring its debt (Silk Road Intelligencer 2009c)

Conclusion

Both Kazakhstan and Russia have chosen to pursue a state-centric model of resource-

led development in an environment of rising oil and gas prices Yet despite their

shared history and similar geography the two countries have practised very different

versions of resource nationalism driven by differing domestic and external political

circumstances Kazakhstan has pursued economic resource nationalism by focusing

on economic growth the diffusion of resource wealth to the wider population and

avoiding reliance on any one outside power while Russiarsquos approach has been driven

by the desire for geopolitical leverage and domestic political stability

Neither is the textbook model of resource nationalism in which bargaining power

shifts from the foreign investor to the host government after investment costs have

been made In Kazakhstan the push for greater government control has come far in

advance of oil production at Kashagan and the government made an explicit decision

to slow foreign investment in order to develop domestic capability In Russia the

government has pushed for greater control of both foreign and domestic assets and

has focused on altering the geography of its energy transportation system to achieve

both foreign and domestic political goals In both cases the strategic motives go

beyond simply capturing a greater share of the resource rent Rather the different

domestic circumstances and politics in each country have produced unique forms of

resource nationalism that reflect different ways of responding to the challenges of the

collapse of the Soviet Union

From the perspective of understanding the post-Soviet experience the primary

lesson of this comparison is that the shape of the resource industries in these countries

and the policy approaches to them seem to flow as much from de novo post-Soviet

political and economic differences as from their common Soviet past Kazakhstan

could easily have treated MMG as Russia treated Yukos but chose not to because of

different domestic circumstances Similarly Russia could have taken Kazakhstanrsquos

approach of attracting foreign interest in building new export routes but chose instead

to focus on developing an export system that met domestic political goals vis-a-vis

outlying regions as much as foreign policy goals In both cases the divergence in

approach cannot be explained by the Soviet legacy While the Soviet experience may

have led to some path dependence in the 1990s by 2004 domestic decision making

played at least an equally important role

While Kazakhstanrsquos attitude to foreign oil investors can be explained by the failure

to take into account the possibility of much higher future prices in early contracts


which Humphreys et al postulate as a major driver of resource nationalism this driver

does not appear to be present in most Russian assertions of state power nor with

regards to Kazakh domestic companies and the Kazakh nuclear sector This economic

motivation helps explain some instances of resource nationalism but it is not a

comprehensive or even predominant cause of the resource nationalism in these cases

Rather resource nationalism here often seems to flow from a comprehensive state

economic or political strategy not in response to specific cases However in some

instances particularly for international oil companies more favourable terms for the

state would clearly have helped avoid resource nationalism as in the Kashagan case

Perhaps more important however would have been a more flexible approach on the

part of international oil companies in recognising the goals of the state and trying to

assure that the IOC helps the state to achieve those goals In the cases of both

Kazakhstan and Russia firms that helped the state achieve its goals like MMG which

made no attempt to keep KMG from acquiring it were often able to also achieve their

goals or at least receive favourable terms in the event of nationalisation37

Finally the experience of Russia in the current decade and Kazakhstan in 2009

suggests that our understanding of resource nationalism might be enhanced by

considering the target of resource nationalism a concept that has mostly entailed

national governments targeting foreign investors Internal resource nationalism is also

at play in the Russia and Kazakhstan cases wherein governments have targeted not

only foreign participants in the sector but domestic elites as well38 To the extent that

resource nationalism is essentially a rebalancing of control between the state and the

current contractual owner of a natural resource all four of Bremmer and Johnstonrsquos

resource nationalism categories can target domestic and foreign investors Bremmer

and Johnston explicitly acknowledge this in the case of Canada where soft resource

nationalism has been directed primarily against domestic companies but in the cases

of Russia and Kazakhstan it appears that a key signpost of revolutionary resource

nationalism is the targeting of domestic investors who appear to pose a political threat

to the incumbent leadership cadre Indeed as we have seen the jury is still out on the

future direction of Kazakhstanrsquos resource nationalism do recent actions against

domestic elites presage a more revolutionary form of resource nationalism This seems

unlikely but the current economic contraction could change much of the thinking in

Astana The fact remains that internal resource nationalism is not necessarily

revolutionary but depending on the statersquos motivations in targeting a domestic

investor the process of nationalisation and its treatment of the nationalised firm one

can better ascertain whether the internal resource nationalism is primarily driven by

revolutionary politics or economic concerns

What might drive internal resource nationalism in the first place As Jones Luong

and Weinthal (2001) note Russia privatised its oil sector in the 1990s to mostly

domestic investors while Kazakhstan privatised to mostly foreign investors In Russia

37Russian oligarch Oleg Deripaskarsquos approach is summed up in his July 2007 statement lsquoIf the state

says we must give up our companies we will give them up I do not separate myself from the statersquo

(Aron 2008)38Internal resource nationalism is not so much an additional category to the BremmerndashJohnston

framework as a cross-cutting variable


these domestic investors leveraged their oil and gas assets to generate influence in

domestic politics leading to a subsequent crackdown by the Putin administration to

reassert political control The Kazakh government did not face the same level of

political contestation from domestic oligarchs with independent power bases in

domestic natural resources firms which may explain Russiarsquos turn toward revolu-

tionary resource nationalism targeting both foreign and domestic investors and

Kazakhstanrsquos economic resource nationalism targeting foreign investors almost

exclusively In contrast to Russia Kazakh domestic political elites established

themselves largely through their influence over state and quasi-state companies like

Kazatomprom Indeed in these two cases the application of resource nationalism to

domestic investors seems to be motivated by domestic political considerations first and

foremost In that case the key variable in ascertaining the future of Kazakh resource

nationalismmdashits economic or revolutionary charactermdashis how safe from domestic elite

political challenges President Nazarbayev feels Clearly an economic downturn can be

a very unsettling thing for an autocrat As the economic pie grows smaller the intra-

elite competition for a proportionately larger slice of the pie intensifies This may help

explain actions in 2009 that do not fully conform to the economic resource nationalism

observed in the period 2004ndash2008

University of Oxford

References

Ahrend R amp Tompson W (2007) lsquoCaspian Oil in a Global Contextrsquo Transition Studies Review 14 1Anacker S (2004) lsquoGeographies of Power in Nazarbayevrsquos Astanarsquo Eurasian Geography and

Economics 45 7Andriash A (2008) lsquoLegal Aspects of Investment Risks in the Russian Energy Sectorrsquo presentation to

International Petroleum Week London 19ndash22 FebruaryAron L (2008) lsquo21st-Century Sultanatersquo The American 14 NovemberArvedlund EE (2004) lsquoYukos Cuts its 2004 Oil Output Estimate by 45rsquo The New York Times 24

AugustAslund A (2007) lsquoUnmasking President Putinrsquos Grandiose Mythrsquo St Petersburg Times 4 DecemberAuyezov O (2009) lsquoKazakhstan Expands China Oil Pipeline Linkrsquo Reuters 1 JulyBalzer H (2005) lsquoThe Putin Thesis and Russian Energy Policyrsquo Post-Soviet Affairs 21 3Baran Z (2005) lsquoEnergy Supplies in Eurasia and Implications for US Energy Securityrsquo testimony to

the Senate Foreign Relations Committee Subcommittee on International Economic PolicyExport and Trade Promotion 27 September available at httpwwwhudsonorgindexcfmfuseactionfrac14publication_detailsampidfrac143980amppubTypefrac14HI_Testimony accessed 2 October 2009

BP (2009) lsquoStatistical Review of World Energyrsquo June available at httpwwwbpcomstatisticalreview accessed 26 June 2009

Bremmer Iamp JohnstonR (2009) lsquoTheRise andFall ofResourceNationalismrsquoSurvival 51 2AprilndashMayConsidine T (2008) lsquoRussian Oil Exports Domestic Drivers and Key Trendsrsquo presentation to

International Petroleum Week London 19ndash22 FebruaryCummings S (2003) lsquoEurasian Bridge or Murky Waters between East and West Ideas Identity and

Output in Kazakhstanrsquos Foreign Policyrsquo Journal of Communist Studies and Transition Politics 193 August

Cutler RM (2009) lsquoReality Wins over Energy Grand Designrsquo Asia Times 8 JanuaryDomjan P (2005) lsquoSupplier Development in the Oil and Gas Sector of Kazakhstanrsquo in World Bank

(ed) (2005) Getting Competitive Staying Competitive The Challenge of Managing KazakhstanrsquosOil Boom (Washington DC World Bank)

Energy Information Administration (2008a) lsquoKazakhstan Major Oil and Natural Gas ProjectsrsquoFebruary available at httpwwweiadoegovemeucabsKazakhstankazaprojhtml accessed17 February 2008


Energy Information Administration (2008b) lsquoKazakhstanrsquo February available at httpwwweiadoegovemeucabsKazakhstanFullhtml accessed 29 June 2008

Felgenhauer P (2009) lsquoRussiarsquos Coming War with Georgiarsquo 12 February available at httpwwwjamestownorgsingleno_cachefrac141amptx_ttnews[tt_news]frac1434493 accessed 16 July 2009

Gaddy C amp Ickes B (2005) lsquoResource Rents and the Russian Economyrsquo Eurasian Geography andEconomics 46 8 December

Gaddy C amp Ickes B (2009) lsquoRussiarsquos Declining Oil Production Managing Price Risk and RentAddictionrsquo Eurasian Geography amp Economics 50 1 January

Gaddy C amp Kuchins A (2008) lsquoPutinrsquos Planrsquo The Washington Quarterly 31 2 SpringGlobal Witness (2006) Itrsquos a Gas Funny Business in the TurkmenndashUkraine Gas Trade (London Global

Witness)Goldman M (2008) Petrostate (Oxford Oxford University Press)Gorst I amp Crooks E (2007) lsquoKazakh Law Allows Breaking of Contractsrsquo Financial Times 26

SeptemberGustafson T (1989) Crisis Amid Plenty The Politics of Soviet Energy under Brezhnev and Gorbachev

(Princeton NJ Princeton University Press)Hanson P (2009) lsquoThe Resistible Rise of State Control in the Russian Oil Industryrsquo Eurasian

Geography and Economics 50 1 JanuaryHill F (2005) lsquoWhither Kazakhstanrsquo The National Interest OctoberHoffman D (2003) The Oligarchs Wealth and Power in the New Russia (New York Public

Affairs)Humphreys M Sachs J amp Stiglitz JE (2007) Escaping the Resource Curse (New York Columbia

University Press)International Energy Agency (2008a)Medium Term Oil Market Report July 2008 (Paris International

Energy Agency)International Energy Agency (2008b) Project Plans Constraints to Growth and the Impact of Cost

Escalation through the Middle East and North Africa (Mena) Prism (Paris International EnergyAgency)

International Republican Institute (2007) lsquoKazakhstanrsquo available at httpwwwiriorgeurasiakazakhstanasp accessed 16 February 2008

Ipek P (2007) lsquoThe Role of Oil and Gas in Kazakhstanrsquos Foreign Policy Looking East or WestrsquoEurope-Asia Studies 59 7 August

Japan Bank for International Cooperation (2006) lsquoNatural Resources Financing for Uranium MiningProject in Kazakhstan Securing Japanrsquos Energy Resourcesrsquo available at httpwwwjbicgojpautocontentsenglishnews2006000055indexhtm accessed 22 June 2008

Jones Luong P amp Weinthal E (2001) lsquoPrelude to the Resource Curse Explaining Oil and GasDevelopment Strategies in the Soviet Successor States and Beyondrsquo Comparative Political Studies34 4 May

Kazatomprom (2008) lsquoAREVA and KAZATOMPROM Sign a Strategic Agreement in the Front Endof the Nuclear Cyclersquo available at httpwwwkazatompromkzcgi-binindexcginc225ampversionfrac14en accessed 21 June 2008

Krysiek T (2007) Agreements from Another Era Production Sharing Agreements in Putinrsquos Russia2000ndash2007 Working Paper 34 (Oxford Oxford Institute of Energy Studies)

Lillis J (2007) lsquoKazakhstan The Domestic Implications of Rakhat Aliyevrsquos Precipitous Fallrsquo 13 Juneavailable at httpwwweurasianetorgdepartmentsinsightarticleseav061307fshtml accessed 5July 2009

Ling A Waghorn J et al (2004) Introducing the Goldman Sachs Energy Environmental and SocialIndex (London Goldman Sachs) p 116

McMahon N amp Clint O (2008) Global Integrated Oils More Cautious Stance on the Groupdue to Near Term Risks Downgrade BG to Marketperform (London Bernstein Research)p 38

Mommer B (2000) The Governance of International Oil The Changing Rules of the Game WorkingPaper 26 (Oxford Oxford Institute of Energy Studies)

Mortished C (2009) lsquoWhile We Moan the Chinese Get on With Itrsquo The Times 29 AprilNazarbayev N (2006) Kazakhstanskii Pytrsquo (Karaganda Arko)Panov I (2008) lsquoConstraints of Foreign Investment to Subsoil Use in Russiarsquo Journal of World Energy

Law amp Business 1 3Parra F (2004) Oil Politics A Modern History of Petroleum (London IB Tauris)Peyrouse S (2008) lsquoThe lsquolsquoImperial Minorityrsquorsquo An Interpretative Framework of the Russians in

Kazakhstan in the 1990srsquo Nationalities Papers 36 1 MarchPipes R (2009) lsquoCraving to be a Great Powerrsquo Moscow Times 15 July


Pirani S Stern J amp Yafimava K (2009) The RussondashUkrainian Gas Dispute of 2009 A ComprehensiveAssessment NG 27 (Oxford Oxford Institute of Energy Studies)

Regional Financial Centre of Almaty City (2008) lsquoRFCAmdashHistoryrsquo available at httpwwwrfcakzp7ampversionfrac14en accessed 16 February 2008

Rutland P (2008) lsquoRussia as an Energy Superpowerrsquo New Political Economy 13 2 JuneSidorov D (2009) lsquoJustice in Kazakhstanrsquo Forbes 9 FebruarySilk Road Intelligencer (2007) lsquoCentral Asia Petroleum Negotiating Sale of MangistauMunaiGasrsquo

available at httpsilkroadintelligencercom20071214central-asia-petroleum-in-negotiations-over-the-sale-of-mangistaumunaigas accessed 5 July 2009

Silk Road Intelligencer (2008) lsquoGazprom Neft Prepared to Buy Minority Stake in MangistauMunai-Gasrsquo available at httpsilkroadintelligencercom20080723gazprom-neft-prepared-to-buy-minority-stake-in-mangistaumunaigas accessed 5 July 2009

Silk Road Intelligencer (2009a) lsquoMangistauMunaiGas Deal Summaryrsquo available at httpsilkroadintelligencercom20090421mangistaumunaigas-deal-summary accessed 5 July 2009

Silk Road Intelligencer (2009b) lsquoChinesendashKazakh MangistauMunaiGas Deal Delayed KMG AcquiresPavlodar Refineryrsquo available at httpsilkroadintelligencercom20090806chinese-kazakh-mangistaumunaigas-deal-delayed-kmg-acquires-pavlodar-refinery accessed 11 August 2009

SilkRoad Intelligencer (2009c) lsquoBTABankWilling toSellOverseasAssets FinalizingDebtRestructuringrsquo25 May available at httpsilkroadintelligencercom20090525bta-bank-willing-to-sell-overseas-assets-finalizing-debt-restructuing accessed 5 July 2009

Smith EB (2008) lsquoKazakh Salesman Aims to be Rockefeller of Uraniumrsquo Bloomberg 22 Aprilavailable via httpwwwbloombergcomappsnewspidfrac1420601072ampreferfrac14energyampsidfrac14a4CHUvmGEUI4 accessed 21 June 2008

Stern J (2005) The Future of Russian Gas and Gazprom (Oxford Oxford University Press)Stern J (2009) lsquoThe Russian Gas Balance to 2015rsquo in Pirani S (ed) (2009) Russian and CIS Gas

Markets and Their Impact on Europe (Oxford Oxford University Press)Stevens P (2008) lsquoNational Oil Companies and International Oil Companies in the Middle East

Under the Shadow of Government and the Resource Nationalism Cyclersquo Journal of World EnergyLaw amp Business 1 1

Stone M (2007) lsquoThe Sun Also Rises The East SiberiandashPacific Ocean Oil Pipeline and Its GeopoliticalRamificationsrsquo unpublished manuscript

Taylor I (2007) lsquoChinarsquos Relations with Nigeriarsquo The Round Table 96 392Vernon R (1971) Sovereignty at Bay The Multinational Spread of US Enterprises (New York Basic

Books)World Nuclear Association (2008) lsquoProcessing of Used Nuclear Fuel for Recyclersquo June available at

httpwwwworld-nuclearorginfoinf69html accessed 22 June 2008Yermukanov M (2006) lsquoAstana Opts for Russian Assistance in Nuclear Energy Developmentrsquo

Eurasia Daily Monitor 3


Copyright of Europe-Asia Studies is the property of Routledge and its content may not be copied or emailed to

multiple sites or posted to a listserv without the copyright holders express written permission However users

may print download or email articles for individual use

actively using its energy production and transportation systems to reassert its primacy

in domestic and foreign affairs By consolidating control of hydrocarbon production

and altering the geography of its oil and gas transportation network the Russian state

has been able to provide political patronage to remote areas and co-opt alternative

centres of political power Looking abroad Russia has made alterations to the

geography of its energy transportation system in an attempt to increase its geopolitical

leverage over both the energy-producing states of Central Asia and the energy-

consuming states of Europe This approach to its hydrocarbons is part and parcel of a

broader project under Vladimir Putin to reinstate Russia as a great power in a

multipolar world order (Gaddy amp Kuchins 2008 Pipes 2009) The beginning of the

increase in oil prices in 2003 presented the opportunity to develop Russia as an lsquoenergy

superpowerrsquo a concept propagated by the Russian state that reflects the countryrsquos

psychological need to be seen as powerful once again1

However observing Russia in isolation risks confusing those traits that are unique

to Russia and derive from its particular post-Soviet experience with those that are

shared either by all countries pursuing a strategy of resource nationalism or even all

natural resource producers in the post-Soviet space In Kazakhstan by contrast

President Nursultan Nazarbayev has explicitly modelled his political legitimacy on

that of Singaporersquos Peoplersquos Action Party by focusing on strong economic growth and

the diffusion of the benefits of growth to the population (Anacker 2004 Nazarbayev

2006) The Kazakh government has come to realise that the confluence of high oil and

gas prices and increased international competition for oil and gas resources allow the

Kazakh state to capture a larger portion of the financial benefit of hydrocarbon

production as well as expanding the Kazakh role in oil production and setting a

precedent for Kazakhstanrsquos uranium industry While Kazakh energy policy is still

motivated by a lsquomulti-vector foreign policyrsquo changes in policy over the last five years

particularly those that have been seen as disadvantaging international oil companies

are driven primarily by economic concerns to maximise the benefit of natural resource

production to Kazakhstan

In sum while both countries have employed state-centric models of economic

development in their natural resource sectors during the period 2004ndash2008 the

Russian variant tends to focus on power and prestige by way of economic growth

whereas the Kazakh variant focuses on economic growth and development as a basis

for strengthening the political legitimacy of the ruling elite

The first section of this article offers a comparison of case studies and this is

followed by a review of some of the main conceptual understandings of resource

nationalism Third a case study of Russia is introduced to demonstrate the political

impetus behind that countryrsquos variant of resource nationalism in particular the

importance of oil and gas pipelines to the overall strategy Fourth the authors analyse

the case of Kazakhstan where resource nationalism has been more about economic

gains than the broader political project observed in Russia The examples of

1The term lsquoenergy superpowerrsquo was used infrequently in relation to Russia during the 1990s but

gained wide currency when US scholar Fiona Hill used it in 2002 It was taken up in Russian

publications in 2003 and by Russian officials since 2006 Rutland (2008) appropriately points out that

the term is analytically useless even contradictory






Methodology










largest cities















(Peyrouse 2008)




















































































motivations















energy consumers








































presidency5










































pricing





























































contractors








Policy imperatives
























































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References


































































Methodology










largest cities















(Peyrouse 2008)




















































































motivations















energy consumers








































presidency5










































pricing





























































contractors








Policy imperatives
























































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References




































































































































motivations















energy consumers








































presidency5










































pricing





























































contractors








Policy imperatives
























































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References

































































































presidency5










































pricing





























































contractors








Policy imperatives
























































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References
































































































pricing





























































contractors








Policy imperatives
























































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References















































































































contractors








Policy imperatives
























































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References


























































































in 2008













1 January 2009




























































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References
























































































































investment schedule



















































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References














































































contraction





































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References






































































Kremlin17
























investors





















Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References





































































Kazakhstan

















































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References












































































































































Chinese or Kazakh























































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References











































































































































production







































management




















development


















































































oil











































2007











Conclusion




































































































References



























































































management




















development


















































































oil











































2007











Conclusion




































































































References



































































development


















































































oil











































2007











Conclusion




































































































References











































































































oil











































2007











Conclusion




































































































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Conclusion




































































































References






























































































































References






























































nationalism in kazakhstan and russia

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