Russia Vs the Western Powers: The Politics of Energy in Central Asia

Transcription

1 Russia Vs the Western Powers: The Politics of Energy in Central Asia Russia is by far the most influential player in the Central Asian region. The Russian state monopoly over Soviet era pipelines ensures that Central Asia s main source of revenue, its energy resources, are dependent upon Russia for transport as they are at present largely in the hands of the Russian state-owned energy companies Transneft, Rosneft and Gazprom respectively. Deals involving the construction of new pipelines transporting Central Asian energy via Russia further reinforce its upper hand in the region, since even if privately-owned Russian companies are involved, they are still closely aligned with the Russian state due to its iron grip over Russia s extractive economy. The sum of all this is essentially a future in which Russia controls a portion of one of the most crucial aspects of 21 st Century development: Energy. This is a worrying situation for the Western powers, and has facilitated an increasing shift in urgency to redress this imbalance of Russian primacy in Central Asia, an area largely ignored by the Western powers. The Western powers; America, Britain, and the European Union, should not only be concerned about the cost that this imbalance has for energy security in supply terms however, but increasingly of the potential geopolitical impact of Russia s Central Asian resource influence on relations with strategically important countries such as Iran, Afghanistan and Pakistan. Energy cooperation with Central Asia at its core could harbour further political ties between Russia and these countries, and result in a reduced ability for the Western powers to shape the direction and dynamics of global politics as a whole. The degree to which this is an issue has been further solidified by developments in which China, one of the world s most rapidly growing energy consumers, has aligned with Russia to form a 1

2 partnership crucial to its own energy needs. China is no doubt inwardly unhappy at Russian primacy, but continues outwardly to present a foreign policy that is largely interested in joining Russia in its development of Central Asia, as opposed to competing with it. Thus, the Western powers are faced with an alliance between China, the world s third largest and fastest growing economy, and Russia, a country heading towards possible energy superpower status, involving handshakes not only over energy deals, but those of a more pragmatic nature concerning Russia s regional and global aspirations. The fact such support takes place mainly on a multilateral level through institutions such as the Shanghai Cooperation Organisation further complicates matters, since essentially you have a rival partnership to the Western powers eclipsing weaker countries and potentially influencing them towards a shared anti-western agenda. Thus, we are brought to the central point of this paper: the consequences of Russian primacy in Central Asia are not simply limited to the region or its energy supplies, but have the potential to impact upon the geo-strategic balance of the world. In explaining this central point, I will discuss current Russian primacy of Central Asian energy, and consider how this has influenced its relations with China towards the powerful partnership that it constitutes today. In order to gauge the extent of imbalance in the region, I will also look at the Western Powers current and proposed presence in the region, and essentially assess the extent to which the Western Powers can counterbalance Russian primacy if indeed trends signify that it needs to be. Effectively, chapter one and two will provide an understanding of where we are today in terms of the Russian monopoly over Central Asian energy, and this will allow us in chapter three to evaluate if and how this can possibly change. Ultimately, this study seeks to illustrate how Russia is using 2

3 Central Asia s hydrocarbon resources as part of its strategy to re-establish itself once again on the world stage, a dangerous and unsettling prospect for the Western powers at a time when their energy security is still uncertain. 3

4 Chapter One Russian Primacy in Central Asia Russia is Central Asia s current and prospective hegemon. This chapter will explain how this has developed, discussing relations between Russia and the Central Asian Republics, and the formers leading role in the Sino-Russian partnership in the region. This will illustrate how both factors have worked in tandem to facilitate a Russian primacy with implications beyond Central Asia, drawing geopolitically important countries towards Russia s sphere of influence. 4

5 Current Dynamics between Russia and the Central Asian Republics Kazakhstan, Turkmenistan and Uzbekistan are Central Asia s petrostates. Kazakhstan is the biggest and most energy-abundant, with conservative BP estimates quoting holdings of 39.8 billion barrels of proven oil reserves and 3.00 trillion cubic meters (tcm) of proven gas reserves 1. Turkmenistan and Uzbekistan have relatively modest and largely untapped proven oil reserves, with 0.5 and 0.6 billion barrels respectively. However they are richer in natural gas, with Turkmenistan possessing 2.86tcm in proven gas reserves and Uzbekistan 1.87tcm 2. As a result, non-russian interests see a potential for energy diversification in Central Asia, whilst Russia realises the power of maintaining its monopoly. The post 1989 foreign policies of the petrostates have followed a broad spectrum, ranging from Uzbek hostility towards the West and Russia in intermittent phases, Turkmenistan s positive neutrality involving largely isolationist policies 3, and Kazakhstan s multi-vector strategy attempting to maintain good relations with all of the major powers, America, Britain, Russia, China and the EU. In recent times, Uzbekistan and Turkmenistan have shifted towards Moscow, with calls for an independent investigation into the Andijon massacre 4 by the EU and America 1 BP Statistical Review of Energy June 2007, BP (2007) P.6 2 ibid p.22 3 Speech of Saparmurat Niyazov, Economic Cooperation Organisation (1994) [accessed 24/08/07] 4 On May 2005, the government of Uzbekistan brutally suppressed an uprising in Andijon. The victims, possibly as many as 750, were mostly unarmed civilians, including children. International Crisis Group Report, Uzbekistan: The Andijon Uprising International Crisis Group, Asia Briefing N 38, (25 May 2005) 5

6 alienating Tashkent, and the succession of pro-isolationist Saparmurat Niyazov in Turkmenistan by Gurbanguly Berdymukhammedov, a president looking to establish a new era in bilateral relations 5 with Russia. The Moscow newspaper Vremya Novostei" quoted unnamed Kremlin officials as saying they are satisfied with what they interpret as "a pro-russian trend in Turkmenistan post-niyazov foreign policy" 6. Ultimately, despite these outwardly differing foreign policy approaches, all however have one core aspect in common: Russia remains the leading power in the region. The framework for Russia s post-1989 energy primacy in Central Asia has been provided by the Republics need to maintain good relations with Russia and its subsequent continued reliance upon the Soviet-era pipeline network owned by Russian state-owned energy companies Transneft, Gazprom, and Rosneft to transport their resources to international markets. Until recently, all but one of Kazakhstan s pipelines were a part of the Transneft network, and currently 84 percent of Kazakh oil passes through Russia 7. Similarly, Gazprom is currently the main exporter of Turkmen gas with the majority being transported via the Central Asia-Centre pipeline which is routed to the Russian natural gas pipeline system owned by Gazprom. Russian influence was reinforced in April 2006 when the Kazakh government vowed to supply more oil to international markets via Russian pipelines 8 and recently agreed to the construction of a joint Uranium enrichment centre in Siberia processing nuclear fuel for unspecified foreign countries 9. More recent plans envisage the construction of a new pipeline along the Caspian coast and the modernization of Soviet era lines to carry Turkmen and Kazakh natural gas to Russia and on to 5 Peuch.J, Turkmenistan: New President Modifying Niyazov's Neutrality Policy, RFE/RL (May 11, 2007) 6 ibid 7 Marten.K, Pressure from the Kremlin? RFE/RL (June 2007) Repeated Ref: Marten.K 8 Blagov.S, Russia Registers Significant Victory in Caspian Basin Energy Contest, Eurasianet (April 5, 2006) 9 RFE/RL Newsline, Russia, Kazakhstan Sign Uranium Enrichment Center Agreement, RFE/RL (May 11,2007) 6

7 Europe 10 with the possible inclusion of Uzbekistan in the deal 11. Uzbekistan has also been working very closely with Gazprom since signing an agreement in 2005 (after breaking a deal with a British firm in the same year) to provide Russia with up to 350 bcf annually. The deal involved giving Gazprom access to gas fields in the Ustyurt region, and updating dilapidated gas pipelines. In January 2006, Gazprom CEO Aleksei Miller signed a further deal with Uzbek President Islam Karimov to transfer three of Uzbekistan s largest gas fields (Urga, Kuanysh, and Akchalak) to Gazprom. Gazprom is also set to become sole exporter of Uzbek gas 12, and Russia remains the sole export destination for the latter, using its stranglehold over transport to purchase Uzbek gas at below market prices for domestic use in order to then make huge profits exporting its own gas to Europe 13. Thus, the basis of the Russian monopoly over Central Asian energy lies here, since as a result Putin and his government have the power to set tariff rates, and essentially Russia has substantial influence over where energy is delivered, how much, and at what cost 14. Although these aspects 10 RIA Novosti, Russia, Kazakhstan, Turkmenistan agree on Caspian gas pipe, RIA World (May 12, 2007) [accessed 06/09/2007] 11 Kazinform, Putin says Uzbekistan may join Caspian gas pipe project, Kazinform (10 July, 2007) [accessed 06/09/2007] 12 LUKoil, a private energy company currently with marginal independence from the state, is to hand its output of Uzbek gas to Gazprom in late 2007 making Gazprom the single authorized gas exporter from Uzbekistan. Socor.V, Uzbek Gas Output, Export Set to Grow Under Russian Monopoly Control, The Jamestown Foundation (Feb 2007) 13 Bearing in mind according to current Nymex Henry-Hub prices ($6.031 MMBtu Sep Avg) present market value of natural gas is US$ per 1000 cubic metres. This is based on the following calculation: 1 MMBtu = Gigajoules & 1 GJ=26.8 m 3. So $6.031/MMBtu in cm3 is: $6.031 x (1000/26.8/ )=$ per 1000 cubic meters. 14 Ukraine-Russia gas war in January 2006 illustrates the economic consequences of falling out of favour politically with Russia. A Russian price-hike followed Ukraine s Orange Revolution and the election of pro-western President, Viktor Yushchenko, and subsequently Ukraine s gas supplies were cut off. BBC News, Russia cuts Ukraine gas supplies, BBC World (January 01, 2006) 7

8 can undoubtedly be influenced by non-regional factors, for the majority of the time are predominantly reliant upon Russian decisions. Russia s vice-like grip over energy export routes in Central Asia is heavily aided by the latter s geographically vulnerable position as a landlocked region, since consequently, Central Asia relies on Russia to provide an import channel for goods, and is its primary import route 15. For example, in 2005, 39.3% of Kazakhstan s total imports came from Russia 16. This dependence further encourages Central Asian compliance with Russian geopolitical aims. The Central Asian Republics reliance upon military assistance and training from Russia is another significant factor contributing to Russia s hegemonic status in the region 17, as it reinforces Central Asian hesitancy to consider diversifying energy export routes. This assistance largely manifests in protecting the integrity of inter-republic borders, regional balance, and helping the Republics to neutralise Islamic terrorism. This is particularly so in the case of Kyrgyzstan and Tajikistan, as since they do not possess hydrocarbon resources they are the weakest economically 18 and thus militarily of the republics. The only resource these countries can use to their advantage over their fellow downstream neighbours is water, and consequently want to develop greater influence over regional water supply. Past events between these 15 RFE/RL Newsline Central Asia: Turkmenistan Pushing North-South 'Trade Corridor' With Iran, RFE/RL (June 20, 2007) 16 Frankel.J, On the Tenge: Monetary and Exchange Rate Theory for Kazakhstan, Short-term Consultancy (April 2005) p.11http://ksghome.harvard.edu/~jfrankel/on%20the%20tenge-kazakhm&exr-frankel_r.pdf [accessed 07/09/2007] 17 Turkmenistan under Niyazov was an exception. However the republic remained distant towards both Russia and the West. For example, in response to rumours in 2005 that it was allowing a US military base into Turkmenistan, the Turkmen Foreign Ministry reiterated President Niyazov s desire "not to place on its territory the military bases of foreign states." Blank.S, Turkmenistan Base Rumour Likely Part of A Russian Disinformation Campaign, Eurasianet (Sep 2005) 18 Kyrgyz and Tajik GNI per capita was just US$430 and US$330 in 2005 respectively. World Bank data and statistics, Statistics for Eastern Europe, Turkey, and Former Soviet Union, The World Bank (2007) :146813~theSitePK:258599,00.html [accessed 06/09/2007] 8

9 countries and their regional neighbours however illustrate that in order to achieve such aims, Russian military backing is required. For example, without it, events such as the 1993 gas war, in which Uzbekistan withheld supplies of natural gas in response to Kyrgyzstan launching its own currency without prior consultation of its fellow Central Asian states, are liable to happen again 19. That Russia dictates military affairs in Central Asia is illustrated clearly by the fact that following a Bush-Putin phone call after the September terrorist attacks on the US, Uzbekistan opened its airspace to the US Air Force and allowed US military bases within its territory 20. Therefore, without Russian support, ventures such as the agreed co-operation program between Kyrgyzstan and Tajikistan involving a joint Water and Energy Consortium cannot go ahead, as they have the potential for causing turbulence in the region if other Central Asian states are not brought on board 21. Kyrgyzstan s realisation of this has resulted in requests by Kyrgyzstan for Russian help in guarding its borders 22, and this sends a clear signal to the West of where Kyrgyzstan s priorities lie. Furthermore, Kazakhstan recently called on Russia for assistance in modernising its army, unable to do so itself due to a virtually non-existent defence industry Huskey.E, National identity from scratch: Defining Kyrgyzstan's role in world affairs, Journal of Communist Studies and Transition Politics, Volume 19, Issue 3 (September 2003) p Klevemen.L, The New Great Game: Blood and Oil in Central Asia (New York, 2004) p168. Repeated Reference: The New Great Game 21 News Briefing Central Asia, Tajik-Kyrgyz Water Consortium Will Upset Neighbours, IWPR (23 May, 2007) [accessed 06/09/2007] 22 RFE/RL Newsline, Kyrgyzstan Asks Russia For Help Guarding Borders RFE/RL (21 May, 2007) 23 Yermukanov.M, Kazakhstan Seeks Russian Assistance to Modernize its Army, Central Asia-Caucuses Institute Analyst (July 3, 2007) [accessed 07/09/2007] 9

10 Effectively, Central Asian defence is largely in the hands of Russia, and as Xing explains This simple fact [Russian military primacy] explains why it is extremely difficult for Central Asian states to break away from Russia all Central Asian states have made relations with Russia the foundation of their foreign relations 24. This is clearly a situation that doesn t bode well for outside attempts to break Russia s monopoly in the region. Central Asian leaders have consistently used terrorist allegations to remove dissent 25 and political opposition 26, and essentially use the bugbear of international terrorism to justify repression 27. Bilateral assistance provided by Russia to help contain terrorism is an attractive prospect as essentially, it helps maintain such regimes. The help offered by Russia suits both the domestic aims of Central Asian authoritarian leaders and Russia s foreign policy designs for the region, as the former gain assistance without questions, and the latter stave off any chance for US or UK influence via the war on terror. Effectively, as Lena Jonson maintains, Putin s anti-terrorist policy also aimed to counter US engagement in the region Xing in Zhang.Y & Azizian.R (eds), Ethnic Challenges Beyond Borders : Chinese and Russian Perspectives of the Central Asian Conundrum (Basingstoke, 1998) p41 25 For example, the Andijon massacre, although officially deemed a response to terrorists, occurred immediately after increased protests against government decrees levying high tariffs on imports and restricting the activities of bazaar traders. It was followed by widespread repression of NGO s and terror allegations to justify crushing political opposition. 26 For example, in March 1999, Abdulkhafiz Abdullayev, the younger brother of Abdumalik Abdullojonov, a former prime minister and the head of the opposition National Revival Bloc was sentenced to death by the Supreme Court for treason, banditry and terrorism, apparently without right of appeal. Amnesty International country report, Annual Report 1999: Tajikistan [accessed 21/09/2007] 27 Ilkhamov.A, Uzbek Islamism: Imported Ideology or Grassroots Movement? Middle East Report (Winter 2001) No. 221, p Jonson.L, Vladimir Putin and Central Asia : the shaping of Russian foreign policy (London, 2004) p81 10

11 Therefore, Central Asia currently relies on Russia in a number of capacities established and consequently Russia dominates the region. What are the potential far-reaching consequences of this for the Western powers? Implications of primacy: The Sino-Russian Alliance Extending Russian Influence As established, the fact that Russia controls the export of Central Asian oil and gas is a highly unsettling situation for the Western Powers, as it means that Russia currently accounts for approximately 45% of total gas imports into the EU 29. According to official DTI estimates, the UK is expected to depend on imported gas supplies for 80% of total consumption by , meaning that the EU and particularly relevant to this paper, the UK, will become increasingly vulnerable to potential political knock-on effects of a Russian energy monopoly. It is also important to recognise that if there were to be any crisis, such as a terror attack, obstructing crucial alternative oil routes such as the Strait of Malacca 31 or the Strait of Hormuz 32, Russia would be the sole exporter of alternative resources, and effectively could yield great power. The Western powers are not however the only countries to have realised such implications, and the most important of these countries with regards to Western interests, is China. 29 Trade and Industry Written Evidence Ordered by the House of Commons, Memorandum by GML Limited, parliament.uk (March 2006) [accessed 07/09/2007] 30 ibid 31 Approximately 90% of East Asian and 80% of Chinese imported oil passes through the Strait of Malacca. Watkins.E, Obstacles to Closer Counter-Terrorism Coordination in Malacca Straits, Terrorism Monitor, Volume 5, Issue 13 (July 2007) 32 The Strait of Hormuz is the only sea route through which oil from Kuwait, Iraq, Iran, Saudi Arabia, Bahrain, Qatar, and most of the UAE, can be transported, and accounts for approximately 20% of daily global oil supply. Daly.J, Saudi Oil Facilities: Al-Qaeda's Next Target?, The Jamestown Foundation (February 2006) 11

12 China has emerged as a player in Central Asia, as its own oil resources can no longer meet its needs 33. As a result of this, China has allied with Russia in a bid to gain energy security and address its main vulnerability, the Malacca Dilemma 34. Russo-Chinese Cooperation in Central Asia has thus strengthened Russia s hold over energy resources in the region significantly, and a recent joint statement has reiterated this. It stated The energy cooperation between China and Russia, as an important part of the Sino-Russian Strategic Partnership of Cooperation, is witnessing a high-level development, and is of great significance for further deepening bilateral economic cooperation 35. The most dangerous aspect of this economic co-operation for the Western powers is that it has resulted in the formation of a Russian-led quasi anti-western political bloc through the creation of the Shanghai Cooperation Organisation (SCO). Therefore, to understand the full impact of Russian primacy in Central Asia we must discuss why the Sino- Russian partnership has evolved into the current alliance that it is, as well as consider the Shanghai Cooperation Organisation and its implications for regional and global politics. Thus, why has China aligned itself so closely with Russia? Firstly, China does not have the military capability to protect its most important oil channels, and subsequently requires Central Asian energy to continue developing economically without having to rely on alternative Middle Eastern oil routes controlled by the US. China essentially fears that the United States might use their influence over the Middle East to contain China China lacks the skills needed to ensure protection of the sea routes between the South China Sea and the Persian Gulf which it 33 The U.S. Energy Information Administration estimates China s oil consumption will reach 10.5 million barrels per day by The New Great Game, p Annual Report to US Congress, Military Power of the People's Republic of China 2007, US Department of Defence (2007) chapter 2, [accessed 08/9/2007] 35 Sino-Russian Joint Statement, China, Russia sign joint statement, Chinese Government Official Web Portal (March 2006) [accessed 08/09/2007] 12

13 increasingly depends upon for oil 36. This concern has led China to its current partnership with Russia, allowing Beijing to establish relations with what Kellner refers to as weak suppliers in contrast to the US 37. However, this strategy has been held back by the lack of viable alternatives to Russian-controlled Central Asian oil and gas transport options, and has resulted in the Russian-dominated alliance we see today. For example, even the recently built pipeline (August 2006) taking Kazakh oil from the Kumkol oil field directly to Western China failed in its attempt to bypass Russia. It was originally a Chinese- Kazakh venture between Chinese petroleum company CNPC and Kaztransoil, however it was not anticipated that it would require Russian oil to make it commercially viable. Kumkol oil can only provide 60% of the capacity of the pipeline, and furthermore, its high paraffin content causes the oil to freeze when pumped through pipelines in the winter 38. Thus, Russian West Siberian heavy crude needs to be mixed with Kazakh oil, and as a result, state-owned Rosneft and TNBP (a private Russian company largely under the thumb of the State) are heavily involved in the project. Secondly, the historical context of Russia and China s presence in Central Asia is another factor as to why China needs Russia to gain a foothold in the region. Relations between the Central Asian republics and China have a history of turbulence. For a millennium the Central Asian peoples feared China s possible encroachment on their nomadic existence, and in more recent times, ideologically under Soviet rule. Relations have been traditionally hampered by mutual 36 Kellner. T, The Peoples Republic of China and the New Central Asia Ten Years after Independence, in Sabahi.F & Werner.D (eds), The OSCE and the Multiple Challenges of Transition : the Caucasus and Central Asia (VT, 2003) pp Ibid p Intertanko, First oil through Kazakhstan-China pipeline, International Association of Independent Tanker Owners (15 August 2006) [accessed 07/09/2007] 13

14 suspicion, after all, the Chinese built the Great Wall of China as protection against Mongol and Turkic tribes. China s westward expansion during the Qing conquest of modern Xinjiang in 1759 left a minority of Turkic Muslims in China s present-day Xingjiang province, and an underlying belief amongst many Chinese that parts of Tajikistan and Kazakhstan should today belong to them 39. Thus, issues like this mean that despite promising trade statistics between China and the region in more recent years 40, there is still an underlying caution that close relations with China will endanger independent development without the degree of benefit to make such a sacrifice worthwhile. The fact that Kyrgyzstan seceded 100,000 acres of mountainous Tien Shan land to China in 2000 is one such example of why the republics have concerns, especially since such land is used for Chinese military training. Furthermore, due to the Soviet legacy, Central Asian states have greater cultural and political ties to Russia due to Russified elites still ruling them, and perhaps most importantly, still possess a large ethnic Russian population 41. Maintaining close ties with Russia ensures that the republics ethnic Russian population is satisfied and quells latent nationalist sentiment. Essentially, the Central Asian states realise that if China were to be its primary partner, Central Asia would be giving away more than that which it would gain. Consequently, China has adopted a pragmatic approach to the Central Asian energy conundrum, 39 Cummings.S, Eurasian bridge or murky waters between east and west? Ideas, identity and output in Kazakhstan's foreign policy, Journal of Communist Studies and Transition Politics, Volume 19, Issue 3 (September 2003) p.142 pages Most trade however has focused on Kazakhstan. For example from 1992 to 1999 bilateral trade increased by a factor of 1.5, and it increased by a further factor of 5 from 1999 to Paramonov.V, China and Central Asia: Present and Future of Economic Relations, Conflict Studies Research Centre (May 2005) p. 6 [accessed 07/09/2007] 41 Ethnic Russian population estimates: Kazakhstan 28.7%, Kyrgyzstan 11%, Uzbekistan 5.5%, Turkmenistan 4%, Tajikistan 3.5%. Bureau of South and Central Asian Affairs (BSCAA) South and Central Asian Affairs: Countries and Other Areas, US Department of State (Feb 2007) [accessed 07/09/2007]. Repeated Reference: BSCAA 14

15 and this pragmatism has been largely illustrated through the Shanghai Co-operation Organisation formed in 2001 which has in turn lent weight to Russia s international politics. 15

16 Thus, what is the Shanghai Cooperation Organisation, and why are the Western Powers worried? The SCO is made up of six member states: Russia, China, and all Central Asian republics except Turkmenistan. Iran, Pakistan, and India are observers, and present at the SCO s most recent summit in August 2007 were the Afghan and Mongolian leaders, and Iran in particular is pursuing full membership. The SCO is used to discuss and strengthen regional economic and political ties, and the August 2007 summit was geared towards delivering the message that the world is bigger than the West, with the six members signing a treaty for multipolarity. Essentially the SCO keeps Central Asia within the grip of Moscow, as Russia and China lead the agenda with the former eclipsing the latter, and effectively using the SCO to secure aims agreed upon between Beijing and Moscow. The 2005 Sino-Russian joint statement makes this clear, outlining that "China and Russia will take the development of the SCO as a key link of diplomacy and continue to closely co-ordinate stances within the framework of the SCO 42. Alarmingly for the Western powers, these stances involve a superficial desire to strive to promote the multipolarization of the world and the establishment of a new international order 43 whilst in reality courting geostrategically important countries such as Iran and Afghanistan to gain greater weight in international affairs. 42 Sino-Russian Joint Statement, China, Russia sign joint statement, Chinese Government Official Web Portal (March 2006) [accessed 08/09/2007] 43 Xinhua, Text of Chinese-Russian Joint Statement, April 23, 1997, School of Pacific and Asian Studies (April 2007) [accessed 08/09/2007] 16

17 The SCO therefore facilitates plans between countries in the region that hinder Western strategies to expand its influence within it. For example, under the auspices of the SCO, economic projects such as the North-South corridor are given a better chance to flourish. This is dangerous for the Western powers, since it would involve a trade route linking India, Iran, and Russia increasing trade between all countries in the region, and would provide Central Asia with access to the huge Indian market and a shorter alternative to the Suez Canal trade route 44. Essentially, such plans provide an incentive for all countries involved in the region to forge greater economic and political ties with each other and Russia. Therefore, despite the Sino-Russian agenda appearing on paper to be a genuine attempt at balance in global politics, the fact that the SCO, based primarily on forging greater energy and economic ties, has developed from this agenda undermines that notion. As Kazakh President Nursultan Nazarbayev defined it, the SCO is effectively now an energy club 45, and this makes clear that support for the SCO s political agenda led by Russia is largely based on supporting each other to maintain this club, rather than a genuine desire for multipolarity. The SCO also organises joint military exercises for the armed forces of all its member countries. There are concerns amongst the international community that as a result the SCO heightens the prospect that China, Russia, India, and Iran would form a quasi-military alliance that includes most of oil-rich Central Asia 46. Although this is currently speculation, the joint military exercises organised by the SCO are an indication of how seriously its members take the organisation and 44 Peimani.H, Expanding Bilateral Ties Provide Economic, Geopolitical Benefits for China and Iran, Eurasianet (May ) 45 Nazarbayev qtd in: BBC News, Energy dominates Shanghai summit, BBC World (August 17,2007) 46 Pocha.J, Summit forges military ties in Central Asia, The Boston Globe (June 18, 2006) 17

18 its potential to enhance their global status. Essentially, such events illustrate that cooperation in all areas including defence and regional security are as Putin recently stated not the domain of outsiders, and make Central Asia a strategically important area that is off limits to Western input. As Putin explained at the August 2007 SCO summit, the SCO proves the effectiveness of a collective effort in counteracting current threats and challenges..broadening business and humanitarian cooperation there is no doubt the creative role of the SCO will only grow. 47 Leaders of the SCO member states also agreed that Washington should a set date for the withdrawal of troops from Kyrgyzstan, its last remaining military base in Central Asia. This was not an unexpected move considering Kyrgyzstan s continued refusal to allow its US air base to be used for strikes on Iran 48. Bilateral ties between Russia and Iran are furthered by the SCO, since it lends multilateral weight to support Russia s traditional energy alliance with Iran. Russia s support of Iran s civilian nuclear program and decision not to veto heavier action against Iran both within and in addition to those of the UN Security Council 49 has been coupled with Russia s controversial development of Iran s Bushehr reactor. This involvement allows spent Uranium to reside in Iran for ten years, since according to Russian nuclear scientists, safety regulations dictate that it must first be kept in a cooling pond for a minimum of 10 years 50. Thus, although Russia has laid conditions that the Uranium is to be shipped back to Russia, the required cooling period compliments Iran s 47 Salieva,N, Video Broadcast, Central Asia Flexes its Muscles on the World Stage, BBC World, (August 17,2007) 48 RFE/RL Newsline, Kyrgyzstan Won't Provide Base For Potential U.S. Strike, RFE/RL (24 May, 2007) 49 Donovan.J, Iran: As Tensions Rise, So Does Rhetoric, RFE/RL (28 September,2007) 50 Hanson.D, Russia's nuclear deception, American Thinker (June 03,2005) [accessed 10/09/2007] 18

19 plans to enrich Uranium on its own soil, and potentially allows enough time for the spent Uranium to be used in developing nuclear weapons. The fact that such possibilities have not ruptured the deal furthers Western concerns regarding the extent of Russia s commitment to ensuring such a situation does not arise 51. Iran s already questionable motives are furthered considering their rejection of an EU proposal differing only to Russia s in that it obligates Iran to return all spent Uranium within a shorter time-period 52. Effectively, deals of this kind are facilitated by the SCO, and make the organisation a substantial obstacle to successful US-EU foreign policy involving Iran. Essentially, the Shanghai Co-operation Organisation is bringing economically and geopolitically crucial countries closer multilaterally, and encouraging a collective strategy of anti-diversity with regards to energy transport and possible anti-co-operation with the Western powers politically. This is typical of, as Blank explains, Moscow s and Beijing s broader program to circumscribe US power in Asia and globally by creating organisations, networks, and bilateral or multilateral linkages that were inimical to American policy 53. The organisation provides incentives for Central Asia and its surrounding states to forge closer bilateral and multilateral ties with Russia and China, since the SCO provides a respectful platform in which Central Asia feels it is taken seriously, as opposed to the ignoring of the area by the Western powers. Iran, Pakistan, India, and Afghanistan are not yet full members however Iran in particular is courting the SCO for full membership. This furthers both the possibility of an anti-western approach to energy routes, and increases chances for better trade prospects between these countries that counter the 51 Reuters, Russia, Iran Deny Report Of Enrichment Ultimatum, RFE/RL (20 March,2007) 52 Reuters/AP, Iran Rejects Latest EU Nuclear Proposals, RFE/RL (6 August, 2005) 53 Blank.S, China in Central Asia: The Hegemon in Waiting? in Cohen.A (ed), Eurasia In Balance: The US And The Regional Power Shift (Burlington, 2005) p

20 West s use of a trade incentive as bargaining power in Central Asia. Essentially, the SCO is creating a policy environment that does not pose major obstacles to trade between the newly independent Central Asian countries and their southern neighbours 54 and this harms Western prospects of influencing the countries involved. Ultimately, the implications of the Shanghai Cooperation Organisation therefore encourage further imbalance of power over energy in favour of Russia and its alternative and possibly anti-western bloc of countries, and consequently a decrease in Western power over global politics and security. Chapter Two The Western Response: Rising Energy Insecurity and the Re-engagement of Central Asia This chapter will discuss the current extent of Western presence in Central Asia, obstacles to developing this presence, and policies that the Western powers are adopting to improve their position in the region. Ultimately, this chapter will evaluate the Western powers Central Asian strategy and gauge its success in attempting to counterbalance Russian energy primacy. The Current Western Presence in Central Asia In recent years the Western presence in Central Asia has been increasing in some capacities and decreasing in others. In terms of Western companies investing in business and industry we have 54 Pomfret.R, Central Asia turns south? : trade relations in transition (Washington D.C, 1999) p 29 20

21 seen a rise in activity, however in a political capacity there has not been any great breakthrough and militarily it is virtually non-existent 55. There are however promising signs that if nurtured correctly, could develop into a more significant presence in Central Asia for the Western Powers. In terms of economic investment, the presence of Western companies has been mainly concentrated in Central Asia s extractive industries. Turkmenistan and Uzbekistan remain largely off-limits to Western energy companies, with both undergoing a political shift towards Moscow, taking their energy priorities with them. One exception to this has been a recent invitation by Turkmen president Berdymukhammedov to American oil giant Chevron encouraging participation in oil extraction efforts beneath the Caspian, along with maintaining that there is still the possibility of a trans-caspian pipeline that bypasses Russia 56. However energy commitments to Russia 57 and China 58 make the possibility of the pipeline largely questionable, both in terms of Turkmenistan s geopolitical priorities and whether its natural gas reserves allow for the pipeline to be commercially viable. Thus, Western investment has focused particularly on Kazakhstan. Kazakhstan is the most liberalised of the Central Asian states, is most open to Western engagement, and therefore provides a more stable and attractive investment environment. Consequently, the United States holds the largest foreign direct 55 The US air base in Kyrgyzstan is the only remaining in Central Asia. See chapter one for details. 56 RFE/RL Newsline, Turkmenistan Invites U.S. Firm To Work In Energy Sector, RFE/RL (4 May, 2007) 57 Alexei Miller, Gazprom s chief executive, stated its Caspian pipeline project and restored Soviet pipelines will raise supplies of Turkmen gas to 80 billion cu m a year within the Russia-Turkmenistan contract until RIA Novosti, Russia, Kazakhstan, Turkmenistan agree on Caspian gas pipe, RIA World (12 May 2007) [accessed 10/09/2007] 58 For example, the recent pipeline deal between Turkmenistan and China. Xinhua, China, Turkmenistan Sign Natural-Gas Deal, RFE/RL (18 July, 2007) 21

22 investment (FDI) in Kazakhstan at 27 percent 59 and Britain the third largest at 14 percent 60, with this coming mainly from investment by American energy giants ChevronTexaco and ExxonMobil in the Tengiz oil field and British Gas in Karachaganak and Kashagan. It is apparent however that the type of investment occurring still does not leave the Western powers in control of their own energy destiny. As yet there are no Western-Kazakh energy deals concerning alternative routes that dismantle Russia s monopoly on energy distribution. The closest development to this was the 2001 Caspian Pipeline Consortium, as this broke the Russian monopoly on Central Asian energy to a degree. The consortium is between Kazakhstan, Russia and Oman, however due to Oman s involvement there are Western oil companies also involved. Thus there is a diverse group with interests in this pipeline. However, the fact that the route of the pipeline still involves the export of Kazakh oil via the Russian port of Novorossiysk makes it less significant in terms of Central Asian energy diversification, and conversely some analysts actually view the CPC as dangerous. According to the Jamestown Foundation Moscow is setting extortionate conditions regarding the operation [and] transit tariffs of the CPC 61 and this allows substantial leverage over the Western oil companies involved. In addition to this, the Russian companies involved in the CPC development are either state-owned or are closely aligned with the state, and according to Russian sources, state-owned Transneft could possibly take over management of Russia s 24 percent stake in the pipeline 62. This could allow possible 59 BSCAA (repeated ref) 60 Country Profile, Kazakhstan, Foreign and Commonwealth Office (August 2007) pagename=openmarket/xcelerate/showpage&c=page&cid= &a=kcountryprofile&aid= [accessed 10/09/2007] 61 Socor.V, Kazakhstan Output and Export Date Dramatise Need for Trans-Caspian Outlets, The Jamestown Foundation (January 2007) 62 Torbakov.I, Russian Energy Monopolies March Toward Hydrocarbons Empire The Jamestown Foundation (July 2006) 22

23 moves to expand Russia s stake in the CPC, and combined with Russian calls to make the CPC bilateral between itself and Kazakhstan 63, this is a tangible concern. Essentially, the CPC is an important development in that it is the first Central Asian oil transport route not completely under the control of Transneft, however the direction in which it is currently developing is far from solving the West s problem of the Russian energy monopoly. Economic organisations such as The European Bank for Reconstruction and Development (EBRD) and the International Monetary Fund (IMF) are another source of Western presence in Central Asia, and both provide an opportunity for the Western powers current foothold in the region to become substantial. The EBRD has focused largely on Kazakhstan and Kyrgyzstan, the two most liberal of the Central Asian republics. Unlike the majority of Western investors in the region, the EBRD has aimed to diversify investment away from oil and gas. It has instead focused largely on telecommunications, modernisation in industry, regional energy transport via investment in transmission lines, as well as banking initiatives to encourage the growth of private business. For example, the EBRD finances the Silk Road Fund for Central Asian development to encourage private sector growth within the framework of international standards, and investment in the program totalled US$ 15 million in 1997, and is prospected to rise to reach a maximum of US$ 100 million 64. The EBRD is also providing Bai Tushum, one of the leading micro finance institutions in the Kyrgyz Republic, with a US$ 1 million guarantee in order to receive local currency loans from Kyrgyz banks. Bai Tushum will use the loans for on-lending to local micro and small enterprises, thus giving easier access to finance for entrepreneurial individuals 65. There 63 Marten.K (repeated ref) 64 Feller.G, Serious Western Investment Finally Flowing Into Central Asian Republics, Washington Report on Middle Eastern Affairs (March 1997) pp Project Summary Documents, Projects in the Kyrgyz Republic, European Bank For Reconstruction and Development (2006) [accessed 10/09/2007] 23

24 are similar programs in Kazakhstan. These types of investments are designed to encourage the development of transparency in business and banking in Central Asia, and take steps towards removing the climate of corruption that the region currently suffers 66. Loans and economic advice have been offered by the International Monetary Fund much to the same end, and in particular to Kyrgyzstan. However, Kyrgyzstan s adoption of IMF currency recommendations caused volatile relations between Kyrgyzstan and Uzbekistan (as mentioned in Chapter one) and is an indication of the type of regional tensions that choosing advice from outside the region can cause. In turn, this discourages development along international transparency standards, and undermines the Western presence in Central Asia. The presence of the Organization for Security and Co-operation in Europe (OSCE), along with various programs and bilateral agreements between the Western powers and Central Asian states, forms the Western powers main bid to gain political, and with it energy, influence within the region. The OSCE presence in Kazakhstan in particular is of key significance, since Kazakhstan wants to obtain the 2009 rotating chairmanship of the OSCE 67. This gives the Western powers an opportunity to build transparency and democratic reform in the region using the chairmanship as an incentive, and with it an increased chance of encouraging Kazakhstan towards a Western orbit of influence. The OSCE and Western governments need to be careful however regarding the extent to which they use the chairmanship to push for influence and reform, since this has the potential to backfire by effectively asking too much of Kazakhstan and pushing the republic into the arms of Russia. Indications of this have already surfaced, with its government accusing 66 Freedom House reports corruption is at its highest level in Kazakhstan s extractive industry. Dave.B, Country Report: Kazakhstan Freedom House (2005) 67 Eurasia Insight, Kazakhstan: Astana Seeks OSCE Rotating Chairmanship 2009, Eurasianet (November 2005) 24

25 the OSCE of being selective and prejudiced 68 and complaining that the organisation seems now to consider that there is a group of states which appear to be infallible and another group of states constantly which is falling under suspicion 69. As Mohammad-Reza explains the [Kazakh] government reacted angrily to what it considered the use of the OSCE as an instrument of political pressure 70. Thus, even through organisations which seek to promote Central Asia s political and economic integration with Europe the Western powers struggle to find a solid presence. 68 Mohammed-Reza.D, New Foreign Policies for New States: Transcaucasia and Central Asia in Sabahi.F & Werner.D (eds), The OSCE and the Multiple Challenges of Transition : the Caucasus and Central Asia (Burlington, 2003) p.9 69 ibid 70 ibid 25

26 Programs and bilateral initiatives between the Western powers and the Central Asian republics have focused on dialogue concerning energy, and an agenda based on realising a wider package of political and economic development that has the central goal of obtaining greater influence over the region s oil and gas. EU initiatives toward the newly independent states include the EU Partnership and co-operation Agreements (PCA), EU Technical Assistance Programmes (TACIS), European Energy Charter and Treaty, and interstate Oil and Gas Transport to Europe (INOGATE). These programs, particularly INOGATE, were designed to create opportunities to exploit and export energy, which would promote economic development and political independence 71. Despite these programs we have no evidence of real progress in this capacity as having been made, and conversely, as discussed in chapter one a strengthened Russian primacy has still managed to emerge. The majority of bilateral agreements have thus far focused on Kazakhstan, and have concentrated on economics as opposed to politics and strengthening ties as a whole. For example, the UK-Kazakhstan Memorandum of Understanding (MOU) on Energy Issues signed in 2005, as its name suggests, is largely concerned with energy in isolation. The United States have also adopted a similar approach, with a U.S.-Kazakhstan Bilateral Investment Treaty and a Treaty on the Avoidance of Dual Taxation having been in place since 1994 and 1996 respectively, as well as establishing the U.S.-Kazakhstan Energy Partnership in Both the UK and US have stated that they are satisfied with the progress such initiatives have made in the region. At the 6th Annual Kazakhstan Oil and Gas Conference in 2006, Malcolm Wicks MP, Minister of State for Energy, stated that he was delighted to note that the MOU has generated 71 Dekmejian.R & Simonian.H, Troubled Waters : the geopolitics of the Caspian Region (London, 2001) p

27 much productive work from both sides 72 and has provided a platform for engagement on a range of topics including energy strategy 73. The conference suggested that the UK has been making headway with regards to building business partnerships between itself and Kazakhstan, citing The British Trade Office in Atyrau in particular as having facilitated closer work with operators in the country, and particularly Agip KCO. Similarly, the US says the bilateral relationship [with Kazakhstan] has witnessed a surge in activity in recent months [2007] 74. However the fact that the UK and US still do not have any substantial energy diversification agreements reduces the significance of such platforms and bilateral ties, since their impact has not caused tangible change. Additionally, the UK cited climate change and environmental issues as of particular importance 75 with regards to Kazakhstan. This is a potential obstacle to greater Western energy presence, especially when coupled with attempts to use World Trade Organisation (WTO) membership as an incentive for change 76 bearing in mind Kazakhstan s reaction to the OSCE s similar carrot dangling strategy. Signs of this have already emerged, as on August 27 th Kazakhstan suspended work at the Kashagan oilfield, officially citing environmental issues as the reason 77. However considering Kazakhstan s close relations with less than environmentally conscious Russia and China, securing higher profits and an increased stake in the project seem more likely motivations. Furthermore, the Kazakh Emergency Ministry stated 72 Wicks.Malcom MP, 6th Annual Kazakhstan Oil and Gas Conference, Department for Business, Enterprise and Regulatory Reform (2006) [accessed 10/09/2007] Repeated Ref: Wicks.M 73 ibid 74 BSCAA (repeated ref) 75 Wicks.M 76 ibid 77 Nurshayeva.R, Kazakhstan halts Kashagan oilfield, Reuters UK (27 August,2007) 27

28 it was suing Kashagan operators due to violations of fire safety rules, and that it would seek to halt construction of further developments in Kashagan 78. The Kazakh Finance Ministry also added further fuel to the fire, as its customs committee claimed to have found customs violations at Kashagan and was opening a criminal case against unidentified consortium officials. The ministry stated "The actions by a number of officials at the AgipKCO branch contain criminal activity... that is, evasion of significant customs payments," 79 and added that it had found other "serious violations" 80. Thus, the Western powers are evidently far from any type of presence in Central Asia that rivals Russia s domination. Undemocratic Regimes and Human Rights Issues in Central Asia: Further Obstacles to Engagement? The Western powers have been further hindered in their attempt to rival Russia s Central Asian primacy by trying to balance promoting good governance in an almost-dictatorial environment whilst attempting to substantially increase Western energy prospects within it. The core aspect of this problem lies in that the central theme running throughout the Western powers foreign policy agendas has been that the fundamental goal of their respective foreign policies is to spread democracy and good governance throughout the World. Irrespective of whether or not one agrees with the authenticity of such claims, this nonetheless has at least superficially continued to form the cornerstone of modern day Western foreign policy, with various examples such as the Vietnam War and Iraq. Extending this foreign policy approach to a 78 ibid 79 ibid 80 ibid 28

29 largely authoritarian Central Asia is proving detrimental to the Western powers and their attempts to negotiate successful energy diversification strategies within it. For example, Western relations with Uzbekistan, the most authoritarian of the republics, have particularly suffered due to human rights issues. The EBRD decreased its funding and support of financial programs in the country at the urging of human rights activists in 2004, and this resulted in Uzbek premier, Islam Karimov, blasting Western NGOs and particularly the Open Society Institute (OSI), for allegedly spreading false information regarding human rights abuses 81. The OSI, which is believed in Central Asia to have assisted the rose revolution in Georgia, was then expelled from Uzbekistan, and alongside this, Freedom House received threats of expulsion. This subsequently caused a greater downturn in relations, as in response the US State Department announced that up to $18 million of the 2004 aid appropriation for Uzbekistan would be negatively affected 82. The Western powers reaction to the human rights violations that occurred during the 2005 Andijon massacre in Uzbekistan caused further substantial deterioration in relations between the countries. Western condemnation of the way in which the Uzbek authorities handled Andijon, their calls for an independent investigation into the events, and the placing of sanctions on Uzbekistan in response to the republic s rejection of the independent investigation provoked a harsh Uzbek response. It essentially resulted in the costly loss of both a strategic relationship and U.S. access to the Karshi Khanabad air base in Uzbekistan, as well as the closure of NGOs including high profile Human Rights Watch Spechler.M & Spechler.D, Conflict and Cooperation in Central Asia after 9/11 in Cohen.A (ed), Eurasia In Balance: The US And The Regional Power Shift (Burlington, 2005) p ibid 83 O Rourke.B, Uzbekistan: International Community Grapples With Unrepentant Tashkent, RFE/RL (11 May, 2007) 29

30 Effectively, Uzbekistan has sent a clear signal that any interference in Uzbek domestic affairs will not be taken lightly. The fact that Germany (the current chair of the EU) successfully pushed for relaxing sanctions on Uzbekistan in May 2007 hoping to restore relations between Tashkent and the West 84 illustrates the extent to which the West realises the danger of pushing for reform. Uzbekistan s message has been reiterated, if to a somewhat lesser degree, by Kazakhstan s president Nazarbayev. At a Kazakhstan Civic Party meeting in November 2006, Nazarbayev stated that Kazakhstan is no longer a state that can be ordered about We [Kazakhstan] shouldn t run after foreign recommendations with our pants down 85. Nazarbayev also justified dictatorial policies at the meeting. He explained that Mr. Lee Kuan Yu [Singapore's first prime minister] there was always criticism addressed to him about dictatorship, and pressure on parties he said if one reacts to every criticism and runs to fulfil the proposals then it's impossible to get anything done. Our chief interest should be the people and Kazakhstan, the rest is crap 86. This coincides with a shift in public attitude towards politics in Kazakhstan, with many ordinary Kazakhs reaching the consensus that "We [Kazakhs] are not into politics all we care about is how to make money and improve our living standards" 87. Thus it is clear that there are boundaries to relations between Kazakhstan and the West that cannot be crossed, and even the lure of chairing the OSCE or indeed the prospect of increased Western investment will not be enough facilitate change. 84 RFE/RL Newsline, Uzbekistan: German Push Leads EU To Ease Sanctions RFE/RL (May 14,2007) 85 Pannier.B, Kazakhstan: President Tells West -- We Don't Need Your Advice, RFE/RL (15 Nov,2006) 86 ibid 87 Najibullah.F, Kazakhstan: As Economy Booms, People Care Less About Politics, RFE/RL (15 June,2007) 30

31 The Western realisation that accepting authoritarian conditions is key to gaining a greater energy stake in Central Asia is illustrated further by the United States response to Kazakhstan s recent reforms granting President Nazarbayev lifelong presidency. Despite the obvious dictatorial nature of this change, the US have maintained that the reforms as a whole are a good step forward 88 and an indication that Kazakhstan wants to be involved with the international community. However the implementation of lifelong presidency makes clear that the desire is not simply to be involved in the international community, but to be involved only on Kazakhstan s own terms, and essentially without outside interference in domestic affairs. Thus effectively, this shows a shift towards a concessionary attitude by the Western powers, and an understanding that greater acceptance of undemocratic regimes are needed to form closer energy ties with Central Asia. Western non-state investors have in the past also been hesitant to pursue the region due to human rights abuses, lack of transparency, and undemocratic practices undermining stability in the region, however the Western powers shift in attitude towards accepting these conditions in Central Asia has subsequently been mirrored by investors. The presence of the aforementioned factors has meant that Central Asian energy investment involves significant operational 89 and political risk that Western investors generally have not been willing to take. The impact of this, according to Neil McFarlane, has been generally unimpressive FDI when compared with other FSU regions such as Central Europe 90. Although this is indeed true, it is somewhat misleading to 88 Golovnina.M, Kazakh president signs office-for-life amendments, Reuters (22 May 2007) 89 Operational risk includes any non-market/non-credit related risk. System breakdowns, employee fraud, and infrastructure failure are examples of operational risk. 90 Macfarlane.N, Western Engagement in the Caucasus and Central Asia (London, 1999) p40 31

32 compare the two regions as a whole. Firstly, to do so ignores the context under which FDI operates in Central Asia, and more specifically, that some republics are more liberal and open to Western investment than others, and secondly, we should note that within more risk-ridden countries companies will still tow home-government strategic lines 91. A more productive approach to gauging the effects of risk on Western energy investment in the region therefore would be to compare the FDI inflow of Kazakhstan, the most liberalised of the Central Asian republics, with that of one Central European country experiencing significant growth. Subsequently, the picture becomes less negative as FDI inflows into Poland and Kazakhstan in 2006 reached US $13.9bn 92 and US $10.4bn 93 respectively. Thus, Kazakhstan was not far behind. Effectively, this illustrates that the Western powers have heeded Kazakhstan s warning that a decline in Western investments could force Kazakhstan to turn to the East 94 giving priority to a pipeline to China and increasing oil swaps with Iran, and have done so without substantial moves towards achieving tangible democratic reform. Thus, the Western powers are evidently attempting to strike a balance between appearing to be concerned with human rights and political issues to maintain at least superficial foreign policy consistency, whilst pursuing energy policy in the region that is contradictory to it. How long they can maintain this is however questionable. Evaluating the Current Western Strategy towards Central Asian Energy 91 For example, Western investment in Iraq s post-war redevelopment. 92 Economist Intelligence Unit ViewsWire, Foreign investment in Eastern Europe may be at a peak, The Economist (25 June, 2007) 93 Press Release No. L/22/2007/CS63/15, At the Crossroads between Asia and Europe: Harnessing the Possibilities of Central Asia, Asia-Pacific Business Forum 2007 (May 2007) [accessed 11/09/2007] 94 Cohen.A, Caspian Energy Projects Coming to Grips with Iraq War, CACI Analyst (2 July 2003) 32

33 Essentially, the Western powers strategy for energy security in Central Asia appears at worst to be confused and contradictory, and at best merely inconsistent. This is evidently because there are two strategies at work here: one that is official and one that is not. As a result, the two have become intertwined and formed an agenda that attempts to achieve everything, but in reality is largely achieving nothing in the long-term. The Western powers are neither completely abandoning their reform agenda in the region to concentrate on strengthening energy ties, nor taking a hard-line approach to improve regime stability and facilitate an independent Central Asia that actively seeks to remove Russia s energy monopoly. The Western powers have also exclusively pursued bilateral economic relationships, and have continued to ignore a multilateral approach to Central Asia that has proved so successful for Russia and China within the context of the SCO. The initiatives they have introduced have thus not had the desired impact, as better prospects still come from Russia, China, and the platform of the SCO. The conflict between accepting the authoritarian climate in Central Asia and pushing for change has meant that American and British companies have continued to invest large sums in the extractive industry without being reigned in by their governments. This continued flow of Western sourced revenue into Central Asia further undermines Western state actors attempts to encourage reform and a long-term reorientation towards strong partnerships with the Western powers. For example, the financial aid and assistance that buttresses Western government programs for Central Asian development along democratic lines comes nowhere near to the amount of revenue generated by oil and gas deals of its private companies. For example, collective EU assistance to Central Asia up to 1999 was equal to just one-fortieth of Chevron s 33

34 investment in Kazakhstan, and one-twenty-fifth of investment by British Gas 95. Thus, currently even the financial incentives for change have been removed by this conflicting approach to energy by the Western powers. Encouraging private enterprise along non-corrupt lines has been a move with correct intentions however it has not had a chance to make any great impact since it has also been undermined by the erratic reactions to Central Asian pressure regarding interference in its domestic affairs by the Western powers as outlined above. Investment via organisations such as the EBRD, IMF, and World Bank has provided an opportunity for practical and lucrative ways of positively creating a transparent business environment in Central Asia. However its impact has been reduced by Western governments inconsistency and unwillingness, and perhaps inability, to follow through in Central Asia with tangible support. Essentially, these conflicting approaches are sending mixed messages to Central Asia: that on the one hand reform is a necessary part of Central Asian economic development, yet on the other Central Asia can attract and generate revenue within corrupt and undemocratic systems. Ultimately, the Western powers strategy in Central Asia is presently a non-strategy 96. They have been caught between pursuing a long-term agenda for change whilst carrying out short-term actions in an attempt to appease Central Asian leaders and resolve energy insecurity. Conversely this has resulted in achieving neither goals and has allowed Russia to maintain influence over Central Asian energy resources. 95 Macfarlane,N, The Caucuses and Central Asia: towards a non-strategy in Dannreuther.R (ed), European Union Foreign and Security Policy: Towards a Neighbourhood Strategy (London 2004) p ibid 34

35 Chapter Three Prospects for Redressing the Central Asian Energy Imbalance 35

36 This chapter will discuss current and future possibilities for rectifying Russia s monopoly on energy transportation from Central Asia to western markets. It will look at changes in Western strategy and its possible effects, alternative routes of transportation, and consider factors that could facilitate the Western Powers in counteracting Russian influence over distribution of Central Asian Energy. The European Union and United States: New Strategies for Central Asia In contrast to the EU-Central Asia Strategy Paper, the 2007 strategy involves a much broader agenda for the region, and most importantly, does not as previously focus as largely on energy in isolation. There were several encouraging proposals unveiled in The EU and Central Asia: Strategy for a New Partnership released in June According to the paper, the EC s assistance budget to Central Asia will be increased to 750 million over the 6 year period 97 as compared to that of which was just 200 million over 4 years 98. This indicates a decision to aim for consistency within policy and greater support of outlined initiatives within areas such as education, as well as tackling customs issues to facilitate better trade and resolve other border-related concerns such as corruption and the crime-fuelling problem of drug and people trafficking. For example, 30 percent of the funding will be used for tangible regional projects in the new strategy such as furthering the EU Border Management 97 The Permanent Representatives Committee, The EU and Central Asia: Strategy for a New Partnership, Council of the European Union (31 May 2007) p.19 [accessed 15/09/2007] Repeated Ref: EU Strategy Paper EU External Relations, Strategy Paper for Central Asia, European Commission (30 Oct 2002) pp

37 Programme for Central Asia (BOMCA) and the installation of a regional anti-drugs centre (CARICC) 99. EU support for the removal of trade barriers between Central Asia and Europe as well as continued support for WTO accession for the Central Asian states which are not yet members is another important part of the new EU strategy. This is one of its most promising aspects, as it genuinely encourages a long-term solution to the Central Asian issue since it concentrates on establishing better economic relations in all aspects of trade as opposed to a one-dimensional energy interest in the region. The terms aim to be both profitable for all parties involved as well as to fully meet WTO requirements. As a result, The EU will continue to cooperate with Central Asian States in order to improve access for Central Asian products to EU markets 100, which is a substantially lucrative opportunity for the republics. The strategy also involves working closely with organisation such as the EBRD and IMF to compliment the EU trade-initiative with credit schemes to improve transparency in business and growth of the private sector. Thus, if successfully pursued, together this will be an incentive for Central Asian states to diversify their economies, particularly energy transportation, on the basis of the market access advantages offered by the EU 101. America s latest Central Asian foreign policy agenda largely mirrors the EU strategy in that it focuses on improving regional conditions as a whole with the intention of promoting better economic and energy relations between itself and Central Asia. The US stated that it will devote 99 EU Strategy Paper 2007 p ibid 101 ibid 37

38 significant resources 102 to education programs in Central Asia and that education to encourage democracy is its strongest foreign policy tool in the region 103. Although the US strategy has no detailed programs and initiatives and many sweeping statements, these statements show more genuine interest than previously. A particularly promising statement is America s aim to generate long-term stability through regional cooperation in energy, trade, and communications 104. It emphasises that it will do so through offering technical assistance and expertise, and implicitly makes the point that such assistance can make technically challenging alternative pipeline routes much easier and in turn generate much greater revenue by making energy prices competitive and forcing Russia to improve upon that which it currently pays the Petrostates for their resources. Such prospects have the potential to re-orientate Central Asia s current approach to energy partnerships in favour of the West. The US also included Kyrgyzstan and Tajikistan, the two republics without hydrocarbon resources, in their strategy and point out ways in which they hope to increase the wealth of these countries. This further reinforces a change in attitude and commitment towards the region which promotes regional balance and motivates potential change towards a Central Asia that is politically and economically independent of Russia. Ultimately, whether the changes in strategy and increases in funding will indeed be enough to balance incentives in favour of reform remains to be seen, but the shift in attitude towards the region by the Western powers is at least an indication of steps towards real EU and US commitment to a long-term strategy of engaging Central Asia. The fact that within the new 102 US Department of State, US Foreign Policy in the 21 st Century, Bureau of International Information Programs (Sep 2006) p.29 [accessed 13/09/2007] 103 ibid p ibid p.29 38

39 strategies lies an increasingly multilateral approach to the region is another positive sign, as is the willingness of the EU to open dialogue with Central Asia through platforms such as the SCO, outlined in its June 2007 strategy, and essentially its recognition that it cannot attempt to replace already-established instruments but instead use them to its advantage. It is also important to note that neither the US or EU strategy mention energy and in its core objectives, which adds weight to a more rounded approach that has more chance of rectifying energy imbalances through establishing a truly independent Central Asia. Essentially however, the success of these aims will depend on the West s commitment to securing their realisation, and effectively whether the Western powers possess the type of patience needed to shape Central Asia towards an area welcoming and able to create partnerships with them. Doubts over this have already become apparent, and the Western powers previous non-strategy is seemingly unchanged when we consider that despite the new 2007 EU Central Asian strategy involving an EU Rule of Law Initiative and aims of establishing a regular, result-oriented Human Rights Dialogue 105 with the Central Asian States, we still have instances to the contrary such as the relaxation of EU sanctions on Uzbekistan in the same year, and Kazakhstan still receiving German backing for the chairmanship of the OSCE. Overall, the new Western strategy is seemingly designed to show a greater interest in Central Asia through building trust via projects that are not just energy based, and if this is followed through, it has the potential to motivate Central Asia towards political and economic 105 EU Strategy Paper 2007 p.3 39

40 independence from Russia, and effectively, energy partnerships that break Russia s current monopoly. Future Diversification of Energy Export Routes As established, none of the Central Asian petrostates have energy transport routes that reach western markets without the involvement of the Russian pipeline system. However in June 2006 Kazakhstan signed a treaty with Azerbaijan to support and facilitate transportation of oil across the Caspian and on to international markets through the Baku-Tbilisi-Ceyhan (BTC) pipeline system. This treaty is promising, as although the BTC is according to analysts such as Hooman Peimani very long and expensive 106, it remains a tangible illustration of Kazakhstan s intent to develop multiple oil export routes. In addition, Turkmenistan s hesitancy to completely reject plans for a trans-caspian gas pipeline (TCP) shows it is at least a considering energy transport diversification possibilities. The Turkmenistan-Afghanistan-Pakistan Natural-Gas Pipeline Project (TAP) is also a potential development that could see Turkmen gas bypass Russia and reach international markets via Karachi s sea-port. The project has been under discussion since 1991 however a breakthrough occurred in 2005 when the pipeline was deemed economically viable as India agreed to be a market for the gas. The route has since been delayed due to security risks as it would run through unstable Afghanistan and specifically an area currently held by the Taliban. Talks however have 106 Peimani.H, The Caspian pipeline dilemma : political games and economic losses (Conneticut, 2001) pp

41 recently resurfaced, and on July 5, 2007 Turkmenistan said it is still interested in the project and would be ready to ship 30 billion cubic meters of gas annually through the pipeline. Additionally, an agreement between Iran and Turkey to transport 30 bcm of Turkmen gas to Europe was made on July The agreement would see the Korpezhe-Kurt Kui pipeline from Turkmenistan to Iran linked to the Nabucco 108 pipeline due to be operational by This extension could ease European reliance upon Russia for gas, however whether it will go ahead remains uncertain due to US sanctions on Iran, as well as general unwillingness to support Iran s natural gas sector. The fact that the agreement could work in the West s favour by offsetting potential energy alliances between Russia and Iran via the SCO should be taken into account however when making a decision, and thus makes this still a viable option. Another possible alternative is taking advantage of oil swaps between Iran and the Central Asian states. Iran already cut the cost of these swaps in 2000 to give Iran the upper hand in competing with political alternatives for the export of Caspian crude 109. Although originally designed to deter oil companies away from the BTC, it could be exploited as another means to disrupt closer relations between Iran and Russia whilst gaining energy from another source. This however runs the risk of increasing Iran s political leverage, thus could likely only be pursued if foreign relations with the West improve considerably. 107 News Briefing Central Asia, Turkey and Iran Fuel Europe s Energy Hopes, IWPR (23 July,2007) [accessed 12/09/2007] 108 The Nabucco pipeline will connect the Caspian region with Europe via Turkey onwards to Bulgaria, Romania, Hungary, Austria and Central and Western Europe. 109 Freedman.R, Russia and Iran since 9/11' in Cohen.A (ed), Eurasia In Balance: The US And The Regional Power Shift (Burlington, 2005) p

42 Cracks in the Sino-Russian Relationship Despite a current strong partnership between Russia and China in the Central Asia, there is evidence to the contrary illustrating Chinese insecurity regarding its energy relationship with Russia that could potentially weaken Russia s hold over the region and undermine its political weight. There is evidence that China is looking to slowly diversify its energy supply reliance away from Russia, effectively buying time for this through engaging in a political and economic alliance with Russia. A direct gas pipeline from Turkmenistan to China and the attempt to bypass Russia via the Komkol oil route from Kazakhstan to China signifies this. The Turkmenistan-China gas pipeline confirmed in July 2007 is of particular significance as it was seemingly a reaction to unsuccessful 2006 gas deal discussions with Russia. The Russian gas deal was due to involve receiving gas from the Kovykta field, however Russian stalling and feasibility studies created a more expensive new proposal involving the construction of two separate pipelines from Western and Eastern Siberia, and destroyed any possibility for China to receive gas from the Kovykta field that had previously been designated for that purpose 110. Although a deal has now been agreed between the two, China has to wait several years for gas from Russia. Thus, the deal with Turkmenistan indicates both that China will not accept Russia taking advantage of its position in Central Asia to increase prospected project costs, and that China will actively pursue access to gas and oil fields to guarantee a stake in pipelines and ensure this. Furthermore, China is also already attempting greater energy self-sufficiency via building new nuclear power plants and 110 Blank.S, Turkmenistan Completes China s Triple Play in Energy, The Jamestown Foundation (10 May,2006) 42

43 seeking to revamp its energy bureaucracy to successfully enforce energy policy that reduces its consumption. There is also possible conflict over energy prices between Russia and China and the Central Asian states. China wants long-term contracts at prices below those of the global market, and this desire has helped stall energy deals with Russia and could interfere with Central Asian deals in the future 111. The West could take advantage of this issue by offering Central Asian states better prices for their energy which in turn would force Moscow into paying higher prices and allow China to agree prices that are suitable for its budget. This could potentially isolate Russia and draw China and Central away from their partnerships with Russia. Thus, although various Sino-Russian joint statements (discussed in previous chapters) strongly pledge greater cooperation in political, regional, and economic affairs via the SCO, the reality of such pledges are evidently not so strong. Essentially, the partnership between Russia and China is not as stable as one may think, and implies that the Western powers should be concerned with creating better economic ties with China to further the cracks. A drift in this partnership would undermine the weight of the SCO and possibly open Central Asia to a foreign policy more independent of Moscow. Energy Balance in Perspective 111 ibid 43

44 Overall, there is evidently some possibility for energy diversification. However under the everchanging political climate and nature of relations between all countries and actors involved it is impossible to conclusively say whether or not balance can be achieved. The Western powers new strategies towards Central Asia do show promise, but have not been in place long enough to judge whether they are making significant inroads. There are clearly areas in which if carefully handled, the Western powers could gain energy advantages. Conclusion How worried should the Western Powers truly be? On October , former British Prime Minister Tony Blair warned that in the future, energy security will be almost as important as defence, and having considered the dynamics between Central Asia, Russia and the Western powers, it is evident that he was right. Amidst a 44

45 conflicting energy climate of growing demand and decreasing supply, global energy security at present is a priority and will only become more-so in the future. Effectively, the struggle for oil and gas will be a defining feature of the 21 st century, and because of this, diffusing the Russian monopoly over Central Asian energy before it becomes an issue of security should indeed be paramount. The Western powers do currently have a foothold in Central Asia through organisations such the OSCE, EBRD, IMF and World Bank as well as EU and US government initiatives that encourage cooperation to an extent. However, can we say this foothold extends to the Western powers as a bloc wishing to share the spoils of Central Asian energy resources? The answer to this at present is simply, no. They have essentially been caught napping and have been outflanked by Russia whilst distracted by foreign policy goals in the Middle East. It is also apparent that the task of the USA, Britain, and Germany is made even harder by this current Middle Eastern foreign policy that uses ideas of good governance and democratisation as policy tools in international relations. Since Central Asia has entered the picture, we have seen this approach increasingly discarded in order to achieve energy aims in the region. Thus, the Western powers find themselves between a rock and a hard place: On the one hand promoting democratisation of the Middle East, yet ignoring bad governance in Central Asia. Because they cannot ignore bad governance outright, yet also do not have the resources to support the kind of meaningful engagement with Central Asia that encourages its political and economic independence, Central Asia is pushed further towards of Russia, a country almost dictatorial in itself. 45

46 It ought though to be pointed out that the Western powers concern over Russian influence in Central Asia should not be disproportionate to the current threat that it poses, and instead must be recognised, kept aware of, and worked upon to ensure a positive outcome before it becomes a tangible problem. Ultimately, the Western powers need to seize the window of opportunity that Central Asia presents and make energy diversification a reality. This however, is a reality that conflicts with Russian energy dreams, and essentially makes the politics of energy in Central Asia an issue of Russia Vs the Western powers. Appendix A Map of Eurasia 46

47 Source: Center for Slavic, Eurasian, and East European Studies Appendix B 47

48 Map of Current and Proposed Central Asian Oil and Gas Pipelines* Source: Foreign Military Studies Office, 2001 * Baku-Tblisi-Ceyhan route is now operational 48