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Europe's Divorce With Russia's Gazprom: Will Central Asia Pay The Price?

Article illustrative image Partner logo Gazprom's barrel of discontent

ALMATY - The sharp rise in tensions between the European Commission and Russian oil giant Gazprom is worrying the central Asian nations of Kazakhstan, Turkmenistan and Uzbekistan, which are highly dependent on their gas and oil exports to the EU.

"The relationship between Europe and Russia, in regards to energy, is similar to that of a couple; if the two parties break up, everyone suffers. Producers go one way and clients the other," said former Kazakhstan Deputy Natural Resources Minister Pyotr Svoik, at a recent energy conference in Vilnius, Lithuania.

that welcomed representatives from Kazakhstan and the two other major exporting countries in the region, Turkmenistan and Uzbekistan.

By far the most powerful economic country in central Asia, receiving 80% of foreign investment in the region, Kazakhstan is being courted by the EU, which is the country's biggest client for oil (the country produces very little gas, compared to its two neighbors), the revenue of which represents 40% of the national budget.

In 2005, the unveiling of a new export route for this Kazakh black gold - which is mainly transported by tankers across the Caspian Sea to the Baku-Tbilisi-Ceyhan (BTC) pipeline - has allowed the Kazakh government to stop being so dependent on Russian pipelines that run through the north of the Caspian Sea.

In theory, Kazakhstan, which is anxiously trying to affirm its autonomy from Moscow since the break-up of the Soviet Union, should rejoice in the news that the EU has just launched an anti-trust investigation on Gazprom and on the Kremlin's manipulation of the energy industry. The affair has become so important that Vladimir Putin himself has made it his own private business, while EU specialists have been rushed to the Kazakhstan capital of Astana and the country’s largest city, Almaty, to explain the Commission's position.

New contracts

Nigmet Ibaldibin, an academic specializing in energy issues in Almaty, explains the impact that this legal and political battle between Moscow and Brussels will have on central Asia: "Kazakhstan's priority is no longer to keep Russia at a distance, but to renegotiate possibly lucrative contracts that were previously granted to Western oil companies in the 1990s, in order to exploit the three biggest deposits in the Caspian Sea basin: Tengiz, Kashagan and Karachaganak. Yet, the fear is that the power struggle underway with Gazprom serves as a pretext for the EU to sidestep this issue."

KazMunaiGaz, Kazakhstan’s state oil and gas company, has started to increase its participation in the three consortiums over the past few years. At Tengiz, it is negotiating with American Chevron and the Anglo-Dutch company Shell. At Kashagan, a colossal offshore deposit that was discovered in the 1990s, French Total and Italian ENI are in control. At Karachaganak, at the Russian border, KazMunaiGaz is negotiating with ENI, Chevron and Russian Lukoil. These new shareholders are demanding more stable relations with Russia, through which three quarters of Kazakh oil exports pass.

In terms of politics, the authoritarian regime of the incredibly wealthy Nursultan Nazarbayev - whose son-in-law Timur Kulibayev is being accused of money laundering in Geneva - fears that the European investigation into Gazprom will incite Brussels to further inspect the practices of central Asian oil companies. After the violent repression of strikers in the petrol industry in December 2011, this is surely not a good omen for the Kazakh government. The same goes for the dictatorship of the Uzbek President Islam Karimov and for Turkmenistan, a real "black hole" in terms of human rights and transparency of gas prices.

China’s increasing role

In terms of strategy, Kazakhstan fears that a new energy crisis between Moscow (its major partner for transport and refinery) and Brussels (its major client) will play into the hands of China. Pyotr Svoik explains that China has "fabulously played" the two entities against each other; first, by taking control of small Kazakh oil concessions over the past 20 years, and then by obtaining the rights to construct a pipeline measuring 2,230 kilometers that runs from the Caspian Sea to Xinjiang.

China, and its formidable appetite for energy, has therefore provided an alternative to exporting oil to the West. However, the Kazakh elites are still wary and would rather continue to diversify their clients: "The European Union would do better to invest its energy in finalizing the Nabucco gas pipeline (which would allow them to by-pass Russia by cutting through the south Caucuses) and finally realize their plans to build pipelines across the Caspian Sea," says a former Commission specialist in Almaty. "Gazprom is a flawed and debt-ridden power, which is contested even in its native Russia and whose future relies on Putin staying in power."

And to conclude: "The real challenge for the EU remains to have a common, long-term policy and to assure that the European petrol giants, in central Asia and elsewhere, don't act against the interests of 500 million gas and oil consumers in the EU."

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