Previous Quarterly Editions
Expropriation Risk: 54 56 57 57 ►Political Violence Risk:49 49 49 49 ►Terrorism Risk:30 32 34 34 ▲Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ►Sovereign Default Risk:47 57 57 47 ▼
TREND ▼
Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
In January, under the auspices of the Collective Security Treaty Organization and at the invitation of the government, Russian troops intervened in Kazakhstan to help subdue violent anti-regime protests. This was expected to buy the loyalty of President Kassym-Jomart Tokayev and cement Russia as Kazakhstan’s primary international partner. However, the Russia/Ukraine crisis beginning in February 2022 has caused a sea-change in Kazakh foreign policy. Astana has turned away from Russia and towards other international partners, revitalising the ‘multi-vector’ foreign policy that appeared to have been abandoned in January.
Following the invasion of Ukraine, Kazakhstan has steadfastly refused to align with Russia. Kazakhstan refused to send troops to support Russia or to recognise the breakaway republics of Donetsk and Luhansk. Russia retaliated against what it sees as Kazakhstan’s lack of loyalty by disrupting exports through the Caspian Pipeline Consortium (CPC), which carries 80% of Kazakh oil. This has highlighted the dangers of Kazakhstan’s economic dependence on Russia and has given new impetus to longstanding, but sluggish, efforts towards economic diversification.
Although the prospect is remote, there is real fear in Kazakhstan that Russia could try to annex northern Kazakhstan, using the same justifications Moscow has employed in Ukraine. Antagonistic rhetoric, including from Russia’s President Vladimir Putin himself, has fanned these flames.
One impact of Kazakhstan’s move away from Russia will be closer ties with China. In September, China’s President Xi Jinping visited Kazakhstan, his first foreign visit since the pandemic, and declared support for Kazakhstan’s sovereignty and territorial integrity. China is a major investor in Kazakhstan, which plays an important part in China’s Belt and Road Initiative of international infrastructure investments and
construction. In response to the disruption to supply chains caused by the invasion, China has reprioritised the ‘Middle Corridor’ through Central Asia. China’s relationship with Kazakhstan is primarily economic but it may move into the role of security guarantor vacated by Russia. Meanwhile, Kazakhstan is keen to attract Western investment but, particularly since the chaotic U.S. withdrawal from Afghanistan in late 2021, Western influence is in decline. A U.S. diplomatic delegation visited in May and expressed support for the C5+1 format talks between the U.S. and Central Asian Republics and a commitment to support the countries’ common interests, but they have increasingly few of these. The visit was most likely focused on the situation in Ukraine.
Despite the current crisis in relations, Kazakhstan will not cut ties with Moscow in the short to medium term. Relations are the worst they have ever been, but lines of communication between Astana and Moscow remain open. Looking further ahead, Kazakhstan is unlikely to be able to avoid China becoming its dominant partner. Nonetheless, Astana will seek partnerships primarily with Asian and Middle Eastern emerging powers, seeking to balance against Chinese influence. The role of Turkey, increasingly interested in developing a ‘pan-Turkic’ area of influence, is growing, with Kazakhstan seeing Turkey as a potential export market and a nascent security relationship is developing.
TREND ►
Following violent protests in January, President Tokayev has consolidated his power over his predecessor, Nursultan Nazarbayev. This has involved a highly political anticorruption campaign targeting Nazarbayev loyalists, which has so far recouped around half a billion dollars.
The government remains keen to attract foreign investment, which has not been targeted in the anticorruption drive. Pro-investment reforms have been promised, though little recent progress has been made. The state retains a predominant role in the economy but is taking steps to reduce it. Plans to float the state-owned oil and gas company KazMunaiGaz, were relaunched in June.
A new constitution was approved by referendum on June 5, but it will bring little real change. On paper, the new charter reduces the power of the presidency and makes the registration of opposition parties easier. Parliamentary elections to be held in the first half of 2023, three years ahead of schedule, will be a litmus test for the reforms.
The economic consequences of the Russia/Ukraine crisis and its wide economic fallout, including higher fuel and food costs, are adding to the grievances that fuelled the January protests, and there is a possibility protests will resurge on the same lines. The government is taking steps towards reform and economic diversification, but this will take time to pay off.
Snap presidential elections called for November 20, 2022 – 18 months ahead of schedule and with insufficient time for opposition campaigning – may serve as a catalyst for protests too, though the state will be prepared for this.
In early August, two people were sentenced to five years of imprisonment for separatism after calling online for Russia to annex northern Kazakhstan. While comments from Russian commentators calling for the annexation of Kazakh territory are concerning, there is no significant separatist activity among the country’s large ethnic Russian minority.
TREND ▲
No evidence has emerged to support the government’s claim foreign terrorists were responsible for the violence in Almaty in January. Islamic State Khorasan Province has increased its propaganda and recruitment drive in Central Asia, but it has so far focused on Uzbek and Tajik speakers.
In June, the US government included Kazakhstan on a list of countries that could be used as transhipment points to bypass sanctions against Russia. However, the Kazakh government has demonstrated its willingness to comply with sanctions.
In August, inflation reached 16.1%, a seven-year high. The World Bank expects economic growth of 1.5-2% in 2022, down from 4% in 2021. The reduction is attributable to the economic consequences of the Russia/Ukraine crisis. Disruptions to oil exports through the CPC pipeline, which runs through Russian territory and carries 80% of Kazakhstan’s oil exports, is a particular concern.
The economy is able to absorb external shocks without the risk of default. Kazakhstan’s national fund has reserves equivalent to just over one-third of GDP, and Kazakhstan has relatively low national debt, at under 30% of GDP. Although the economy is benefitting from high global prices for oil and gas, the overall impact of the Russia/Ukraine conflict is likely to lead to a deterioration in Kazakhstan’s debt position, but it will remain at a manageable level.
In the long term, Kazakhstan’s economic health will rely on diversification of both economic sectors and trading partners.
Return to contents Next Chapter
