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

New geopolitics of oil in Central Asia,
Russian-Kazakh relations
Student: Katerina Ivascenkova 6257046 i.katka@seznam.cz
MSc. Political Science, International Relations

Research Project: The Political Economy of Energy
International School for Humanities and Social Sciences
University of Amsterdam
Supervisor:
Dr. Mehdi Parvizi Amineh
Second reader: Dr. Laszlo Mmaracz
June 2011
Katerina Ivascenkova
I University of Amsterdam
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CITATION
I always have been saying: First-is an economy, and then -politics.
(Nazarbayev, 2003)
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CONTENTS
CITATION.......................................................................................................................................................... 2
LIST OF ILLUSTRATIONS .................................................................................................................................... 5
LIST OF ABBREVIATIONS ................................................................................................................................... 7
ACKNOWLEDGEMENT ...................................................................................................................................... 9
ABSTRACT ...................................................................................................................................................... 10
1. INTRODUCTION .......................................................................................................................................... 11
1.1 THEORETICAL FRAMEWORK ............................................................................................................................... 15
1.2 METHODOLOGY........................................................................................................................................... 18
1.3 THESIS STRUCTURE ........................................................................................................................................... 20
2.
RUSSIAN FOREIGN POLICY TOWARD KAZAKHSTAN ............................................................................... 21

2.1 HISTORICAL BACKGROUND OF RUSSIAN-KAZAKH RELATIONS ................................................................................. 22
2.1.1 The dissolution of the USSR and New Geopolitical Order ................................................................... 22
2.1.2 The Concept of Eurasianism ............................................................................................................ 23
2.2 NEW RUSSIAN FOREIGN POLICY UNDER VLADIMIR PUTIN ..................................................................................... 24
2.2.1 Official concepts of Russian foreign and security policy ..................................................................... 24
2.2.2 Vladimir Putins new realism .............................................................................................................. 25
2.2.3 Russia as a normal power................................................................................................................ 26
2.2.4 From 9/11 to new Russian foreign and security policy ....................................................................... 27
2.2.5 International Reconstruction of Russian position ............................................................................... 28
2.3 RUSSIAN DIPLOMATIC AND SECURITY RELATIONS WITH KAZAKHSTAN ...................................................................... 29
2.3.1 Historical background of Russian-Kazakh diplomatic relations .......................................................... 29
2.3.2 Increasing influence of Russia in Central Asia after 9/11 ................................................................... 30
2.3.3 The regional security organisations .................................................................................................... 31
2.3.4 Legal status of the Caspian Sea .......................................................................................................... 33
2.4
ECONOMIC RELATIONS WITH KAZAKHSTAN ................................................................................................... 35
2.4.1 Historical background of economic relations and mutual trade ........................................................ 35
2.4.2 Regional Economic organisations ....................................................................................................... 37
2.5
CONCLUSION.......................................................................................................................................... 39
3. POLITICAL SYSTEM AND FOREIGN POLICY IN KAZAKHSTAN ........................................................................ 40

3.1 HISTORICAL BACKGROUND OF THE CENTRAL ASIAN REGION...................................................................................... 41
3.1.1 The Kazakhstan Soviet Socialist Republic [1936-1991] ....................................................................... 41
3.2 NATION-STATE BUILDING AND POLITICAL SYSTEM ................................................................................................... 42
3.2.1 Nation-building in Kazakhstan ............................................................................................................ 43
3.2.2 Political system and leadership of Nazarbayev .................................................................................. 45
3.2.3 Constraints to the process of the nation-state building...................................................................... 48
3.3 KAZAKHSTAN FOREIGN POLICY AND RELATIONS WITH MAJOR POWERS ........................................................................ 50
3.3.1 Kazakhstan foreign policy concept ..................................................................................................... 50
3.3.2 Factors shaping Kazakh foreign policy................................................................................................ 53
3.3.3 Multilateralism in Kazakh foreign policy ............................................................................................ 54
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3.3.4 Kazakh relations with Russian Federation .......................................................................................... 55

3.3.5 Kazakh relations with the USA ............................................................................................................ 56
3.3.6 Kazakh relations with China ............................................................................................................... 58
3.4 CONCLUSION .................................................................................................................................................. 59
4. GEO-ECONOMICS AND GEOPOLITICS OF OIL IN KAZAKHSTAN .................................................................... 61
4.1 POLITICAL ECONOMY OF KAZAKH OIL INDUSTRY ........................................................................................ 62
4.1.1 Trade .................................................................................................................................................. 63
4.1.2. Oil sector ......................................................................................................................................... 66
4.1.3. The management of oil revenues .................................................................................................... 73
4.2 OWNERSHIP OF KAZAKH OIL INDUSTRY ...................................................................................................... 77
4.2.1. National Oil Companies (NOCs) ........................................................................................................ 78
4.2.2 Foreign oil companies and their relations with KMG ......................................................................... 83
4.3. MAJOR POWERS STRUGGLE OVER KAZAKH OIL AND THEIR INTERESTS .................................................... 92
4.3.1 The US interest in Kazakhstan ............................................................................................................ 93
4.3.2 The Chinese interest in Kazakhstan .................................................................................................... 94
4.3.3 The Russian interest in Kazakhstan .................................................................................................... 96
4.4 CONCLUSION .................................................................................................................................................. 98
5. CONCLUSION .............................................................................................................................................. 99
BIBLIOGRAPHY: ............................................................................................................................................ 107
APPENDICES ................................................................................................................................................. 119
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LIST OF ILLUSTRATIONS
Maps
MAP 1: POLITICAL MAP OF THE REPUBLIC OF KAZAKHSTAN
MAP 2: POLITICAL MAP OF THE RUSSIAN FEDERATION
MAP 3: POLITICAL MAP OF CENTRAL ASIA
MAP 4: CENTRAL ASIAN OIL PIPELINES
MAP 5: NUCLEAR BASES IN KAZAKHSTAN
MAP 6: THE CASPIAN PIPELINE CONSORTIUM
MAP 7: KAZAKHSTAN-CHINESE PIPELINE
MAP 8: THE CASPIAN SEA LEGAL REGIME - NATIONAL SECTORS
Figures
FIGURE 1: KAZAKHSTAN OIL BALANCE IN THE NEW POLICIES SCENARIO
FIGURE 2: CPC SHAREHOLDERS
FIGURE 3: SHARE OF CASPIAN OIL RESERVES (2006)
FIGURE 4: SHAREHOLDERS STRUCTURE OF KMG EP
Tables
TABLE 1: KAZAKHSTANS MAJOR IMPORTS PARTNERS (2010)
TABLE 2: KAZAKHSTANS MEMBERSHIP IN THE MOST IMPORTANT REGIONAL
AND INTERNATIONAL ORGANISATIONS
TABLE 3: KAZAKHSTAN GDP GROWTH (2003-2011)
TABLE 4: PRINCIPAL EXPORTS AND IMPORTS OF KAZAKHSTAN
TABLE 5: DESTINATION OF EXPORTS AND ORIGIN OF IMPORTS (2006)
TABLE 6: PRODUCTION OF OIL IN KAZAKHSTAN
TABLE 7: FOREIGN DIRECT INVESTMENT (MILLION US DOLLARS)
TABLE 8: LIST OF MAJOR ENERGY PROJECTS WITH TYPES OF THE CONTRACTS
TABLE 9: MAJOR CASPIAN OIL PROJECTS
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LIST OF ABBREVIATIONS
BG British Gas
BP British Petroleum
BTC Baku-Tbilisi-Ceyhan piperine
CIS Commonwealth of Independent States
CNPC China National Petroleum Corporation
CPC Caspian Pipeline Consortium
EAEC Eurasian Economic Community
EBRD European Bank of Reconstruction and Development
EIA Energy Information Administration
EU European Union
FDI Foreign Direct Investment
GDP Gross domestic product
IEA International Energy Agency-nepouila
IMF International Monetary Fund
KCO Kazakhstan North Caspian Operating Company
KMG Kazmunaigaz state oil Company
KCTS Kazakhstan Caspian Transportation System
KPO Karachaganak Petroleum
NATO North Atlantic Treaty Organisation
NFRK The National Fund of the Republic of Kazakhstan
NGO Non-governmental organization
NOC National Oil Company
OECD Organisation for Economic Cooperation and Development
OIC Organisation of the Islamic Conference
OPEC Organization of Petroleum Exporting Countries
PSA Production Sharing Agreement
TNC Trans-national Company
TNOC Trans-national Oil Company
US(A) United States (of America)
USSR Union of Soviet Socialist Republics
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WTO World Trade Organization WTO World Trade Organization
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ACKNOWLEDGEMENT
This thesis could not have been finalized without the valuable contribution of several people.
First of all, I would like to express my deep gratitude to my dedicated supervisor M. Mehdi
Parvizi Amineh whose patience, useful advice and explanations provided me throughout this
long work. Also, I am extremely grateful towards Dr. Lszl Marcz, the second reader of my
thesis for his time and patience.
Last but not least, I do address my acknowledgements to some of my relatives and friends, in
particular my mother who created suitable conditions for me to accomplish this unforgettable
performance, Mr. J. Ramauger for his patient support and P. Antlova for the stylization of the
text.
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ABSTRACT
This research thesis analyses the Russian interests in Kazakhstan and Central Asia as such.
Despite the common history and similar cultural development, the region is composed of new
independent states. Therefore it represents for Russia a new international environment, where
many external actors are involved and compete between themselves to get an influence on
local policy-making. Kazakhstan possesses large oil reserves and its latest discovery of
Kashagan oil field, which is believed to be the fifth largest in the world, even intensifies the
competition among external actors due to the scarcity of natural resources. Moreover the
strategic position of the country, which has common border with Russia and China, plays a
significant role. The aspects of the geographical location of natural resources and strategic
position of the territory will bring us to the geopolitical issue which tends to highlight global
politics from the perspective of political geography.
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1. INTRODUCTION
The importance of the possession of natural resources has been significantly growing in the
last decades. The main reasons for this phenomenon are the increasing demand for oil and gas
and the scarcity of such resources. The very high demand is due to the escalating consumption
among new emerging countries such as China and India. Therefore the regions which abound
with these natural resources become often the sphere of interests or sometimes even a matter
of rivalry among the biggest oil and gas consuming countries.
Global politics is also changing very deeply. The world of international relations has moved
from the bipolar political system during the Cold war through the unilateral US dominance
towards nowadays new international system, which has been hardly defined yet. The major
powers are no more interested about the ideological supremacy. They rather aspire to the
economic primacy and the access to the few natural resources remaining. The expression of
geopolitics is weakening and geo-economics is becoming stronger in nowadays concept of
international relations. Therefore the energy plays a crucial role in world economic system
and world politics as well. Moreover there are new actors on the international scene.
Russia had to adopt a new foreign energy policy to address adequately the challenges that
international relations are bringing today. After the economic and political decline in Russian
Federation at the end of the 20th century, Vladimir Putins new government has revalued
blind eagerness to join the West and tried to find a compromise between the radical voices,
calling for resurgence of Russian super-power by military means, and the liberal opinions,
supporting the cooperation with the Western countries and the idea of joining the West
(Sakwa, 2008: 242). Natural resources have markedly started to gain on importance on the
Russian political scene since the beginning of Putins presidency. The new Russian President
has emphasized the importance of oil and gas in order to reconstruct national economy, but
also the position of Russia as a former superpower in the international order (Balzer, 2005:
212).
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Moreover during his second presidential term Putin has also reconsidered the relationship
with Asian countries. Central Asia1 has a strategic importance for the Russian Federation.
Therefore Putin foreign policy strategy aimed to integrate this region into the Russian security
sphere and maintain its influence over this geographical area. Many institutions have been
founded to promote the integration of the region. The Commonwealth of the Independent
States (CIS) was the first one. However this Russian driven institution has never been very
effective. The other effort of Moscow was to promote cooperation in the military sphere. The
Collective Security Treaty Organisation was established in 2002 after the agreement was
signed by Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Belarus and Armenia (Freire, 2009:
139). The result of this agreement was to preserve territorial integrity of the Central Asian
region. It also allows Russia to have this region closer to its security system. However some
countries such as Turkmenistan, Georgia and Azerbaijan are not members of this treaty.
Despite that, they often stay attached to some extend to Russia, because of the dependency on
Russian gas pipelines and need to transport oil and natural gas towards the lucrative markets
of many European countries. Moreover the Single Economic Space (SES) was established a
year later among Russia, Kazakhstan, Belarus and Ukraine (Freire, 2009: 141). This is one of
the first institutions reflecting the Russian tendency of abandoning the adherence on military
alliances and starting cooperation on economic basis.
Central Asia is, however, the object of great interest from many countries or other groups of
actors such as international companies. Many American and European companies have
invested a lot of money in the development of Kazakhstan oil and gas fields. However, Russia
is now getting economically stronger and therefore many Russian companies are purchasing
large share in Kazakh oil and gas firms.
Many external powers among which the United States are very interested in the region due to
its strategic position between Europe, Asia and Middle East. Its interest is mainly focused on
the access to the natural resources which abound in the region. The issue of the influence over
the Central Asia plays a crucial role in foreign policy strategies of involved countries. The
growing competition is obvious among China, Russia and the US over this territory and its
Central Asia consists of five countries: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.
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natural resources. The US is, moreover, promoting integration of Kazakhstan into the
structure of NATO. These American attempts create tensions between Russia, on one side,
and the US and the EU, on the other side. The EU is largely dependent on the Russian gas.
However after several crises between the gas transit states (Ukraine, Belarus) and the Russian
Federation, the EU has realised the unreliability of its main gas supplier. Therefore the
European countries are searching for some alternatives to its current energy supply routes and
they are very interested in cooperating with Central Asia.
Furthermore we can observe significant changes in the Russian foreign policy towards Central
Asian countries. American scholar Harley Balzer argues that in order to counterbalance the
Western efforts to get access to natural resources in Central Asia, the Russian Federation
established new relations with China over this region. The Shanghai Cooperation
Organization meeting has laid the foundations for a partnership with China in order to contain
the Western influence in Central Asia (Balzer, 2005:220). Russia has started to change its
policy towards the Central Asian region. Trying to build more equal relationship, it proposed
more advantageous conditions within the energy sector to Kazakhstan and other Central Asian
countries.
The reason of the research is the geopolitical change in the Central Asian region, which
appeared at the end of the Cold war. New independent states have emerged in Central Asia
with their own governments and types of democracies after the fall of the Soviet Union.
However Russia as a former leader of the Soviet space has kept a great influence over the
policy-making in the region
The Central Asian region represents the sphere of main priority for the Russian foreign policy.
From the geo-economic perspective, the region is very interested because of its oil and gas
reserves. Therefore the struggle for the access to these commodities is present and includes
many state but also non-state actors. Geopolitically the region has a real strategic position
because it is located on the crossroads which link Europe and Asia. For Russia the security
aspect of its relations with Central Asian countries is predominant. For a long time Russia has
been promoting the reintegration of Kazakhstan into its security system. Moscow has initiated
the foundation of many security alliances such as the Collective Security Treaty Organisation
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(CSTO) and other treaties which enable military cooperation between both countries.
Therefore any activities from the US or the EU in the region are observed by Russians as a
possible threat to its zone of influence. China is also establishing some links with the region
but purely on the economic basis. For the purpose of our research we would examine only
Russia, the US and the China. The EU will be excluded because of the need to narrow down
the research.
Kazakhstan is the largest and economically very fast developing post-Soviet country. Due to
its significant oil and gas reserves it gains an importance on the international scene. In order
to attract foreign investors Kazakhstan has been trying to pursue the foreign policy of balance.
Therefore it is a member of many eastern but also western international organisations. The
country has even established a partnership for cooperation with NATO, which aroused the
concerns of Russia.
To stabilize the situation and secure the region, Russia is trying to influence the region
through advantageous economic contracts and agreements. Many Russian companies
(especially oil and gas ones) such as Lukoil, Gazprom, Rosneft are operating in the country
and have several stakes in the Kazakhstan oil fields and pipeline consortiums. However the
competition from the western companies is very high as they have the greatest resources to
invest, and their financial leverage is backed by the military capabilities of the United States
(Auty, 2006:237). Therefore it is really interesting to observe to what extend Russia changes
its foreign policy in answer to the presence of external actors in the region.
The goal of this research is to analyse the actual interests Russia has in Kazakhstan and how
these interests shape Russian foreign policy towards the Central Asian region. The central
research question in this thesis will be:
What are the Russian interests in Kazakhstan in the context of comprehensive Russian foreign
policy in Central Asia?
In order to answer this question, first several sub-questions need to be explored and answered
so as to create a better understanding of the main question.
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1. What is Russian foreign policy towards Kazakhstan?

2. What kind of the political system has been formed in Kazakhstan and what are the
factors shaping Kazakh foreign policy?
3. What are the interests of the TNOCs and major powers in Kazakhstan?
4. What is the Russian response to the activity of other global actors in the region and
how that shapes Russian interest in Kazakhstan?
1.1 Theoretical Framework

International
relations
is
very
broad
and
diverse
discipline,
therefore
we
need theories to enable us to understand it. Realism, Liberalism, Constructivism and Marxism
represent the main theoretical schools of the IR. They all discuss the nature of international
system, the factors influencing political decision making and the actors involved in the world
politics. The debate between Realism and Liberalism has been so far the most long-standing
and well-developed (Baylis, 2008:159). Therefore I dare to discuss these two approaches
further. Realism is defined mainly as a state centric theoretical approach, which is based on
struggle for power in the anarchical international state system. This theory provides
something like a manual to maximise the states interests outside its borders in order to
survive in world anarchy (Waltz, Mearsheimer, in: Baylis 2008). Therefore the military
strength is highly important in this context. On the other side, liberalism stresses the
importance of market driven economy and emphasizes the cooperation among the states
through the international institutions in order to promote peace and liberal values such as
order, liberty and justice (Doyle, Cobden, in: Baylis 2008). However all of these theories
neglect the importance of the geographic space and the access to natural resources.
This research thesis will analyse the Russian interests in Kazakhstan and Central Asia as such.
Despite the common history and similar cultural development, the region consists of new
independent states. Therefore it represents for Russia new international environment, where
many external actors are involved and compete between themselves to get an influence on
local policy-making. Kazakhstan possesses large oil and gas reserves, which intensify the
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competition among external actors due to the scarcity of natural resources. Moreover the
strategic position of the country, which has common border with Russia and China, plays a
significant role. The aspects of the geographical location of natural resources and strategic
position of the territory will bring us to the geopolitical discourse, which tends to understand
global politics from the perspective of political geography. Therefore the geopolitics will be
the most relevant theoretical perspective for this thesis.
Geopolitics discusses the relationship between political power and territory. Classical
geopolitics as the theoretical approach emerged already in the 19th century and it has
developed in the context of realism paradigm. It analysis politics in relations with
geographical features such as the access to the ocean or natural resources (see Mackinder, in:
Bassin and Aksenov, 2006). However it is the state centric theory. The core idea of traditional
geopolitics is that state is the main actor in International Relations (see Tuathail, Dalby,
2006).Therefore it is not relevant for this research as we consider that non-state actors play a
significant role in global politics. Moreover old conceptual maps of geopolitics do not work
anymore in a world of speeding flows, instantaneous information, and proliferating technoscientific risks (O Tuathail, 1999: 107-123). Therefore many critics of traditional geopolitics
have started to appear and led to the formation of Critical geopolitics.
The most significant difference between classical geopolitics and critical geopolitics is the
units of the analysis. The former perceives state as the principal unit of global politics.
However the latter looks at the role of non-state actors, such as international institutions,
transnational companies or terrorist organisations. The representatives of critical geopolitics
(Amineh, Agnew, O Tuthail) argue that international economic integration relatively reduced
the power of state on economic and political level. On the other side, the new actors such as
transnational corporations reinforced its position in global politics. According to this theory
the economic globalisation is a significant element in International Relations. The geoeconomics is a part and parcel of the critical geopolitics. This concept is based on the
assumption that role of economy in order to achieve the control over the space is predominant
than the use of military forces promoted by classical geopolitics. If the external country can
connect with the host economy, she would be able to control space by economic power.
Therefore the transnational companies (TNCs) play an essential role in the classical
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geopolitics. In other words, control over the natural resources will enable external country or
TNOCs, which is often backed by the nation-state, to exercise the leverage on policy-making
of the host country and thus control the course of events in the region. Many critical
geopolitical thinkers (Amineh, Agnew) stresses that Foreign Direct Investment (FDI) is a
crucial factor in the global economic integration. Moreover they emphasize the importance of
International Political Economy (IPE) in current world politics. In contrast classical
geopolitics did not really follow the economic and political changes which globalisations
brought. Critical geopolitics, moreover, aims to understand global politics in terms of the
ways in which elites and public actively construct the spaces of political action and how these
constructions change over the time. It is based on the assumption that world politics are
directly dependent on various physical-geographical determinants such as the access to the
oceans or natural resources, for instance (Agnew, 2010:569).
Critical geopolitics also tackles the issue of New Great Game in the Central Asian region.
Comparing to the 19th century, nowadays the game is more complex, because there are many
state and non-state actors interested in control over the oil and gas resources in the region. The
other aspect, which contributes to that complexity of the game, is the trans-nationalisation of
the production and finance on the global level (Amineh, 2003: 25). Central Asian countries
are, likewise, newly independent states and they had to face many challenges after the fall of
the Soviet Union. The political environment has changed dramatically due to the
globalisation, new technological discoveries and fast spread of information. We are in the
outset of the new international system, whose form is not known yet.
To examine the interests of the Russian Federation and other actors involved in the region we
will make distinction between the geo-economic and geo-political logic following Mercille
and Jones (2009). The former is driven by the Russian desire to control energy reserves in
Kazakhstan and Central Asia in general. Therefore we could notice the shift in Russian
foreign policy toward the softer approach in its bilateral relations with Kazakhstan. Russia
seeks to maintain a friendly regime in power. Therefore it firmly supports the government of
Nazarbayev and is trying to fasten Kazakhstan through advantageous economic and energetic
cooperation. Russia pursues the economic cooperation in order to increase its influence in
Kazakhstan and to promote its interests through the economic relations. On the other hand
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there is also an evident geo-political logic, which is based on the fact that region has a great
geo-strategic position. Therefore Russia tends to keep its credibility and position of major
external power in Kazakhstan. By doing so, it tries to limit the efforts of other external actors
to influence local policy-making.
Critical geopolitical perspective will serve us as a framework for understanding the politics
behind the bilateral relations of Russia and Kazakhstan. This theoretical approach will enable
me to answer the question of Russian actual interests in Kazakhstan and the way how
Moscow tries to achieve it. For this purpose we will have to analyze the economic aspects of
this bilateral relation with the focus on investment and trade. Moreover we will look at the
International Political Economy, the engagement of international institutions and transnational
companies operating in Kazakhstan. Russian foreign policy will be seen as a tool to achieve
its goals in Kazakhstan. Critical geopolitics will help us to understand the competition among
the external actors and tension in the region.
1.2
Methodology
This thesis will include both a qualitative as well as quantitative research method. The paper
will be mainly literature review based, involving theoretical literature and empirical one.
Therefore a main part of the thesis will consist of the analysis of documents and materials.
The journal of Eurasian Geography and Economics together with the very recent book:
Kazakhstan oil and politics represents the main source of current economic and political
situation in Kazakhstan and Central Asia. The journal of Energy policy focuses on the issue of
energy and the role of natural resources in politics. Europe-Asia studies and Asian Survey
studies bring us the overview of Chinese engagement in Central Asia. The most important
journals to understand the current foreign policies of focused countries, and the geopolitics in
the region are International Affairs, Post-Soviet Affairs. The journal of Communist and PostCommunist studies examines the historical background of the political system in Post-Soviet
region. The official documents of the Russian Federation and Kazakhstan will be also studied.
This literature review represents the qualitative part of the research.
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The quantitative research method will mainly consist of the data analysis, energy economy
outlook, the economic figures and the development of oil and gas prices. The International
Energy Agency (IEA) is a relatively independent source of information; therefore in many
cases it would be a more relevant source than official documents of studied countries, which
will be also examined. The IEA World Energy Outlook together with the BP Statistical
Review of World Energy will be used for data on energy consumption, production, import
and export. The crucial elements for the observation of economic relations between
Kazakhstan and Russia will be the reports of the biggest Russian companies such as Lukoil,
and Rosneft, which are highly active in Kazakhstan oil projects. Western oil companies such
as Chevron will not be left out either. The analysis of the activities of Kazmunaigas, Kazakh
national oil company, will be essential to understand the geopolitics in the region. In addition
this research thesis will examine the data of international institutions and organisations, and
security alliances of which Kazakhstan is member. The Economic Cooperation Organization
will provide us with the information on the regional cooperation and common efforts to
develop the regional infrastructure, to establish a single market and to attract the foreign
investors. The Eurasian economic community (EAEC or EurAsEc) with its members Russia,
Kazakhstan, Kyrgyzstan and Tajikistan is very important for studying the efforts to reintegrate
the region on the economic basis. The following institution to be examined is the Single
Economic Space on which Russia, Kazakhstan and Belarus have agreed in 2009. These
countries would like to join WTO together as a custom union, which is also very interesting to
study for my research. Moreover some military alliances (ex. Collective Security Organisation
Treaty) will be considered to understand Russian strategic interest in the region. Then it
would be essential to include the study of several pipelines or pipeline projects, among the
most important Caspian Pipeline Consortium or Kazakh-Chinese pipeline.
The combination of both methods will allow us to understand the impact of geopolitics on the
dynamics of the energy economy but also the impact of the global financial economics and
transnational market on geopolitics in certain countries and regions. These two methods also
aim to response the sub-questions and finally the central research question.
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1.3 Thesis structure

The research thesis is divided into five chapters. The first chapter provides us with the
introduction to the topic and theoretical framework that is relevant to the research theme.
Chapter two introduces to the Russian approach to Kazakhstan. It further analysis the Russian
foreign policy towards Kazakhstan and studies their mutual relation on diplomatic, economic
and security level. This chapter aims to depict the development of Russian attitude towards
Kazakhstan and Central Asia as such. For that purpose we also examine the regional
organizations that show the institutionalization of the Russian-Kazakh cooperation.
Chapter three brings us a deep analysis of our second actor - Kazakhstan. It examines its
process of nation-state building and depicts the challenges the newly independent Kazakhstan
has met. The crucial part of this chapter takes closer look at the Kazakh foreign policy. The
latter is firstly analysed in general and then towards the major powers involved in the country
- the US, Russia and China.
The fourth chapter is the core of the research as it tackles the geopolitics in the region and
studies its impact on the Russian foreign policy towards Kazakhstan. Moreover it gives an
overview of the Kazakh oil industry, which is crucial for understanding of such a foreign
interest and a so important involvement of the TNOCs and NOCs in the country. In order to
assess the power of several external actors, the section on the ownership of Kazakh oil fields
and pipelines is included.
The conclusion forms the last chapter where the findings are presented.
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RUSSIAN FOREIGN POLICY TOWARD KAZAKHSTAN
The region of Central Asia has a great geopolitical importance because of its energy aspect.
The energy resources of the region are located in Caspian littoral states2 which are very rich in
oil and gas. Therefore these states represent a region of major interest for many powers such
as Russia, the Unites States, China, Iran, Turkey, but also the European Union. Most of the
main powers, precisely the industrialised countries and regions (the US, China and the EU)
have been trying to get access to oil crude and natural gas, and to participate in the
exploration of such commodities. Moreover the general tendencies to diversify supplies and
the fierce changes in the development of the oil prices have conferred to the region a larger
significance. However the rise of Islamic fundamentalism and the events of September 11th in
the US gave a different dimension to the region, which is situated near Afghanistan, Iran and
countries of Persian Gulf. The US had engendered the war against terrorism and many new
actors have become involved in the region. Therefore Russia had to adjust its position in the
region and adopt a new approach with Central Asian countries in the context of a new
geopolitical situation (Kubicek, 2004:207). In this chapter, I will examine the changes in the
Russian foreign policy towards Kazakhstan, which is the main oil producer in the region.
Moreover I will look at the general development of Russian foreign policy in Central Asia. In
order to answer the question what are the changes in Russian post-cold war foreign policy
towards Central Asia, we will have to search which factors and actors have influenced the
shifts in Russian foreign energy policy.
Azerbaijan, Iran, Kazakhstan, Russia, Turkmenistan
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Historical background of Russian-Kazakh relations
2.1.1 The dissolution of the USSR and New Geopolitical Order

After the fall of the Soviet Union a new Russian government had to adopt a new approach
towards the Central Asian region. The Commonwealth of the Independent States (CIS) was
established on December 21st 1991 as a descendent to the USSR. It was a regional
organisation with the goal to maintain cooperation on several levels. Nevertheless the results
of the cooperation were rather zero-sum or highly ineffective. On the other side, the Russian
foreign policy took so called westernisation course3 in the early 1990s, which was to the
detriment of the relations with Kazakhstan and other post-soviet countries. We could hardly
talk about some closer political or economic cooperation between Russia and Kazakhstan.
Central Asia was rather neglected by the Kremlin as less developed region. Some Russian
elites were afraid that these states may slow down the implementation of the economic
reforms taken by new Russian government. However the cooperation in the energy sector
remained almost inalterable (Kubicek, 2004:209). The main reason for the maintenance of
this business was the fact that all the pipelines were constructed during the Soviet regime and
led through the territory of the Russian Federation. Nevertheless Russia itself possesses the
largest reserves of natural gas and oil. Therefore it has no need to import these commodities
for its domestic use. In the beginning of the 1990s the demand for Caspian oil and natural gas
has dramatically fallen due to the decreasing political importance of the region for Kremlin.
However Kazakhstan remained a relatively important country for Russia with the abundant
Russian population counting for 6 227 549 millions in 1989 (Zardykhan, 2004:63), which
represented almost 50% of the total population living in Kazakhstan. With the collapse of the
USSR and the establishment of Kazakh as the State language, many Russian speaking ethnics
returned to their home countries.
Westernisation is a political and economic orientation towards the western countries.
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2.1.2 The Concept of Eurasianism

To understand post-Cold war Russian foreign policy we have to look at the discourses on
geopolitics and discourses on Eurasianism4, which emerged at the same time during the
Yeltsin era. The former was defined by Russian foreign Minister Andrei Kozyrev as a
balanced, non-ideological assessment of Russias national interests (Morozova, 2009:668).
Geopolitics in this term was rather perceived as an ideology-free approach (to International
Relations) rather than some territorial struggle. However nationalist and military circles have
raised a concern about the Russian territorial integrity and emphasized the importance to
pursue Russian national interests which would reflect geopolitical realities of post-Cold War
politics (Morozova, 2009:668-669).
Therefore Yeltsin has started to use the traditional
geopolitical rhetoric in order to avoid the rise of nationalists tendencies among the
opposition. He has identified the region of Central Asia as the space of potential conflicts,
which could menace the territory of Russia. According to Morozova, this geopolitical
discourse represented the solution for the issue of securing new Russian boarders.
The significant shift in the Russian foreign policy towards the Central Asian region has
occurred in the mid 1990s. The opposition to the western orientation and Yeltsins experiment
with the democratisation of his country has strengthened. The disenchantment from the West
has started to be more obvious. Moscow has realised that Russia rather gave than gained from
the cooperation with the West. Moreover the ground for more assertive Russian foreign policy
was set up as the democratic model adopted by Yeltsin did not approve like the best variant
for new Russian state. Therefore the concept of Eurasianism re-emerged as an alternative to
the excessive Russian foreign policy of westernisation led by Andrei Kozyrev
(Rangsimaporn, 2006:378). It evolved as a will to differ from the West and as a reaction to the
emergence of new independent states in Central Asia. The latter has reinforced Russian
awareness of Asia. Some experts (S. Goncharov) have even claimed that the stability in PostSoviet Russia could be achieved only through the engagement with Asian countries (Kerr,
1995:981).
Political movement, which claims that Russia is culturally closer to Asia than Europe.
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The core idea of Eurasianism consists in Russian attribute as a bridging power between
Europe and Asia. Eurasianists stress Russias geographic, strategic and worldwide culturalpolitical distinctiveness (Morozova, 2009:669). Moreover from the perspective of the
historical economic development Russia might be ranged among Asian countries. However,
culturally Russian ethnic would be closer to European countries. Eurasianism provided
Russian government with the legitimisation of its foreign policy in order to accomplish its
mission of insuring the stability between Asia and Europe. Above all it accorded Russia the
possibility of re-gaining some of its influence and helped to position Russia as the regional
major power. The concept of Eurasianism could be also perceived as the continuance of
traditional geopolitics, but with the focus on the territory of Europe, Central Asia, the
Caucasus and East Asia. The Russian Federation of the 1990s did not aspire to compete with
the US over the world hegemony but rather to settle its position within the region of Eurasia.
To re-establish its position in Kazakhstan, Russia has started to use the nationalist rhetoric of
protecting the rights of Russian population living abroad. Therefore Nursultan Nazarbayev,
the President of Kazakhstan, was pressured to provide both citizenship and other rights to the
numerous Russian ethnic. Otherwise Moscow would have limited the amount of Kazakh oil
and gas fluctuant through Russian pipelines or shut it off completely (Kubicek, 2004:208-209)
which happened in fact. This shows how effectively Russia uses energy as a tool of its foreign
policy. In order to promote its interests Russia can easily take an advantage of Kazakh
dependency on Russian transit pipelines. From this, we can assume that the Russian energy
policy towards Kazakhstan is mainly dependent on the geopolitical situation in the region
rather than on the shortage of fossil fuels.
2.2
New Russian foreign policy under Vladimir Putin
2.2.1 Official concepts of Russian foreign and security policy

The election of Vladimir Putin as the President of the Russian Federation has brought a
significant turn in Russian foreign policy. His goal was to establish the conceptual and
organisational order within all important spheres of Russian foreign policy (Kazantsev,
2008:1075). Shortly after his accession in 2000, three new strategic documents were
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introduced: the National Security Concept (January 2000), the Military Doctrine (April 2000)
and the Foreign Policy Concept (June 2000). The latter defined the relations with the PostSoviet countries, especially with Central Asia and the Caspian littoral states, as the main
priority of Putins foreign policy. The main issues discussed in the Foreign Policy Concept
were security and the economic cooperation with these countries. The former was put in the
context of fighting transnational terrorism and Islamist fundamentalist (mainly Taliban and
Al-Qaida in the south of the Central Asian region). The importance of the economic
cooperation was also highlighted. The new President, moreover, emphasised the need to solve
the problem of legal status of Caspian Sea (Kazantsev, 2008:1075). However there were also
some week points of these doctrines. Firstly the documents were too broad and general.
Secondly all of these strategic concepts were prepared during the Yeltsin regime and before
the events of 9 September 2001 (Poti, 2008:29). Therefore new doctrinal documents, which
would better correspond to the new geopolitical situation and international challenges, were
waiting to be elaborated in the early future.
2.2.2 Vladimir Putins new realism

Russian foreign policy under Putin was highly aware of the fundamental changes in the postCold War international system and in Russia itself. Hence the new President sought to
redefine Russian national interests and objectives of foreign policy. He aimed to develop a
new approach which would combine the traditional Russian realpolitik5 with the
international economic integration. The integration without the accession (Sakwa, 2008:
266) was the political course of the new Russian administration which means that Kremlin
was willing to join the Western structure but at the same time to preserve its full autonomy.
Consequently Putin tried to overcome the ideological vector of the Soviet days and ameliorate
the international prestige of Russia. Therefore the power projection rested on domestic
stability and national economic growth, which was maintained by increasing revenues from
fossil fuels (Freire, 2009: 128). Thus the following question arose: what theoretical approach
Putin stands for? According to Sakwa, Putin is often incorrectly described as an Eurasianist.
Although the former President often expresses the need to strengthen the Russian position in
5
Realpolitik is a diplomacy based on power and material factors rather than on ideology.
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Central Asia, he differentiates obviously from the Eurasianist stream. He does not aspire for
global hegemony but rather tends to integrate economically into the international system and
become a regional leader. In fact we cannot talk about one integral concept of Eurasianism.
Nowadays there are so many different strands such as pragmatic Eurasianism, neoEurasianism, civilizational or intercivilizational one6, that the concept has lost any intellectual
coherence (Sakwa, 2008: 244). Likewise some academics (Morozova) argue that the concept
of Eurasianism itself is declining. Putin should be rather ranked within the new realism
thinking. How Putins new realism differs from the neo-realism? New realism is significantly
influenced by the idealist stream promoting Russian ties with Western structures and
emphasizing the need for cooperation on the economic level and security issues. This
ideology is strongly supported by Vladimir Putin unless it would not menace the autonomy of
Russian policy. New realism is based on the principle that Russia is a part of a European
civilizational identity and therefore it should be accepted on its own terms as an equal
member of international community (Sakwa, 2008: 245). In the beginning of the twenty
century Dmitri Trenin (2011) even proclaimed the end of Eurasia and pointed out that the
only meaningful relations could be developed with the West.
2.2.3 Russia as a normal power

In this context Vladimir Putin has presented Russia as a normal power and tried to
normalize the debate on Russian Federation foreign policy (Sakwa, 2008: 245). Putin has
tended to give a new image to statistic and monolithic Russia in world politics. His strategy
and objectives are perceived as that of normal great power. It follows the policy of moving
further away from Soviet isolationism and aims to become an equal member of international
community while maintaining its own sovereignty. Putin strategy consists mainly in three
objectives: concentration of state power in Russia, reengaging the West after 9/11 and
strengthening Russian influence in post-Soviet Eurasia (see Tsygankov, 2005:142). The latter
should have been materialised by the engagement of Russian companies in the region. In the
same time Putin has attempted to divide Russian foreign policy from formidable Eurasianist
claims based on traditional geopolitics and revisionist aspirations. In the beginning of 2001
Sergei Ivanov, secretary of the Security Council, proclaimed the adoption of a new pragmatic
6
For an overview and every definition, see Sakwa (2008), p. 244.
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approach towards the Central Asian region, which would be funded on the bilateral relations
and common fight against terrorist threats. Moreover he expressed the deception over the
Russian ineffective and very costly attempts to integrate the CIS countries (Tsygankov,
2005:142). However the geopolitical situation has changed after 9/11 and together with
growing importance of Caspian natural resources, the region re-emerged as an area of great
interest.
2.2.4 From 9/11 to new Russian foreign and security policy

The terroristic attack on World Trade Centre, which took place on September 9th 2001,
brought the US military presence into the Central Asian region in order to destroy Taliban.
Russia, expressing its condolence to the US, accepted deployment of Western allies soldiers
on the territory of Central Asia. Both countries opened up for more cooperative approach in
the security level with the goal to eliminate the terrorist threat. However some specialists
(Allison, 2004:279) argue that Russia was working under the rubric of the anti-terrorist
campaign to seek to bolster its influence in CIS states. The period of honeymoon between
the US and the Russian Federation lasted until March 2003, when the administration of
George Bush unleashed the war in Iraq. This situation was favourable for Kremlin in the
concern to the security issue. Justifying its steps by possible danger from the increasing US
presence in the region, Russia was preparing the ground to rebuild a buffer security zone in
Central Asia. In late 2003 the Russian Ministry of Defence has introduced revised military
doctrine elaborated by S. Ivanov. This document represented a new concept of Russian
security policy, which reserved to Moscow the rights to carry out pre-emptive strikes
anywhere in the world and suggested significantly that Russia could take military action in
CIS states.., if it felt under threat(Allison, 2004:280). Hungarian specialist Laszlo Poti7
presents the overview in which he sums up the key elements of Russian doctrine. Firstly it is
the identification of new trans-boarder threats (terrorism, traffic of drugs and weapons) and
increasing world-wide importance of non-state actors (transnational companies, NGOs). Both
features were produced by the globalization. Furthermore the document refers to the regions
of Russian natural interest, which are Central Asia, Europe, Middle East and Pacific. The
important message of this doctrine is the growing significance of military forces. It is also
7
Senior Research Fellow at the Institute of Strategic and Defence studies in Budapest
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stated that Russia will no more continue in extensive reduction of army forces and will
completely stop by 2005 (Poti, 2008:30). This Russian security policy concept basically
means the implementation of more assertive Russian foreign policy in Central Asia and
Caspian littoral states. In addition it is strongly supported by the presidential administration
and represents an interest for military elites.
2.2.5 International Reconstruction of Russian position

In 2005 a new debate about Russian foreign policy emerged with focus on energy. The main
idea was to create from Russia an energy superpower, which was in coherence with Putins
vision about the reconstruction of Russian position on the international scene. Thus Russian
foreign policy has also turned more significantly towards energy-rich Caspian Basin and even
more importance was given to the strengthening of Russian position in the Caspian littoral
states. Kremlin has developed a great effort to prevent these states from building the
pipelines, often sponsored by the US and some western countries, across the Caspian Sea8.
Moreover the colour revolutions9, highly supported by the US, have led to the escalation of
tensions between Washington and Moscow. Therefore the need to redefine Russian foreign
policy strategy, particularly towards Central Asia, where the interests of the US and Russia
have been interfering, emerged. In 2006 Sergei Ivanov has introduced new principles of
Russian national ideology which consist of three elements: sovereign democracy, strong
economy and robust military force. The first component was identified by focusing on
specific Russian model of democracy. Moreover the stress was laid on the importance of
political and economic autonomy in order to integrate Russia into the world economy (Poti,
2008: 39-40). Russian military forces were in the phase of strong growth already from 2003
following the US war in Iraq. However this time, the tensions with Washington escalated due
to the US meddling in the internal affairs of post-Soviet countries, which led to colour
revolutions in several of these states. The result of this struggle for the influence in the
region was evident from the content of Putins speech during the 43rd Munich Security
Conference on Security Policy in 2007, which was directed against the presence of the US in
the region. President Putin has warned from the danger of establishing the uni-polar world,
8
More about the economic engagement of Russia in the section on economy.
More about colour revolutions in section on security and geopolitics
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which US has been trying to promote. He said that "The United States has overstepped its
borders in all spheres - economic, political and humanitarian, and has imposed itself on other
states"(BBC, 2007).
To conclude on Russian foreign policy towards Central Asia, we have to mention that Putins
administration did not officially draw up any regional strategy for Central Asia that would
integrate Russian security, political, energy and economic interest.(Allison, 2004:283)
Therefore it is difficult to coordinate a coherent Russian foreign policy towards the region and
an effective cooperation through several regional institutions Russia is a member of. In spite
of Russian increasing interest in several spheres such as economic and security ones,
cooperation is evident. Therefore we will examine these dimensions in the way how Russia
promotes its interests.
2.3
Russian diplomatic and security relations with Kazakhstan
2.3.1 Historical background of Russian-Kazakh diplomatic relations

Russia and Kazakhstan have officially established diplomatic relations in 1992, hardly a year
after the dissolution of the USSR. Despite Russian initial disinterest towards the region, the
international recognition of new independent post-Soviet countries brought a need to
formulate a certain Russian approach towards its largest southern neighbour. The very first
cooperation started in the area of security by signing a Collective Security Treaty (CST) in
1992, which was perceived as a milestone of the regional integration. The signatory states
were Russia, Kazakhstan, Armenia, Tajikistan, Uzbekistan, and Kyrgyzstan. Later
Azerbaijan, Georgia and Belarus have also signed this treaty that became operative in 1994.
The President of Kazakhstan Nursultan Nazarbayev was one of the greatest proponents and
supporter of the Eurasian union10, for which he needed the strong engagement of Russia.
Therefore he took his first official journey to Moscow in 1994, where he made great efforts to
develop bilateral relations in many sectors. During this fruitful visit many documents were
signed, especially those promoting the economic integration. Among them the Agreement on
10
Kazakh initiative to integrate CIS countries in order to affiliate with world community.
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the Basic Principles and Conditions of Use of the Baikonur Launching Site or the Agreement
on the Enhancement of Economic cooperation and integration of Kazakhstan and Russia
(Vinokurov, 2010:4). Russian foreign policy increased its cooperation with Kazakhstan and
other Central Asian countries in the second half of the 1990s due to the disillusion with the
West. Besides there were other factors which brought both countries closer. Firstly it was the
growing transnational threats such as terrorism or drug trafficking. Moreover we could notice
a significant rapprochement over the Caspian oil issue (Legvold, 2003:41). Therefore the
Agreement on Delimitation of the Sea Bottom in the North Caspian for Exercising Sovereign
Rights to the Utilisation of Subsoil and the Declaration on Eternal Friendship and Alliance
Oriented towards the 21st Century was signed. Afterwards, in 1998 Boris Yeltsins official
visit to Kazakhstan followed, which meant the reinforcement of economic ties between Russia
and Kazakhstan. The ground for a new phase of mutual cooperation in the sphere of free
trade, energy and information technologies was prepared. One year after, the new Prime
Minister Vladimir Putin has graced the President Nazarbayev with his official visit during
which the agreement on cooperation between the border regions of Kazakhstan and Russia for
the period from 1999 to 2007 was signed (Vinokurov, 2010:5). What we can certainly infer
from this mutual development and frequency of official visits between both countries is the
growing importance of Kazakhstan for Moscow. Vladimir Putins accession to the post of
President of the Russian Federation brought closer cooperation with its larger southern
neighbour the Republic of Kazakhstan. The most important issues in their diplomatic relations
were the status of the Caspian Sea and the cooperation on the security and economic levels.
2.3.2 Increasing influence of Russia in Central Asia after 9/11

The beginning of the 21st century was marked by the terrorist attacks in several Central Asian
states and the US afterwards. The fight against this transnational threat became a driver for
the following Russian involvement in the region (Freire, 2009: 140). In the early 2000s, after
the events of 9/11, Russian military elites accepted the cooperation with the international
community (US military forces, its western allies and China) on the counter-terrorist activities
in Central Asia. However Moscow used this rationale of joint anti-terrorist action as a mean to
promote Russian military influence over the region. Many common counter-terrorist projects
on the international level were advocated by Russians but there was a lack of coordination and
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they often led to inefficiency. On the other hand Vladimir Putin made significant effort to
promote bilateral and multilateral relations with the regional leaders. Bilateral relations with
Kazakhstan have been always one of the priorities for Moscow. Kremlin considers President
Nazarbayev as the closest partner of Russia among the Central Asian leaders. The security
relations were based on the need to safeguard a peaceful use of nuclear facilities, which
remained in Kazakhstan after the collapse of the USSR. Moreover there were some
agreements signed about the export of the uranium, which was crucial for Russian industrial
sector, towards Russia. The military cooperation between both countries was also growing till
the beginning of 2000s, when Moscow started to reduce some of its military programs at the
Baikonur Spaceport. The issue of the Baikonur Cosmodrome played a very important role in
the security relations between Russia and Kazakhstan (Legvold, 2003:41-43). The significant
success was achieved in 2004 by signing the extension of Russias lease of Baikonur
Cosmodrome until 2050 (TengriNews, 2011). Nevertheless some boarder disputes, related to
the illegal flow of people and goods from Kazakhstan to Russia, have appeared along their
7,600 km long frontiers, which made difficult the realisation of any bilateral military and
political alliances between Russia and Kazakhstan (Allison, 2004: 288-289). On the
multilateral level two crucial regional organisations were founded: the Shanghai Cooperation
Organisation (SCO) and the Collective Security Treaty Organisation (CSTO). The other
section will introduce both of them.
2.3.3 The regional security organisations

The Shanghai Cooperation Organisation was established in June 2001 with the goal to
mobilise Central Asian leaders in united fight against regional terrorism. It emerged from the
regional informal agreement called Shanghai Five (1996) about the border security between
China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan. Two treaties adopted by these
countries helped to solve the border disputes and reduce the military forces on the common
borders. Moreover it demonstrated Chinese and Russian concern about the growing Islamic
radical movement in the region. In 2001 Uzbekistan joined the Shanghai Five group and the
declaration on the establishment of the SCO followed. Beijing has formulated the main goal
of the organisation as the fight with the three evils - separatism, fundamentalism and
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terrorism. In the framework of the SCO, Russia and China have succeeded to expand the
regional military cooperation and Beijing created important links on different levels with the
member countries (Marat, 2011:83).
Russia was, however, rather interested in monitoring Chinese actions and growing influence
in Kazakhstan and Central Asia as such. The SCO was seen by Kremlin as a means of a
possible control of the Chinese activities in Kazakhstan. Russia has been also aspiring to the
regional cooperation on the energy issues via the SCO. Therefore Moscow has initiated the
creation of the Energy club that was founded in 2007 after the agreement was achieved
among the all SCO members (Matusov, 2007:84). The goal of this club is to coordinate the
national energy policies and to lay the ground for discussion among the member states. The
cooperation within the SCO in the domain of energy might provide Russia, as one of the
major power in the organisation, with the power to influence the energy strategies of Central
Asian countries.
Maria Freire (2009) argues that Russia has been trying to use the SCO in order to demonstrate
its active presence in Central Asia while containing the rise of newly industrialised China in
the region and hinder the US to fully infiltrate into the security system of Central Asian states.
However we could also perceive the SCO as the factor which contributes to the weakening of
Russian dominant position in some spheres in the region, particularly in the economic sector,
where Moscow has to share its influence with China.
The organisation has also a global importance, especially on the security level as it cooperates
with Iran, Pakistan but also with India, a potential energy importer of Kazakh oil. All these
mentioned countries have an observer status in the SCO.
The Collective Security Treaty Organisation (CSTO) was established in 2002 and signed by
the Presidents of Russia, Kazakhstan, Armenia, Belarus, Kyrgyzstan and Tajikistan. The main
aim of the organisation was to address new threats and challenges through a joint military
command located in Moscow, a rapid reaction force for Central Asia, a common air defence
system and coordinated action in foreign, security and defence policy.(Allison, 2004: 286)
However the CSTO grew up from the CIS Collective Security Treaty (1992), which failed to
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unify the region on a security level. The new organisation was perceived as a reaction on the
increasing terrorist threat and mainly as a response to the growing US military presence in the
region. Moscow replied to the interest of member states by purchasing them cheap military
equipment. Russia was the only major power initiating the foundation of the CSTO and thus
has a leading position within its framework.
Together with The Collective Security Treaty Organisation (CSTO), the SCO aspired to
establish transnational security regimes, which could counter-balance NATO activities in
Central Asia. They represent an important mean of sustaining regional security but most of
the Central Asian leaders directed towards political authoritarianism with the aim to reinforce
the rights of president, increase public propaganda and reduce the role of civil society (Marat,
2011:81) Putin has used both organisations to raise the demand for the withdrawal of the US
forces from the military bases in Kyrgyzstan and Uzbekistan. However Beijing stood up
against Moscow and emphasized that the SCO is not anti-Western directed bloc. For all, the
SCO and the CSTO remained in good terms. In 2007 they have even agreed on broader
cooperation over the issues such as security, drug trafficking and crime in the region
Russian efforts to reintegrate the region on the security level had to challenge the formation of
the alternative bloc called GUAM Organisation for Democracy and Economic Development.
The current members of this organisation, established in 1997, are Georgia, Ukraine,
Armenia, and Moldova. Uzbekistan entered the GUAM in 1999, changing its name on
GUUAM, but later withdrew from the organisation. In spite of the US support, GUAM did
never really endanger the interests of the Russian foreign policy in the region.
2.3.4 Legal status of the Caspian Sea

What markedly shaped bilateral relations between Russia and Kazakhstan were the disputes
over the legal status of the Caspian Sea which emerged after the dissolution of the USSR. The
Caspian Sea is considered as an immense lake or an inland sea. There are different parts of the
Caspian Basin; some of them are more likely to be explored than others (Amineh, 2003:185189). The Caspian Sea has common borders with five littoral states Azerbaijan, Iran,
Kazakhstan, Russia and Turkmenistan. However, the Caspian Sea was originally shared only
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by Iran and the Soviet Union. In 1991 three new independent states were established around
the Caspian Basin. Western oil companies, willing to explore the Caspian Basin were highly
involved to mobilize newly emerged countries in order to solve the problem of Caspian Sea
legacy. Azerbaijan was the first to propose the division of Caspian Sea into national sectors.
Shortly Kazakh concept of the territorial waters followed defining the Caspian Basin as the
inland sea in contrast with the Azerbaijan vision of a boarder lake. However Iran and Russia
strongly disagreed with this definition proclaiming the Caspian Sea as a unique water basin,
whose legal status comes from their bilateral treaty from 1941 stating that the exploitation by
other party was prohibited. This treaty, moreover, established a ten-mile offshore band for
exclusive fishing rights. Besides that no boarders or division were drawn on the Caspian Sea.
However, in 1996 Azerbaijan and Kazakhstan have signed a significant declaration
recognizing each others rights to exploit the natural resources in appropriate sectors of the
Caspian Sea. The united reaction followed by Iran, Russia and Turkmenistan, who
encouraged the establishment of 45-mile band of national sector and common ownership of
the middle part of the Caspian (Amineh and Houweling, 2007:371). However the other two
littoral states did not accept this proposition. Kazakhstan, moreover, has declined the deal
with Western oil companies about the exploitation rights in its sector. This caused immediate
reaction from Russian side which led towards the intensive talks and final compromise. Both
countries agreed on common ownership of the surface and water basin of the Caspian and
division of the Caspian seabed on national sections with the rights to exploit oil and gas
resources. This agreement is considered as the first international legal document about the
Caspian Sea. Iran, however, shocked by Russian distinct shift from traditional Iran-Russian
approach over the Caspian status, advocated either common ownership of the Sea or its
division into five equal parts. The Russian emphasis to solve the problem and start to exploit
the energy reserves in the Caspian increased after the accession of the President Vladimir
Putin. First, the bilateral agreement with Azerbaijan was signed, which proclaimed the
demarcation of the seabed according to the median line. The question of the Caspian surface
had to be resolved later and in the meantime it remained under joint control. In November
2001 several bilateral negotiations between Azerbaijan, Kazakhstan, Russia and Turkmenistan
took place with the result that the Caspian Sea should be divided along lines acceptable to
bordering and opposite countries, i.e. in a bilateral format (BBC Monitoring service 2001 in
Amineh, 2003:191). Northern part of the Caspian seabed was eventually divided in 2003
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following bilateral agreements between Russia and Azerbaijan (2002) about the common
Caspian boarders and between Azerbaijan and Kazakhstan (2003). These two agreements
complemented the original Russian-Kazakh cooperation from 1998 and established a so called
trilateral agreement about the exploitation rights over the north Caspian seabed. Therefore
the openness of the northern part for foreign investments and exploitation works meant a great
shift in the economic development of Kazakhstan and Azerbaijan, whose hydrocarbon
resources are located mainly in the Caspian Sea. On the other hand, Russia already possesses
large reserves of natural gas and oil, which are situated in the midland of the country, mostly
in Siberia. However the access to the Caspian Sea is strategically important for Russia.
Despite the mutual agreement of the northerners, Iran is still demanding the equal division
of the Caspian Sea into five parts. Due to the unresolved situation in the south, the possible
conflicts and disputes are more likely to occur among the Caspian littoral states (especially
Iran, Turkmenistan and south of the Azerbaijan).
To conclude, Russia has markedly increased its cooperation in the security sphere with
Kazakhstan and even developed multilateral relations within the region after mid 1990s. The
milestone for Russian foreign policy in Central Asia was the events of 9/11 which introduced
new transnational threat terrorism into the world and brought the US presence to the Central
Asian region. This served as a rationale for Russians to assert its influence over the region and
create a counter-balanced system to the Western activities in the Central Asia. The legal
regime over the Caspian Sea was still not set up. However there exist bilateral agreements
among northern Caspian states, which make the investments and exploitation of oil and gas
possible.
2.4
Economic relations with Kazakhstan
2.4.1 Historical background of economic relations and mutual trade

The Kazakhstan economy, during the Soviet regime, was mainly based on agriculture
products and livestock farming. Apart from this, the coal mining and metal industry were also
very significant sources of finance for the Soviet government. Kazakhstan was a part of
Soviet centrally plan system within which it specialized in metallurgy, mineral extraction and
wheat production (Lycos). After the dissolution of the USSR the trade system between both
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countries collapsed and caused a severe downturn in Kazakhstan economy during 1990s. The
contribution of industrial sector to the GDP has declined from 31% to 21% in this period and
the agriculture share of the GDP fell from 35% to 7.4% (Mongabay).
The economic relations and mutual trade between Russia and Kazakhstan have rather
stagnated in the 1990s. Newly established Russian Federation was mainly preoccupied by the
reconstruction of its national economy during the 1990s. Less developed Caspian region did
not really represent a priority for Russian elites. Therefore, initially no Russian oil companies
were interested in the development of Kazakh oil fields. Therefore the Kazakhstan Ministry of
Energy and Mineral Resources had to turn towards the Western investors and finish the
agreements mainly with the US oil companies about financial support to tap the oil reserves in
the major oilfields Karachaganak and Tengiz. However Lukoil Company has, finally,
acquired a minority stake in Tengiz field and even substituted Russian state giant Gazprom in
Karachaganak field (Gorst, 2007:21). By 1996 trade was 31% of 1991 levels (Legvold,
2003:20). The following decade was accompanied by several economic crises and worldwide
fall in oil prices in 1998. However the situation changed following Putins accession to the
post of Russian President and consequential amelioration of Russia-Kazakhstan relations in
the beginning of 2000s. The new President brought along the pragmatic strategy for the
Caspian Sea region based on the economic interests. Putin has even established the post of a
special presidential envoy to this region to which former fuel and energy minister Viktor
Kalyuzhny was appointed (Akiner, 2004:247-248). The President has also started to support
the Russian oil companies participating in the Kazakh oil projects. Nowadays the Russian
Federation represents the main importer partner for Kazakhstan following by China (26,1%)
and EU27 (25,1%). Russia covers almost 30% of Kazakhstan total import according to the
IMF statistics from 2009 (DG Trade Statistics).).
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Table 1: Kazakhstans major imports partners (2010)
Source: DG Trade (2011) Kazakhstan. EU bilateral trade and trade with the world
2.4.2 Regional Economic organisations

The economic cooperation between the Russian government and Kazakhstan has developed
throughout the years mainly around three regional organisations: the Customs Union and the
EurAsEc. Before embracing the content of these organisations, we have to emphasize the
Kazakhstans bad economic situation in the beginning of 1990s. Kazakhstan was the last
country to proclaim independence after the fall of the Soviet Union and many elites wished to
remain under the USSR regime. So far, most of the economic links led to Russia and
neighbouring post-Soviet countries. Moreover Russian own economic problems and
westernisation course of the early 1990s have caused a significant decline in KazakhstanRussian bilateral relations and their mutual economic trade. Kazakhstan suddenly lost its
steady market of goods and energy. Therefore Nazarbayev sought to reintegrate the economic
union with Russia in order to escape the systematic crisis. The Kazakhstan leader has
proposed to form a so called Eurasian Union, which was however unacceptable for Russia as
it undermined its position among the CIS countries (Vinokurov, 2010:7).
In the mid of 1990s preliminary documents were signed to establish a Custom Union between
Kazakhstan, Russia, Belarus, Kyrgyzstan, Tajikistan but it was never fully supported by all
the members. The increasing frequency of the diplomatic visits between both countries has
brought a number of inter-governmental agreements in the domain of economic cooperation,
especially in the energy sector. Some protocols were signed to limit restriction and promote
free trade in the power sector (Vinokurov, 2010:4). However Russia was not anymore
perceived as the only strategic partner. Astana has developed cooperation with many Western
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oil companies, which have largely invested in the Kazakhstan energy sector and in the early
2000s Kazakhstan has already experienced a significant economic growth.
With the change of Russian leadership the efforts for regional economic integration reemerged. In 2000 the Eurasian Economic Community (EurAsEc or EAEC) was established by
five post-Soviet countries: Russia, Kazakhstan, Belarus, Tajikistan and Kyrgyzstan. Five
years later, Uzbekistan has also joined the Community. According to the foundation
agreement of EAEC, the principal goal was to promote the process of formation of Custom
Union and Single Economic Space. In other words the free trade regime had to be introduced
with the unified system of custom regulations and tariffs. Among other objectives was to
create a common energy market with the equal rights for foreign investment. However the full
operationalisation of EurAsEc goals have not been implemented earlier than in 2010, when
Customs Union was signed between Russia, Kazakhstan and Belarus. This was considered as
the biggest achievement of the regional economic cooperation since the USSR dissolution.
The establishment of Single Economic Area was envisaged by 2012. All three countries are,
moreover, planning to synchronize its policies in order to enter the WTO together (Sharip,
Jamestown, 2010). Apart from the EurAsEc Russia, Kazakhstan and Belarus have signed an
agreement with Ukraine in Yalta on the establishment of the Single Economic Space (SES) in
2003. Although the agreement had to challenge many problems, the creation of such a
regional body was important because of the Ukrainian membership. Kiev, however, aimed to
create a free trade zone and did not put any emphasis on the monetary union as the other
members did (Bohr, 2004:493). Therefore many disputes occurred and the formation of an
effective economic space was postponed for later.
This is only the overview of the most significant regional organisations founded during the
last two decades. Many others (CACO, GUUAM) have been forming and disintegrating
within the Commonwealth of Independent States since the dissolution of the USSR. From
Nazarbayevs point of view, these movements towards regional cooperation were reinforced
with the aim to integrate the world community. On the other hand, Putin aspired for
strengthening its power and influence in the Central Asian region. Especially he wished to
maintain Russian dominance over the energy sector in Kazakhstan.
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Conclusion
This Chapter aimed to depict the development of Russian relations with Kazakhstan and to
give an understanding of Russian foreign policy towards the Central Asian region. Two main
outcomes came out of the research. Firstly it is the fact that the Russian foreign policy was
influenced by the increased involvement of the foreign powers and the TNOCs in Kazakhstan.
Therefore Russia has initiated a foundation of several regional security organisations that
would help to assert its influence over the region. Here we get to the second important finding
that SCO has provided Moscow with the institutional framework for the implication of
Russian interest. Russia has moreover strengthened its position on the regional level.
Post-Cold War Kazakhstan-Russian relations have developed mainly around the Caspian
energy resources and in domain of security. Russian decision to reassert its sphere of
influence in Central Asia was designed by several factors. First factor was the engagement of
foreign oil companies in the region during the 1990s. The other one was the Putins accession
on the post of the Russian President in 2000 and the third one was the US presence in the
region after the events of 9/11. The Commonwealth of the Independent States established as a
possible continuator of the USSR has failed in attempt to unify post-Soviet countries. Despite
that, successful cooperation on the bilateral and regional level has gradually evolved among
Russia and Central Asian states.
The cooperation on security level was promoted by Russians mainly after 2001 with the initial
goal to fight the transnational threat- the terrorism. Putin has used to apply this rhetoric in
order to reintegrate the region in its security zone. Moreover Russian position in several
regional military organisations such as the CSTO has strengthened. In the economic sphere
Moscow has realised the importance of Kazakhstan after the spectacular rise of foreign
investments in the development of the Caspian oil and gas fields. Initially only a few Russian
companies (ex. Lukoil) have mobilised to participate on such projects. The change came in
2000s with the Putins presidential mandate, during which he focused on the development of
natural resource market in order to reconstruct Russian economy and regain Russian
superpower position on the international scene. Putin made a great effort to resolve the status
of the Caspian Basin in order to start an exploitation works in the Northern part. Russian oil
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companies have gradually engaged in many development projects and joint ventures with
Kazakhstan government but also with Western private oil companies. Russian leverage in the
region was shifted from the ideological level towards the economic one.
3. POLITICAL SYSTEM AND FOREIGN POLICY IN

KAZAKHSTAN
For better understanding of Russian-Kazakh relations, the analysis of the post-soviet
development in Kazakhstan will be essential. In this chapter we will mainly examine nationstate building in Kazakhstan, its political system and foreign policy. The chapter will cover
the period from the 1991 until 2008 with focus on the recent years. The evaluation of the
Nursultan Nazarbayevs leadership will be also a very important element of the research as he
was the main designer of the state-building and foreign policy in Kazakhstan. The process of
forming Kazakh foreign policy is examined together with nation-state building because both
were firstly shaped by the same factor- identity. This one has contributed to the formation of
nation, so of state and its foreign policy. However, later the economic factors, especially the
energy resources, have started to play a crucial role. This chapter aims to answer the
questions:
What kind of the political system has been formed and what were the factors shaping Kazakh
foreign policy?
The first section will be dedicated to historical background of the Central Asian region.
The main focus will be put on Kazakhstan and its geographic features that create the base for
the Kazakh geopolitical significance in the world. In the second section we will discuss the
processes of state and nation-building and its challenges. Moreover we will look at the
political system of the country with the main focus on the role of political parties, institutions
and leadership of Nursultan Nazarbayev. We will examine what role play ruling elites in the
post-Cold War Kazakhstan and what kind of regime is being implemented. The last section
embraces Kazakhstan foreign policy with focus on relations with Russia, China and the West
(US and EU).
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3.1 Historical background of the Central Asian region

The region of Central Asia was throughout the centuries the object of great interest for many
empires and rulers such as Alexander the Great, Cengiz Kahn or Stalin, who conquered and
governed such a territory for many years. That had a significant impact on its cultural and
ethnic diversity. All five Central Asian states Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan
and Turkmenistan have formed a part of the Soviet Union. Kazakhstan was established as the
Kazakhstan Soviet Social Republic in 1936 and remained under the control of the communist
apparatchiks until the USSR breakout in 1991 (State.gov). The habits of the Soviet regime
such as the centralisation or controlled economy were adopted by Central Asian states and
some of its aspects were preserved until today.
3.1.1 The Kazakhstan Soviet Socialist Republic [1936-1991]

The Kazakh Soviet Socialist Republic (KSSR) represented the second largest republic of the
Soviet Union. However the relations with Moscow have not been always friendly because of
the Soviet collectivisation of agriculture which caused famine in the country. During the
governance of Nikita Khrushchev, Virgin Lands Campaign (Soviet history) was launched to
open up the wide uncultivated land of Kazakhstan. Many people have emigrated mainly from
Ukraine and Russia to work in the fields. Kazakhstan had to become the bread basket of the
USSR. In spite of the failure of Khrushchev programme, millions of Russian speaking
immigrants stayed in the country and nowadays they represent an important minority. In 1999
the Russian ethnic group counted for 30% of total Kazakh population (CIA 1999 census,
World Factbook Kazakhstan, 2011).
During the Soviet regime, the Kremlin has stored an important part of its nuclear arsenal in
KSSR. Some of these nuclear weapons have remained in the hands of the newly independent
state of Kazakhstan after the dissolution of the Soviet Union. Moreover in the late 1950s the
USSR built in the territory of Kazakhstan the Baikonur Cosmodrome, which became the
oldest and the largest space launch facility in the world. Currently this spatial base is leased
by the Kazakh government to Russia until 2050 (Global Security, 2010). Therefore the close
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cooperation about the military basis was expected between both countries. Concerning the
Kazakh economic position within the USSR, the country was the main exporter of raw
materials and industrial goods among the Soviet Republics. It possesses important
hydrocarbon reserves such as oil and natural gas which are located mainly in the Caspian Sea.
Despite several challenges from local independence movements, the Kremlin has maintained
the domination over this area until the breakup of the USSR (Rywkin, 2010:93). Kazakhstan,
moreover, has also reserves of chromium, copper and other metals. Natural resources of
Kazakhstan were exported exclusively towards Russia and other Soviet states. Centrally
planned economy and transport dependency (mainly on the pipelines leading towards Russian
territory) have strengthened the power of the Russian metropolis. The economic ties within
the USSR were crucial for the industrial and agricultural sector of KSSR. Therefore the new
independent state of Kazakhstan has economically suffered from the collapse of the Soviet
Union.
3.2 Nation-state building and Political system

In this section we aim to bring an overview about the process of the nation-state building in
Kazakhstan. We will further look at the political system and institutions that were formed in
the 1990s. Moreover the leadership of Nursultan Nazarbayev will be investigated. Finally we
will examine the constraints that the new state of Kazakhstan had to challenge during the
period of nation-state building.
After the dissolution of the Soviet Union in 1991, the new Republic of Kazakhstan has
entered the phase of nation-state building. This was carried out from the top as it was
achieved mainly by political elites namely by former Soviet officials. Thus they were the
former communist leaders who have formed new national elites and were in charge of nationstate building (Akcali, 2004:95). The great example is the nomination of the former First
Secretary of the Kazakh Communist Party, Nursultan Nazarbayev, a president of the newly
established Republic of Kazakhstan. Many scholars (Akiner,2004; Akcali, 2004; Cummings,
2006) argue that Kazakhstan was not prepared to gain independence so suddenly. There was
no consistent effort among the political elites or scholars in order to achieve the liberation
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from the USSR. The independence of Kazakhstan came suddenly without any revolution or
any major Kazakh movements. Consequently the institutions of a nation-state were missing.
Therefore Nazarbayev coped with the difficult task to create state building policies and
structures as soon as possible.
3.2.1 Nation-building in Kazakhstan

According to Akcali there were two mechanisms to adopt new state building policies and
establishing new structures. The first one was based on official discourse that was led about
new nation and the second one was the political-legal framework that aimed to create a
ground for such a discourse. Before developing the knowledge on the former (official
discourse) we have to look at the origins of the Kazakh nation. Kazakh people did not exist as
a nation but as an ethnic group under clan leadership11 (Akcali, 2004:100). It was only
during the Soviet Union when the first borders of Kazakhstan were drawn. However some
academics claim that these frontiers are artificial (Kuzio, 1998:257) and do not respect the
ethnic composition. The main cause inheres in the Soviet ideology states that Soviet people
had to adopt a common identity. Therefore the culture of any ethnics was being undermined
in the Union. The need to identify itself as a nation has appeared in Kazakhstan during the
Gorbachevs Glasnost and Perestroika in the late 1980s (Akcali, 2004:100).
The official discourse on Kazakh nation has emerged around three topics: history, national
glory and language. The former is characterized by revisionist tendencies to the past and by
the re-interpretation of the history in a way it would foster the Kazakh national feeling. More
particularly, every sign of resistance against the Soviet or Tsarist dominance over the region
was emphasized (Akiner, 2004:131). The national glory was reflected on new state symbols,
traditions or national heroes. For example, the day of declaration of the independence has
gained a great significance in Kazakhstan despite the initial reluctance of the population of
Kazakhstan to separate from the Soviet Union. The new national flag including symbols
celebrating Kazakh nomadic tradition was introduced (Akcali, 2004:102). According to Taras
Kuzio (1998:258) the new Central Asian Republics were legitimizing their states by
introducing new myths that claim ancient title to the homeland. The language policy was the
11
Latter we will return to that in relations with the leadership of Nursultan Nazarbayev.
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other aspect of the nation-building in Kazakhstan. During the Soviet era, the national
languages forbidden by the Russification process that was in particular intensive in
Kazakhstan. However during the first years of independence Kazakhstan aimed to reduce the
use of Russian. The Kazakh language was institutionalised and promoted in state politics and
bureaucracy. Furthermore, many names of streets, cities, public places or institutions have
been replaced by Kazakh names. Punar Akcah considers these policies as a direct outcome of
the official discourse on nation-state building (Akcali, 2004: 102).
The restriction on the Russian language had, however, aroused negative reactions among
Russians living in Kazakhstan that lead in mass exodus, but also from Russia. In the first
years of the newly founded Republic of Kazakhstan, various debates took place among the
Kazakhs elites. Some were in favour of implementing the constitution in which only native
Kazakhs would have full political rights. On the other side, Russian nationalists (lead by
Zhirinovsky) aspired for the annexation of Northern Kazakhstan, (Nazarbayev, 2009:119)
where abundant Russian minority lived. Another promoter of this policy was the Russian
famous writer Aleksandr Solzhenitsyn. However the official Russian position was never in
favour of annexing Russian populated regions of Kazakhstan. Nazarbayev, nevertheless,
managed to secure these Northern provinces by moving the capital from Almaty in the south
of the country towards north to Astana in 1997 (Trenin, 2011:37-38). This step helped
strengthen the Kazakh position in the Northern part of the country.
The constitution was adopted by referendum in 1995 in which the Republic of Kazakhstan is
defined as a secular democracy (Constitution of Republic of Kazakhstan,1999). Kazakhstan
has two main religions: Islam and Orthodox Christianity. The number of Muslims has
significantly increased during the last decade while Christians are diminishing. The national
population census from 2009 indicates that 70,2% people are Muslims and 26,2% people are
Orthodox (The Agency of Statistics of the Republic of Kazakhstan, 2010) while in 2001 the
figures were more equal with 47% of Muslims and 44% of Russian Orthodox (CIA,
Kazakhstan World Factbook,2001). Nazarbayev made a great effort in order to assure peace
among the different religious living in Kazakhstan.
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3.2.2 Political system and leadership of Nazarbayev

The second mechanism of nation-state building used by Akcah is the political-legal
framework12. He argues that the post-Soviet state and nation building, both, went together in
order to establish an independent state that derives its legitimacy from the nation (Akcali,
2004:103). The political-legal framework is mainly based on the constitutional base, laws and
official presidential statements. All existing institutions were inherited from the Soviet legal
system, which was, however, unacceptable for the new Republic of Kazakhstan, mainly due
to the Soviet ideology. The new Kazakh constitution was adopted in 1993 and in the same
year a new legislature replaced all Soviet institutions. (Akiner, 2004:125). . The Republic of
Kazakhstan was established as a constitutional state with a presidential system. The President
is the formal head of the state and the chief of national armed forces. The constitutions aspired
for clear division of executive, judicial and legislative power. However the president
Nursultan Nazarbayev has the most powerful position in the political system and has
gradually gained control over the majority of the political branches. In 1994 the new
parliament was elected but suddenly dissolved a year later. In the mean time the president
governed alone and greatly contributed to the elaboration of the actual constitution that was
endorsed by referendum in 1995 (Akiner, 2004:125). The executive power was reinforced and
the parliament was framed as a bicameral one. It is composed of two chambers: the Senate
and the Mazhilis but it possesses so far less power than president. Throughout the years the
power of president has strengthen, which was demonstrated, for instance, by several
amendments Nazarbayev added to the constitution. The aim of these constitutional changes
was the prolongation of the Nazarbayev presidential mandate and the weakening of the
legislature in the country. Soon the members of Parliament could only confirm the
presidential statements and decisions. Any criticism or disrespect towards the president was
punished and the offender very often ended up in prison. The newly established independent
state has gradually turned out from the democratic principles. Instead the authoritarian
presidential regime has emerged (Amineh, 2003: 39), which was characterized by the neopatriarchal hierarchy. The tradition of patriarchy is embedded historically but also culturally
in Central Asia. Analogously the deference to elders and authority among the Kazakh
population have been rooted (Gleason, 1997:38). Thus the authoritarian regime was more
12
Political-legal framework refers to the constitution, state institutions, laws, directives and others.
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likely to arise. Moreover the majority of the population that received the Soviet education was
often unaware about democracy or capitalism.
In this neo-patriarchal regime Nazarbayev is on the top of the hierarchy followed by his
family and business elites. This structure is often referred to the clan system in which the
individuals surrounding the President have privileged rights. Nurbulat Massanov describes the
role of Kazakh clan system as following: In Kazakhstan, where President Nursultan
Nazarbaev has established a regime of personal power, clan considerations enable the
president to manipulate personnel policy in his personal interest and to exclude competition,
corporate consolidation, or the appearance of political opponents within the government
(Massanov, 1998). In other words Nazarbayev rewards its clan with certain privileges in
return for political stability and loyalty. The President has also tried to create a family dynasty
by empowering his members of its family, namely his daughter Dariga. However after several
scandals he had to leave these efforts. Hereby a strong bureaucratic structure has grown in
Kazakhstan.
The other pattern of the authoritarian regime is the centralisation of the state in which
Kazakhstan is ranked very highly. The President has a power to appoint almost all political
representatives both in metropolis and on the local level. He nominates the provincial
governors as well as ministers in the government. In the early years after the Kazakh
independence some tension between the Parliament and the President appeared. The
President, nevertheless, stabilised the situation and gradually became the key figure
controlling whole the legislative and executive branches of the political system. His personal
power is moreover strengthened through several amendments to the Kazakh constitution from
1995. For instance, recently Nazarbayev approved the amendment authorising him to run for
the forth presidential elections (Wolowska, 2007). What was the cause of this centralised
authoritarian regime? According to Amineh the main reason was the primitive economic
structure of Kazakhstan and its very weak and fragmented society. In addition, the
hyperinflation of the first years of independence has deeply contributed to the instability and
consequential establishment of the strong authoritarian system (Amineh, 2003:39).
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The civil society in Kazakhstan is still underdeveloped and the individuals hardly participate
in the advancement of the structures of the civil society. The President and its ruling elites
have established an authoritarian regime in which the civil society and its structures are
controlled from above. According to a research led by Cummings and Norgard only a small
number of Kazakhstani respondents (medium-ranking officials) felt that the public should
elect representatives. Even if Kazakhstani officials would prefer increasing individual
participation in society, they would like to control this participation from above (Cummings,
2004:693). Therefore, many attempts to establish NGOs, according to western model, ended
up by losing their independence in decision-making process of such an organisation. In other
words, many NGOs activities endorse government policies or promote interests of its foreign
sponsors. Only a small number of NGOs have maintained their neutrality, but they often lack
money and most of them are inefficient. The most common set out of civil structure are the
informal associations that are traditionally built on the family and neighbours ties (Akiner,
2004:126). Ordinary Kazakh citizen has little interest in the political system in the country.
This could derive from very low involvement of population in the state-building process.
Besides that many political organisations were established such as the lobby groups or social
movements.
Regarding the political parties, Kazakhstan has achieved the biggest progress among the
Central Asian states in developing the multiparty system. According to Akiner the program of
political parties are very vague and their membership is often very small. There are several
pro-presidential parties that are supported by presidential administration (Akiner, 2004: 127).
Comparing two last legislative elections we could observe the weakening of the multiparty
system. In 2004 Parliamentary elections 12 political parties have participated. The result of
the elections was divided among 5 parties in which the strongest one was pro-presidential
Republican Political Party Otan with the 42 seats in the Mazhilist, following by the
electoral bloc AIST with 11 deputies and Republican Party Asar with 4 deputies. Few
years later only 7 political parties have participated in the 2007 legislative elections. The
results are, however, even more shocking. Only deputies from pro-presidential Nur Otan
Peoples Democratic Party gained all 98 seats in Mazhilis because it was the only party to
overcome 7% barrier on multi-party elections (Parlam.kz). This development aroused
criticism of many Western democratic institutions (ex. the OSCE) but also raised the concern
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of many TNOCs who has invested in the Kazakh oil and gas sector. On the other hand, the
ethnic representation and sex-parity in the Parliament was extended and diversified.
3.2.3 Constraints to the process of the nation-state building

Kazakhstan had to challenge many difficulties during the process of nation-state building.
One of the most redoubtable constraints was the countrys ethnic composition. We have to
stress that Kazakhstan was the only post-Soviet country whose national ethnic was smaller
than half of the total population. According to the Russian demographic statistics (Demos),
almost 38% ethnic Russians have lived in Kazakhstan in 1989 comparably to 39,6% of
Kazakhs. It was not earlier than in 1999 when Kazakhs became a majority on its territory
counting for 54% (Nations Encyclopedia). The President Nazarbayev has addressed its attitude
on the issue of multi-ethnicity in the Strategy-2030: Naturally, it is out of the question that some
ethnic or religious groups be granted any priorities against the other ones. Our strategic objective
is a unity of multiform groups of the population,...(Nazarbayev: Kazakhstan-2030). Despite the
Kazakh multi-ethnic character, Nazarbayev has managed to maintain peace and hinder any
major troubles between the different ethnics. The number of minorities has, however,
significantly decreased after the mass exodus of Russians (totally 1,500 000), Germans
(totally 500 000)13 and other ethnics in the first years of the Kazakhstani independence. This
caused an important loss of technical experts, good managers, engineers but also many
ordinary workers in the industrial and the agriculture fields. Their departure was led by the
distrust in Kazakh economic recovery and by the fear from the possible discrimination
tendencies in the new regime. Though the official statements14 proclaim ethnic equality, the
practice is often different. As a prominent academic pointed out while the 1995 Constitution
guarantees rights to all citizens, irrespective of ethnicity, in reality ethnic Kazakhs
monopolize the economy and polity, and institutions guaranteeing pluralist rights are lacking
(Cummings, 2006:177).
13
Total figure for the period from 1989 to 1999 according to the Embassy of the Republic of Kazakhstan in the
USA.
14
See official pronouncements in Kolsto, 1998: 56-58.
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Many scholars (Akcah, Akiner) argue that the economic development is an important
condition for the successful nation-state building. Kazakhstan was largely dependent on the
Soviet Union structures and on the subsidies from the Soviet budget. This funding was lost
with the independence. Moreover the trade and transport routes within the Soviet Union were
disrupted which shook the whole economy in the country. Kazakhstan stood in front of the
crucial task to come out with a new economic system which would be based on the principles
of free-market (Akiner, 2004:118). Nazarbayev has launched a series of economic reforms but
the evident economic dependency on Russia made this transformation difficult. Moreover all
the reforms, including the privatisation, were under strict control of the ruling elites, which
strengthened their power and established the system of patronage, in which the political elites
were able to keep the loyalty of its supporters by offering them the possibility to purchase
some lucrative national companies during the privatisation. The formal institutions were often
bypassed as in the process of privatisation, so in the other political or cultural decisions.
Generally new states institutions lacked autonomy (Akiner, 2004:119-124). The Kazakh
President was also the initiator of the regional cooperation through the CIS structures but it
turned out to be unsuccessful. Therefore Kazakhstan had to open towards the foreign
investors and develop new export routes and markets, namely with the US. In the same time
Nazarbayev tried to not irritate the Russian administration and thus he had to find a way to
balance its foreign policy.
Some other constraints appeared regarding the external sovereignty. Kazakhstan had to
challenge the borders concerns, especially with China15 and Afghanistan where the issue of
territorial demarcation and drug trafficking played an important role. The countrys military
forces were not strong enough to assure such a vast frontier. Until 1991 Kazakhstan was fully
dependent on Russian security forces but during the first years of independence the country
aimed to resolve this issue by establishing cooperation and bilateral relations with its
neighbouring countries. Therefore Kazakhstan had to form a concept for its foreign policy and
create relations with regional actors but also with the external major powers such as the US.
The conceptualisation of the Kazakh foreign policy and its relations with major players
involved in the region will be analysed in the following section.
15
See the section on Kazakh-Chinese relations
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3.3 Kazakhstan Foreign policy and relations with major powers
In the aftermath of the Soviet breakup Kazakh elites stood in front of the crucial task to come
out with a new foreign policy and find a stable position on the international scene. The
national identity and the Kazakh multi-ethnic character have largely contributed to the form of
new foreign policy concept. Besides that the economic and geopolitical features played also
an important role in shaping new foreign policy course. Kazakhstan identifies itself as a
Eurasian bridge (Cummings, 2003: 139). This concept emphasizes the Kazakh strategic
position between Europe and Asia. The main creators of foreign policy were political elites
and foremost the President Nursultan Nazarbayev himself. Therefore the official
pronouncements of the Kazakh President would be crucial for the identification of the Kazakh
foreign policy. In the article 40 of the Constitution of Republic of Kazakhstan from 1995 it is
stated that:
The President of the Republic of Kazakhstan shall be the head of state, its highest official
determining the main directions of the domestic and foreign policy of the state and
representing
Kazakhstan
within
the
country
and
in
international
relations.
3.3.1 Kazakhstan foreign policy concept

Until 1991 the Kazakh foreign policy was in the hands of the Russian government. Thus no
Kazakh foreign policy elites existed and the central government in Moscow did not share any
experiences with Kazakh political elite in this sector. Kazakhstan stood in front of the task to
form the concept of new foreign policy and create new elite that would embrace Kazakh
representation abroad. Nazarbayev aimed to show its country abroad as a non-ideological,
peaceful and generous state. The former was assured by Kazakh distinction from the
communist era and its ideology. The second one was manifested by Kazakh efforts to
eliminate nuclear weapons that were inherited from the USSR. And generous, because
Nazarbayev has decided to open a national industrial market (including hydrocarbon
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resources) and offer a possibility for foreign investors and transnational companies (TNCs) to
participate in advantageous production share agreements (PSA)16. The most important
characteristic of Kazakh foreign policy is pragmatism. Sally N. Cummings argues that
presidents official pronouncements deviate from the ideological course. Nazarbayevs
foreign policy strategy is to establish good relations with every state without any serious
consideration of its ideological conviction. The President Nazarbayev has adopted so called
multi-vector foreign policy, which was introduced in his speech on 16 May 1992. 17 The
prominent academic Reuel Hanks (2009:259) explains this concept as following: The term
multi-vectorism refers to a policy that develops foreign relations through a framework
based on a pragmatic, non-ideological foundation. Multi-vector foreign policy then essentially
is motivated solely by the perceived interests of the state in achieving its policy objectives.
In other words the Kazakh foreign policy is motivated by the goal to create self-beneficial
relationships with other countries either in the economic spectrum or in the security one. The
objectives of this concept are as following:
assuring a state sovereignty
achieving the economic development
integrating into the international community
Reuel Hanks argues that multi-vector diplomacy has evolved from the realist rational model.
This model is based on the assumption that self-interest and self-preservation are the principal
motivators for interactions between the states (Hanks, 2009:259). However we should stress
that Kazakhstan has enlarged its sphere of interaction beyond the nation-states. Today, the
non-state actors play a crucial role and thus we could include in this transnational interaction
also TNCs, NGOs or divers lobbing groups.
The multi-vector approach represents the main framework of Kazakh foreign policy and it is
foremost based on pragmatism. To support this statement we will stem from S. Cummingss
(2003:142-143) reasoning of Kazakh pragmatic approach in foreign affairs. The first rationale
16
TNOCs or other foreign companies could purchase large stake in the national oil fields for example.
17
See Interview with Nazarbayev, Kazakhstanskaya Pravda, 16 May 1992, as cited by Hanks, Multi-vector
politics and Kazakhstans emerging role as a strategic player in Central Asia and by Cummings, Eurasian bridge
or murky waters between east and west? Ideas, identity and output in Kazakhstans foreign policy.
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for such a policy was the Russian initial neglecting of Kazakhstan. Therefore Nazarbayev
sought to establish new partnerships with other regional but also non-regional actors in order
to get out from the economic depression but also to receive an international recognition. For
this purpose the cooperation with the USA was very beneficial as it helped to achieve both the
economic recovery and the recognition of Kazakh independence among the world powers (see
section Kazakh-US relations). The official presidential speech from 1992 Strategy for
Formation and Development of Kazakhstan as a Sovereign Government stresses five regions
of significant importance for Kazakhstan. These are CIS countries, Europe, Asia, North
America and Pacific Basin. A special emphasis was put on Russia, China and the USA.18
The second reason consists in the geographical position of Kazakhstan. As it is a landlocked
state, Kazakhstan depends to great extent on its neighbours (especially on Russia) in order to
export its natural resources across their territory. China has emerged as a new actor in Central
Asia due to its energy deficiency and also became recently a direct supplier of Kazakh oil
after the construction of the Kazakh-Chinese pipeline. The fact that Kazakhstan is building
such a strong relation with China corroborates the argument that Kazakh foreign policy is
based on pragmatism. For a long time China represented a threat and it is still perceived with
a distrust and caution among Kazakh population. Despite that Kazakhstan, led by the
economic reasons, is strengthening its relations with Beijing in the domain of energy and
security (see section Kazakh-Chinese relations).
The third reason for pragmatism stems from Nazarbayev effort to create new identity of
Kazakh leadership that would be introduced in the world politics. For this purpose President
Nazarbayev has initiated many grandiose plans. For example he proposed the reunification of
the Central Asian region in many domains and promoted a mutual cooperation in several
organisations such as the Eurasian Union (EAU) or the Asian security regime, which was
inspired by the Organisation for Security and Cooperation in Europe (OSCE).
The last reason for pragmatism comes from the S. Cummings findings that the ethnic
Kazakhs have a very weak sense of their identity and statehood. In other words they did not
create yet a strong attachment to their national state. Therefore it allows the flexibility in their
18
Ibid.
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responses (Cummings, 2003:142-143) and any strong opposing reactions are not expected
among the Kazakh public opinion on the foreign policy issues. To conclude Kazakhstan has
established good relations with its regional but also non-regional partners. Kazakh nation has
overcame the fear from China and managed to adopt balanced diplomacy in order to lessen
the dependency on Russia. It has established an important partnership with the US in the
security domain after the 9/11. The Kazakh importance has risen regionally but also globally.
On the other hand Kazakhstan emphasises its close ties with Russia. Kazakhstans role as a
regional leader in Central Asia and as an influential player in global geopolitics has steadily
expanded since the demise of the Soviet Union (Hanks, 2009:257). The rationale for it could
be found in Kazakh balanced diplomacy that managed to attract foreign investors and
establish partnership with global powers promoting economic and security cooperation in the
region.
3.3.2 Factors shaping Kazakh foreign policy

The Kazakh foreign policy was mainly shaped by economic and geographical aspects.
Strategically Kazakhstan is important because it is located between Europe and Asia as we
mentioned above but it represents also a crossroad between the Christian and Muslim worlds.
Moreover it shares long borders with Russia and China. Thus many external actors are
interested in the region mainly about the issue of security and fight against terrorism. From
the economic perspective Kazakhstan possesses abundant oil reserves and might become an
important player in the following decades due to the growing problem of energy scarcity of
many industrialised countries and newly emerging industrialised states such as China.
The territory of Kazakhstan is landlocked, which is the key factor of Kazakh well balanced
diplomacy. Astana is highly dependent on the good will of its neighbours because of the oil
and gas transport routes. To achieve the lucrative Western markets, Kazakhstan had to
establish a strong diplomatic relations with its neighbour states, especially with Russia
through which a major amount of oil is going. Therefore we can claim that the Kazakh foreign
policy was mainly built on economy and security issues. For this purpose Nazarbayev has
embraced a multilateralism attitude in its foreign policy.
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3.3.3 Multilateralism in Kazakh foreign policy

Kazakhstan has taken a lead on several fronts: post-Soviet Eurasianism integration
with Russia, continental-Asian focused on confidence building, and pan-European, where in
2010, it became the first OSCE chair among the new independent states of the ex-USSR
(Trenin, 2011). For a better apprehension of this multilateralism we will name some phases of
Kazakh foreign policy from the beginning of its formation. The first one was strongly linked
with the multi-vector approach that led Kazakh foreign policy in partnership with any state in
different spheres. In the second phase the importance of Russia grew up, which was
manifested by Nazarbayevs initiations to create EAU but also by the close cooperation in the
security domain. The third stream Kazakh foreign policy was motivated by the desire to join
the international economic community. Later it was developed also into the international
security cooperation (Cumming, 2003:141).
The goals of the Kazakh foreign policy are clearly described in the official document
Kazakhstan-2030 Strategy, which was introduced by President Nazarbayev in 1997. Five
elements of foreign relations are addressed to ensure the independence, territorial integrity and
development of the country. The first priority of Kazakhstan is to consolidate the relations of
confidence and equality with our closest and historically equal neighbour Russia (Nazarbayev,
1997: 18). We should stress that it is the common culture, history and economy that strongly link
both countries. The word equality plays a significant role for Kazakh perception of the mutual
relations with Russia. Likewise Nazarbayev expressed the will to establish just as positive and
mutually beneficial relations with China. This one is mainly based on the economic and security
cooperation. Consequently he aims to advance the integration processes among the Central Asian
countries and strengthen its dialogue with Near and Middle East. The second part of the Kazakh
long-term strategy consists in consolidation of relations with the major industrial democratic
states such as the USA. According to Nazarbayev, these democracies are more and more aware
about the prosperity of independent Republic of Kazakhstan, which could serve to their national
interests. The following element of Kazakh foreign policy comes from the desire to enhance the
cooperation with international institutions such as the IMF, the World Bank or the European,
Asian and Islamic banks of development in order to secure the support granted by international
community. The forth component of this strategy stem from the attempt to develop the
exploitation of national resources, namely oil and gas. This one should help to assure sovereignty
and territorial integrity of the country. The last point inheres from the need to develop strong
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national feeling and patriotism among the Kazakh population (Nazarbayev, 1997:18). Table 2
gives an overview of regional and international organisations Kazakhstan is involved in. We argue
that Kazakhstans membership was mainly motivated by the will to manifest its independence and
integrate into the global politics and international economic community. To conclude Kazakhstan
aims to maintain friendly relations with all its neighbours but also with global powers in order to
assure the national security and establish economically advantageous relations. Moreover the goal
is to embrace the cooperation with the international financial institutions and strengthen the
national feeling in the country with aim to maintain the political stability.
Table 2: Kazakhstans membership in the most important regional and international

organisations
REGIONAL ORGANISATIONS
INTERNATIONAL ORGANISATIONS
Commonwealth of Independent States (CIS)
United Nations (UN)
Economic Cooperation Organisation (ECO)
World Bank Group (WB)
Eurasian Economic Community (EAEC)
Organisation for Security and Cooperation in

Europe (OSCE)
Shanghai Cooperation Organisation(SCO)
European
Bank
of
Reconstruction
and
Development (EBRD)
Collective Security Treaty
Organisation Organisation of Islamic Conference (OIC)
(CSTO)
Conference on Interaction and Confidence Programme Partnership for Peace in NATO
Building measures in Asia (CICA)
(Pfp)
Source: Authors mapping of the Kazakh membership in the international institutions
3.3.4 Kazakh relations with Russian Federation

Kazakhstan is linked to Russia by common history, culture, geography, infrastructure but also
by economic relations. Richard Weitz (2008:112) stresses two aspects that make KazakhRussian relations unique. From the geographic perspective both countries share the world
longest land borders. The demographic aspect also plays an important role, as the abundant
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Russian ethnic lives in Kazakhstan. Kazakhstan has established its diplomatic relations with
Russia in 1992 by signing the Treaty on Friendship, Cooperation and Mutual Assistance,
which represents the legislative basis for their relations (Sultanov, 2010:145). In this
agreement both countries committed themselves to respect their mutual border and
sovereignty. Every discord had to be resolved in peace and through the mutual settlement. In
1998 the Declaration on Eternal Friendship and Allied Relations aspiring for the development
of the mutual cooperation on the economic, political, cultural and humanitarian level was
adopted. The key moment in Kazakh-Russian relations was the change of leadership in
Kremlin. New President Vladimir Putin was perceived in Astana more positively than his
predecessors.19 Their mutual relations have started to expand mainly on the security and
economic basis (See Russian security and economic relations with Kazakhstan in chapter 2).
3.3.5 Kazakh relations with the USA

The Kazakh foreign policy strategy was to establish good ties with the United States in the
context of the Kazakh effort to be on good terms with all the global actors. Washington of that
time was viewed by Nazarbayev as the actor having decisive leverage on the economic and
political development in the world. Therefore the relations with the US were one of the
highest priorities for Kazakh foreign policy. In addition to that, Nazarbayev was aware of
drying up of Moscows financial funds and together with the continual Russian neglecting of
the Central Asian region in the first half of 1990s, Kazakhstan has decided to shift most of its
attention to other great powers mainly to the US and the EU with a view to secure the
financial aid. According to Majid Jafar Kazakhstans approach to the US has been to play to
US interests in order to maximise its own economic return, while creating a balancing factor
against Russian dominance in the region (Jafar, 2004:213). Nazarbayev had to implement
some liberal reforms, especially in the economic sector, and open its market to foreign
investors in order to gain some subsidies from the West. Kazakhstans policy of quick
privatisation in the domain of energy brought an immense flow of foreign investment to the
country, which was the condition for release of Western aid. Following this policy Almaty
obtained an easy access to the international lending institutions such as the IMF, the World
19
See section on New Russian foreign policy under Putin in the 2 nd chapter.
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Bank and the European Bank for Reconstruction (EBRD). Moreover Kazakhstan has received
immediate benefits from the US Agency for International Development and the European
Unions TACIS programme (Jafar, 2004). Kazakhstans progress allowed it to realize positive
GDP growth in 1996 and 1997 (OECD, 2001).
What, however, preceded this economic grow was the Kazakhstani cooperation with the US
in the domain of disarmament of the nuclear arms inherited from Soviets and located in the
territory of Kazakhstan. The aim of this joint action was to reduce and eventually eliminate
thousands of nuclear warheads and ballistic missiles that Kazakhstan possessed
(Yesdauletova, 2009:32). The preferences for the US expertise in dismantling the nuclear
arsenal over the Russian one has signalized the Kazakh will to pursue multi-vector
diplomacy (Hanks, 2009:257). This step was motivated by two different factors- the
acquisition of the concessions promised by the White House on one side and the Kazakh
aspiration for that regional leadership on the other side. The latter one required the
counterbalancing of the Russian hegemony in the CIS countries.
The US was the first country to recognise the Republic of Kazakhstan and made a great effort
to help this country in accessing the international institutions such as the UN or the
Commission on Security and Cooperation in Europe (CSCE). The Clintons administration
has actively participated on the facilitation of the Kazakhstani integration into the world
market. This Western effort could be explained by the Kazakh possession of the large nuclear
arsenal and the need to keep it safe. After accomplishing this task, the US government has
shifted its interest towards abundant oil resources in the Caspian Sea and encouraged many
American oil companies to invest in the Kazakhstans energy developments projects (See
chapter 4).
President Nazarbayev went for several official visits to Washington with the aim to strengthen
their cooperation. In 1992 several agreements were signed in order to promote mutual trade
and investment in the Kazakhstani energy sector. Two years later the Charter on Democratic
Partnership was adopted. The events of 9/11 introduced a different dimension to the KazakhUS relations based on the security cooperation. Kazakhstan firmly supported US counterterrorist interference in Afghanistan and later it even sent there its peacekeeping regiments,
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KazBat. (Marat, 2010: 108). The basis for the military cooperation between both countries
was laid and meant the key moment in their security relations. In return Nazarbayev has
demanded the exchange of knowledge and experiences in the domain of entrepreneurship
called the Houston initiatives. The implementation of the Houston initiative represents the
main aspect of Kazakh-US economic cooperation because it expands government support to
the development of small and medium-sized businesses in Kazakhstan, which, in turn,
increases the socioeconomic indicators of the country and improves the general level of the
wellbeing of the population (Sultanov, 2010: 164).
Kazakhstan has also developed relations with NATO already in the beginning of 1990s. Their
collaboration is mainly based on the programme Partnership for Peace that Kazakhstan joined
already in 1994 (McDermott, 2007:15) but the cooperation has intensified after the US
terrorist attacks in 2001. The dialogue takes place mainly within the framework of the EuroAtlantic Partnership Council (NATO, 2009). The increased cooperation with NATO went
along the growing economic cooperation with the EU countries. In 2005 the EU has become
the biggest direct investor with possession of more than 40% shares in the Kazakh companies
(Marat, 2010: 109). In 2009 the export volume to the EU countries has reached 37, 4% of
total Kazakh export market that keeps the EU27 on the position of the most important Kazakh
export partner until then followed by China with 15,4% share (DG TRADE). Kazakhstan has
started to attract the EU countries due to its stable and safe position in the Central Asia that
was backed by the US and proved by Kazakh will to cooperate with many international
institutions such as the UN or NATO. In conclusion the cooperation with the West was more
than fruitful. It brought to Kazakhstan an economic growth but also its recognition on the
international stage. In 2010 Nazarbayev became the first Chair of the Organisation for
Security and Cooperation in Europe (OSCE) among the CIS countries (post-Soviet countries)
which is an honour for the country and a sign of international acknowledgement.
3.3.6 Kazakh relations with China

The relations with China were initially based on the effort to achieve an agreement on border
demarcation line that emerged after the foundation of the Republic of Kazakhstan. The issue
was resolved progressively by signing several protocols and accords throughout the first
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decade of 21st century (Weitz, 2008:106). On the bilateral level, the key document Joint
Declaration between the Republic of Kazakhstan and the Peoples Republic of China on the
Further Development of All-Round Cooperation in the 21st Century was signed in 1999.
Consequently the trade has increased between both countries. For instance, bilateral trade
between Kazakhstan and China was $1bn in 1998, whereas in 2007 it reached $13.8bn
(Sultanov, 2010: 154). The cooperation in the energy sector has expanded rapidly due to the
Chinese increasing need for oil and gas supplies. Several pipeline projects, directing from
Kazakhstan oil off-shores towards China, were proposed and build quickly to meet the
Chinese demand (See chapter 4).20 On the multilateral level the Kazakhstan-Chinese
relationship was framed mainly around the Shanghai Cooperation Organisation which
emerged around the security issue and led towards the joint counterterrorist actions in the
beginning of the 21st century. According to Sultanov the current relations between
Kazakhstan and China can be described as consistent and dynamic (Sultanov, 2010: 155)
China has gradually become one of the main priorities of the Kazakhstan foreign policy and
the second largest trade partner followed by Russia.
3.4 Conclusion
How could we evaluate the first two decades of Kazakh independence? In the beginning many
doubts have occurred about the success of the Kazakh nation-building and the formation of its
foreign policy. Even now the opinions on this issue are not homogenous. The first challenge
of both tasks was the way how to move out of the Russian zone of influence but in the same
time to preserve their mutual beneficial relations.
Firstly, Nazarbayev has partly achieved that task by the multi-vector approach in its foreign
policy. He has managed to balance between the interests of Russia and other major powers
such as the US and China without any major difficulties. The most important constraint for
further development of energy resources and economic growth was resolved by the trilateral
agreement with Russia and Azerbaijan on the exploitation works in the Caspian Basin. The
legal regime of the Caspian Sea remained, however, unresolved and may find a fertile ground
for future conflicts.
20
See chapter 4. (Geo-economics and Geopolitics)
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From the economic perspective, Kazakhstan has successfully opened towards the world
market, which brought to the country a significant flow of investments, especially into the
energy sector. This step was the inevitable condition for Kazakhstani economic growth.
However, nowadays some governmental regulations have begun to appear, namely the
attempt to re-negotiate the profit-sharing agreements with investors (Hanks, 2009:266). That
might change the positive environment for the further investment in the Kazakhstan and
endanger countrys economic growth.
Secondly, it was essential for Kazakhstan to create a national identity which was, however, an
uneasy task due to the multi-ethnic aspect of the country and the abundant Russian minority.
The establishment of the strong state authority was the prerequisite for resolving these
problems and finalizing the process of the nation-building. However, the fact that Kazakhstan
is so multi-ethnic and habits of ruling elites are rooted in Soviet regime gave way to the
emergence of an authoritarian regime in Kazakhstan. We could claim that the Western efforts
to promote the democratic principles in the new Republic of Kazakhstan have failed, mainly
because of the preference of major powers and TNOCs to get an access to the Caspian natural
resources.
Considering the inexperience of the new independent state in leading its own foreign policy,
we could evaluate Kazakh multi-vector approach as a great success. This foreign policy
represented a means for Kazakhstan to define itself as the new player on the international
stage and to build its national identity on the domestic level. Astana has managed to achieve a
positive economic growth and recognition of international community. On the other side,
Kazakhstan has failed to establish a democratic political system and instead an authoritarian
regime with centralised power emerged.
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4. GEO-ECONOMICS AND GEOPOLITICS OF OIL IN

KAZAKHSTAN
Kazakhstans role as the world supplier of oil has significantly increased since the discovery
of the giant Kashagan field in 2002. The country already possesses 30 billions of barrels of
proven oil reserves21 (EIA Kazakhstan analysis, 2010), which ranks Kazakhstan on the 11th
position in the world (CIA World Factbook Kazakhstan, 2011). The estimated figures are so
high that could boost Kazakhstan among the most important energy producers and suppliers.
The potential for further development is very hopeful and draws the attention of many
industrialized countries but also newly industrialized ones such as China. Therefore
Kazakhstan represents a centre point of major powers interests due to the worldwide shortage
of natural resources. It is, thus, very important to examine the major powers actions in the
Central Asian region because of their significant impact on the economic development of
Kazakhstan. The foreign leverage was beneficial for Kazakhstan in the sense of providing this
country with adequate expertise and technologies to facilitate exploitation works in Kazakh
oil fields. Moreover it helped to diversify the export routes that are crucial for Kazakh
independent policy and economic growth.
The aim of the chapter would be to evaluate the interests of the global actors involved in the
Central Asian region and to assess the impact it had on Russian foreign policy towards
Kazakhstan. The period under examination will be 2000-2010. We will also look at their
struggle around the pipeline diplomacy. The first section consists of the economic overview
of the Kazakh abundant energy resources. In the second section we will map the Kazakh main
oil fields and examine the foreign investment in their development. The third section will
tackle the issue of the pipeline diplomacy and the related struggle of major powers and nonstate actors. In the last part we will assess the interests of countries involved in the region and
answer the following question : what impact the other global actors had on Russian relations
with Kazakhstan?
21
The BP statistics indicate higher figures : 39,8 million barrels of proved oil reserves in 2009
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4.1 POLITICAL ECONOMY OF KAZAKH OIL INDUSTRY

Kazakhstan is the largest country among Central Asian countries with a territory four times
bigger than France. It has an access to the Caspian Sea which is very rich on hydrocarbon
resources. Kazakhstan, moreover, possesses a fertile land that is convenient for the wheat
production. Economically it is one of the strongest countries within the CIS despite the fact
that it is a landlocked state. Today, the real growth rate of Kazakh GDP is 7% (Indexmundi,
2010). This growth was significantly shaped by the foreign investments, the rise of oil prices
and the economic crisis (see table 3). In 2010 the inflation rate was 6,7% (CIA World
Factbook, 2011) but during the financial crisis it has reached a high 18,8% (Globaledge). The
Kazakh economy was boosted by foreign investments that were effected since 1993, mainly
into the oil and gas sectors. The total investment accounts for almost 30% of the Kazakh GDP
(CIA World Factbook, 2011). In 2000 Kazakhstan became the first country from the FSU that
repaid all its debts to the International Monetary Fund (IMF) and two years later Kazakhstan
has received an investment-grade credit rating from a major international credit rating agency
(Globaledge). The unemployment rate was only 5,5% in 2010, which ranks Kazakhstan on the
52nd position in the world but the data from 2008 shows that more than 12% of population
lives below the poverty line (CIA World Factbook, 2011).
Table 3: Kazakhstan GDP growth (2003-2011)

Year GDP - real growth rate Rank Date of Information
2003
9.50 %
2002 est.
2004
9.20 %
11
2003 est.
2005
9.10 %
18
2004 est.
2006
9.50 %
14
2005 est.
2007
10.60 %
16
2006 est.
2008
8.50 %
29
2007 est.
2009
2.40 %
148
2008 est.
2010
1.20 %
97
2009 est.
2011
7.00 %
28
2010 est.
Source: Indexmundi, 2010
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Kazakhstan hosts enormous reserves of fossil fuels that make this country very attractive for
foreign investors and consumer countries such as the US, China and the EU. Besides that,
Kazakhstan has also abundant resources of minerals and metals, the most important one are
uranium, manganese, zinc and copper. Kazakhstan actually holds 15% of the worlds uranium
resources. It reached 33% of world production in 2010 and it has been considered as a world
leader in the production of uranium since 2009 (World Nuclear Association, 2011). We can
find there also coal, gold, silver and other resources. The industrial sector accounts for almost
43% of the GDP (CIA World Factbook, 2011). The vast steppe lands provide this country
with a great potential for the agriculture sector. Kazakhstan grows mainly grains and cotton.
The livestock is also an important part of the agriculture. With the wheat harvest of 14-15
million tons per year Kazakhstan is ranked on the seventh position in the world. The share of
the agriculture in Kazakhstans GDP represents 6%. The rest belongs to the field of services
that accounts for 51% of the Kazakh GDP and currently employs half of the Kazakh
population (CIA World Factbook, 2011).
4.1.1 Trade
The Kazakhstan economy, during the Soviet regime, was mainly based on agriculture
products and livestock farming. Apart from this, the coal mining and metal industry were also
very significant sources of finance for the Soviet government. Kazakhstan was a part of the
Soviet centrally plan system within which it specialized in metallurgy, mineral extraction and
wheat production (Lycos). After the dissolution of the USSR the trade system between both
countries collapsed and caused a severe downturn in Kazakhstan economy during 1990s. The
contribution of industrial sector to the GDP has declined from 31% to 21% in this period and
the agriculture share of the GDP fell from 35% to 7.4% (Mongabay).
The President of Kazakhstan, Nursultan Nazarbayev, has made a lot of efforts in order to open
its economy to the world after the dissolution of the Soviet Union. The first essential step was
the liberalisation of trade and the integration into the international market so as to diversify its
trading partners. We have to point out that before Kazakhstan had gained independence, 90%
of the trade was proceeding with Russia. In addition this trade orientation was reinforced by
pipelines and other infrastructures which were constructed by Soviets to link Kazakh
industrial areas with Moscow (Smit, 2008:49).
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Nowadays the Russian Federation represents the largest trading partner of Kazakhstan
(Nationsencyclopedia), but not the only one. Many foreign actors are interested in Russian
resources. According to the World Bank, Kazakhstans trade regime is considered as the 7 th
most liberal regime in the world (Kazakhstan Trade Brief, WB), which facilitates trade with
the whole world. By 2007 Kazakhstan has succeeded in removing almost all administrative
import and export restrictions (Hindley, 2008:10). Today Astana has developed its
partnerships with all the major actors in the world.
Export is the key sector in Kazakhstan economy and is concentrated mainly on the export of
raw materials (85%) hydrocarbons and base metals such as uranium, zinc and silver
(Trading Economics, 2011). Oil has been the crucial factor for the development and
prosperity of the country during last two decades. As we can see in table 4 mineral products
account for almost 72% of total Kazakh export in 2006 (The Economist Intelligence Unit, in:
Hindley, 2008:11). From this figure we could assume that Nazarbayev government is strongly
dependent on the revenues from the production and export of oil and gas. Despite many
efforts to diversify its trading products, oil remains the most important product regarding the
quantity of the export and the rate of the revenues that go to the state budget. Last but not
least, Astana sells its metals (16,1%), chemicals (4,2%), but also food products (2,8%) as
Kazakhstan is one of the biggest producers of wheat in the world (Kazakhstan economy,
Globaledge).
In the first quarter of 2011 Kazakhstan exports were worth 18.5 Billion USD, which is
comparably higher than the figures of the Kazakh import that reached 11.1 Billion USD
(Trading Economics, 2011) in the same period. The most demanded product in the Kazakh
domestic market is the machinery and equipments that represent more than 45% of total
imports (see table 4). The need for such products dates back from the Soviet era and is typical
for most of the CIS (countries). The savoir faire was often an element missing in the Soviet
industry and it has still remained a weak element in some post-Soviet countries.
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Table 4: Principal exports and imports of Kazakhstan

Products (2006
% of total exports
Products
Mineral products
71.9
Machinery
equipment
Metals
16.1
Mineral products
14.3
Chemicals
4.2
Metals
13.3
Food products
2.8
Chemicals
10.8
Food products
7.0
Other
9.4
Machinery
equipment
Other
and 1.8
3.2
% of total imports
and 45.2
Source: The Economist Intelligence Unit (2008).
Astana imports also mineral products, mainly fuel from Russia. Industrial equipment and
metals are mostly purchased from its major trading partners such as Russia, China and
Germany. The aircraft and pharmaceutical products are imported from France (Export.by).
Russia is from far the most significant partner among the importing countries. This may be
seen as the result of the common economic and historical ties between both countries during
the last century. Most of the export is heading towards the EU countries (37,4%). According
to the statistics from 2006 the main buyers of the Kazakh products were Italy (18%) followed
by Switzerland (17,6%), Russia (9,8%) and China with 9,4% of the total export (The
Economist Intelligence Unit, in: Hindley, 2008:11). France plays also an indispensable role in
Kazakh exports. On table 5 there is a clear overview of the destination of exports and origins
of imports. This table is very important for our research in the geo-economic aspect because it
does serve as a base to identify the external political and economic influence on Kazakhstan.
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Table 5: Destination of exports and origin of imports, 2006

Main destinations
of exports (2006)
% of total
Main origins of
imports (2006)
% of total
Italy
18.0
Russia
38.3
Switzerland
17.6
China
8.1
Russia
9.8
Germany
7.6
China
9.4
US
4.7
France
8.8
Ukraine
4.2
Source: The Economist Intelligence Unit (2008).
Since its independence Kazakhstan has established strong economic ties with European
countries that make more than 47% of total Kazakh foreign trade, but also with CIS (26,2%)
and Asian countries (22,3%) (Export.by). Nevertheless free trade for Kazakhstan is still very
low and the costs of any business exchange are very high - mostly because of the nontransparent regulations and standards, service market access barriers and customs
inefficiency. However a lot of effort were made in the issue of tariffs that have been cut to a
great extend during the period of reforms in Kazakhstan (Hindley, 2008:12)
4.1.2.
Oil sector
The Oil and gas industry is a key sector in the Kazakh economy and represents a significant
source of the state income. Moreover it plays an important geopolitical role as many state and
non-state actors are interested in the access to oil crude. The factors that contributed to the rise
of international concern and even struggle about the Caspian hydrocarbon resources are
diverse. The first one stems from the liberalisation course and economic reforms that were
initiated by the new Kazakh administration. On the global level it was due to the growing
awareness about the energy security that gradually increased with the perpetual troubles and
instability in the Middle East countries. Furthermore the energy scarcity and the growing
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demand for natural resources which comes from newly industrialised countries such as China
also play an important role. Consequently the rapid rise of oil prices that began at the end of
1990 brought a financial aspect to this international interest. Thus many TNOCs but also
some local oil companies have a great interest in investing in different Kazakh oil projects to
make profit. However their interests often clash with each other and sometimes even lead to a
struggle for the access to the best oil contracts. Therefore we can claim that since 1990s the
hydrocarbon resources of the Republic of Kazakhstan have significantly grown on
geopolitical but also geo-economic importance.
4.1.2.1. Historical development of oil industry

The Oil industry in Kazakhstan has started to develop in the 1990s and rapidly became the
most important aspect of the Kazakhstan economy. During the first decade of Kazakh
independence, the oil sector had to face many challenges. First of all, the legal status of the
Caspian Sea was problematic and delimitation of national territories remained unresolved
which made any attempts to explore and extract oil from the Caspian seabed very difficult.
Secondly, the pipelines were constructed during the Soviet era to connect Kazakh oil with the
centre. Thus Moscow could observe the influence on the Kazakh decisions about the
exportation of the oil even after the Kazakh independence. The entire transport system of
Kazakh oil was controlled by the Russian state pipeline company Transneft that was
carrying out the discriminatory policies against the Kazakhstani crude. For example,
Transneft (has) boosted the transit tariffs for Kazakh oil after the Nazarbayevs refusal to
share the Kazakh stake in the TengizChevroil joint venture with Russia (Najman and col.,
2005:2-3). Despite a large flow of foreign investment, the Kazakhstan oil industry was still
dependent on pipelines that went across the Russian territory.
The change came in the early 21st century with the global rising of oil prices. The need to
extract and consequently export the crude has strengthened after the discovery of Kashagan
offshore field that is estimated to be one of the largest oil fields outside the Middle East
region. Therefore President Nazarbayev has made a great effort in order to solve the problem
of the delimitation of the Caspian Sea that was partly achieved by the agreement with the
Russian Federation in 2002. The reason for such a sudden agreement from the Russian side
probably lies in the fact that CPC, in which Russia has important shares, became operational a
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year earlier. Hence the Kazakhstani and Russians interests to export Kazakh oil and to
increase the oil profits have begun to coincide with each other.
The significant rise in oil production and export has occurred already in the turn of the
century. Between 1999 and 2003 the oil production has grown about 14% year by year
(Najman and col., 2008: 12). This growth was due, primarily, to the massive foreign
investment into the development of the Kazakh oil projects. Kazakhstan has actually received
the biggest part of the total foreign investment addressed to the Central Asian countries. That
was due to the Kazakh economic openness and rapid privatisation in the mid- 1990s
(Pomfret,2005:859).The country has managed to integrate quickly into the world energy
market and its importance has increased even more after the discovery of the immense
Kashagan oil field in 2000 (Daly, 2008). This one is regarded to have a great potential for the
Kazakh economic growth and the world energy security.
Table 6: Production of oil in Kazakhstan

Year
1999
Thousand 631
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
744
836
1018
1111
1297
1356
1426
1484
1554
1682
35.3
40.1
48.2
52.4
60.6
62.6
66.1
68.4
72.0
78.0
bbl/d
Million
30.1
tonnes
Source: BP Statistical Review of World Energy, 2010
4.1.2.2 Oilfields and its reserves, production and potential

Currently, Astana holds 75% of proven oil reserves (Najman, 2008: 14) of the Caspian Sea
and this ranks Kazakhstan on the leading position among the Caspian oil producers.
Kazakhstan occupies the second position in production of oil among the post-Soviet countries
after Russia and it has replaced Azerbaijan from its leading position that occupied in the
Caspian region during the 20th century. The prospects for the future grow in production are
very encouraging. First of all, the proven estimated reserves of oil that Kazakhstan possesses
represent 40 billion barrels (IEA World Energy Outlook, 2010; BP Statistical Review of
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World Energy, 2010). Potential oil reserves are, moreover, twice higher than the proven ones.
They are estimated to 60 billion of barrels (Petrolinvest, 2011). Secondly, the immense
Kashagan oil field should get in use by 2012 (Central Asia Online, 2011). This offshore field
is very important, because of its estimated reserves reaching 35 billion barrels of oil (IEA
World Energy Outlook, 2010). In the new policies scenario designed by the Energy
International Agency the Kazakh the oil output climbs to 2 mb/d22 in 2015 and rises further to
2.8 mb/d in 2020 reaching 4mb/d after 2025 (see the figure 4). Consequently the export of oil
is also expecting to rise.
Figure 1: Kazakhstan oil balance in the New Policies Scenario
Source: EIA, World Energy Outlook 2010: p.507
4.1.2.3 Existing and projected oil routes

The effective management of these fields would, moreover, not be possible without the
appropriate export routes. Until 2001, the majority of Kazakhstans oil and gas were
transported through the Soviet pipelines network towards the Russian territory. Nowadays
Kazakhstan is exporting its oil to the world markets by different routes - by pipelines to the
Black Sea via Russia; by barge and pipeline to the Mediterranean via Azerbaijan and Turkey;
22
thousand barrels daily

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by barge and rail to Batumi, Georgia on the Black Sea; and by pipeline to China. (EIA
Kazakhstan analysis, 2010). Moreover it is also being swapped its oil with Iran. According to
the EIA data the total amount of the exported oil has reached approximately 1.3 Mmbbl/d in
2009 (EIA Kazakhstan analysis, 2010). Currently they are four pipelines operating on the
territory of Kazakhstan and several routes are to be built.
For a long time the Russian state company Transneft had the monopoly on Kazakh oil export.
Transneft owns the main pipeline system built during the Soviet era. For example the OmskPavlodar pipeline, also known as the Central pipeline that connects the Kumkol field with
Russia and partly with China. Kazakhstan also exports oil from the Caspian Basin to Russia
through a direct pipeline Atyrau-Samara which is an important part of the Russian pipeline
distribution system (Shaffer, 2010). Atyrau-Samara Pipeline was the major pipeline,
providing to Kazakhstan access to the world markets via the Black Sea. It was upgraded in
2009 with the capacity of around 600,000 barrels per day (EIA Kazakhstan analysis, 2010).
The Transneft pipeline monopoly had lasted till 2001 when the Caspian Pipeline Consortium
(CPC) started to pump Kazakhstan oil for the first time. The Consortiums pipeline is 1,510
km long (PipelinesInternational, 2002) and transports the oil from the biggest Kazakh fields
Tengiz, Kashagan and Karachaganak to the Russian Black Sea port Novorossiysk. The first
talks about the creation of the pipeline that would transfer Kazakhstan oil towards the Black
Sea began in 1992 between Russia, Kazakhstan and Oman. The project was developed few
years later. In addition, several foreign oil companies were included such as Chevron, Exxon
Mobil, Agip, Shell and later BP. The shares were divided proportionally among Russia,
Kazakhstan, Oman and eight private oil companies. In 2007 Moscow has transferred its share
in Consortium to the Russian national company Transneft that became the owner of the
biggest stake in CPC. Oman, moreover, decided to sell its 7% stake to Transneft. As we can
see on the graph bellow, Russia possesses the biggest share of 31% (Transneft has 24% and
CPC Company - 7%), Kazakhstan owns 20.75% (managed by KazMunaiGaz - 19% and
Kazakhstan Pipeline Ventures LLC 1.75%). The rest of the Consortium belongs to the
private companies: Chevron Caspian Pipeline Consortium Company manage 15%, LukArco
possess 12.5%, Mobil Caspian Pipeline Company has 7.5%, the same amount (7.5%) owns
also Rosneft-Shell Caspian Ventures Limited, Eni International holds 2%, BG Overseas
Holding Ltd. 2% and Oryx Caspian Pipeline owns 1.75% in the Consortium (Interfax, 2009).
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Figure 2: CPC shareholders
Source: based on data from Interfax (2009)
According to Chevron, in 2009, the CPC has transported an average of 743,000 bbl/d of oil,
which included 597,000 bbl/d of Kazakh oil, mainly from the Tengiz and Karachaganak
fields, and 146,000 bbl/d of Russian crude (EIA Kazakhstan analysis 2010). However the
shareholders, especially Transneft, are planning to increase the capacity of the CPC to 1.34
million barrels per day by 2013 but delays are expected. During the recent years of CPC,
Moscow has started to increase its claims concerning the transport tariff, which might rise
from 24.60 to 38 dollars per ton. Moscow also tends to halve the interest rate from 12.66% to
6% annually on the loans that were provided for construction purpose by private oil
companies. Moreover Kremlin wants that Consortium hands 5 billion dollars to refinance the
CPC debts. Furthermore, the general director of the CPC should be nominated by the Russian
government (Socor, 2007). Russia has a strong position in the Consortium not only due to its
31% stake but also because of the location of the pipeline. On the map below (see map 2.) we
can see that the Caspian Consortiums pipeline crosses mostly the Russian territory which
gives to Kremlin a significant influence on the further development of the CPC.
Kazakhstan-China Pipeline was completed in 2009 and represents the first pipeline that
bypasses Russian territory. The main source of Kazakh oil for this pipeline comes from
Aktobe and Kumkol fields that are mainly controlled by CNPC (Babali, 2009), but there is a
huge potential for oil supplies from the Kashagan oil field that is still in a development stage.
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The Pipeline runs from Atyrau to Alashankou (Xinjiang region) in China and it spans 2,228
km. Currently it is transporting 200,000 barrels per day of crude (EIA Kazakhstan
analysis,2010). The pipeline was constructed under the joint ventures between CNPC and
KMG. Both companies were recently discussing the possibility to double the capacity on
400,000 barrels per day by 2013 (Orange, 2010; EIA Kazakhstan analysis,2010).
There are many pipelines projects aiming to diversify export routes for Caspian oil and
lessen the dependency on Russian pipeline network. These projects are often sponsored by the
US or Western countries and represent a threat for the Russian influence in the region. BakuTbilisi-Ceyhan (BTC), also called the Main Export Pipeline (MEP), is the most significant
one as it was designed to transport Caspian oil and gas towards Europe, the most lucrative
market for Central Asian states but also for Russia. Moreover the BTC helps Kazakhstan to
diversify its export routes and reduce dependency on Russia whose transit fees are really high.
The Baku-Tbilisi-Ceyhan (BTC) pipeline starts in Azeri Caspian port Baku and continues
across the Georgian territory to Turkey. It has a capacity of 1 million barrels per day (EIA
Kazakhstan analysis, 2010). Although Azerbaijan has decided to build this East-West route
already in 1990s, the pipeline became operational only in 2005 (Shaffer, 2010). Currently
Kazakhstan is shipping its oil across the Caspian Sea by tankers to Azerbaijan and then
further to the West via BTC pipeline. Reportedly, 100,000 bbl/d of oil were being shipped
across the Caspian in 2009 (EIA Kazakhstan analysis, 2010). The further increase in supply is
expected as Astana has signed a contract with Baku and the BTC Company to supply this
pipeline with 500,000 bbl/d of oil per day (Sieff, 2010). Moreover the plans to link the
Kashagan oil field with the BTC pipeline are already developing under the Kazakhstan
Caspian Transportation System (KCTS)23. This evolution gives Kazakhstan positive
perspectives to develop good relations with its Caspian neighbour Azerbaijan. Kazakhstan
currently ships oil by tanker to Baku and from there it goes either into the BTC pipeline or by
rail to Batumi, Georgia. Reportedly, 100,000 bbl/d of oil was being shipped across the
Caspian in 2009. According to the interview with Kazakh Prime Minister Karim Massimov in
2010, Kazakhstan aims to raise its oil exports to 3 Mmbbl/d by 2020. Massimov has,
however, stressed that the rapid growth of oil production will require increased capacity for
23
For more information see Kazakhstan, U.S. Energy Information Administration (EIA,2010)
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exporting (EIA Kazakhstan analysis, 2010). This statement could be perceived as a green light
for Kazakhstan and TNOC operating on Kazakh territory to complete the projected export
routes, particularly the connection line from Kazakhstan to the BTC pipeline that will lead
across the Caspian Sea. The potential for growing the Kazakh oil production is great due to
discovery of the Kashagan oil field, which is believed to be the fifth largest in the world, just
behind the oil fields in Middle East. Kazakhstan has a potential to become one of the key oilexporting regions after the Persian Gulf in the future.
4.1.3.
The management of oil revenues
The right management of the energy sector is the major task for oil-producing countries.
Many specialists (Kalyuzhnova, 2006) argue that natural resources abundance means an
economic curse rather than blessing. In other words, the states rich in oil crude are more
vulnerable to external dynamics and obtain worst results about democracy and social
inequality than other countries (Smit, 2008:97). Moreover the oil-producing countries have
often an inferior capacity to survive economically during external crisis because of their
strong dependency on the financial sources abroad. The positive course could be triggered by
the right leadership and transparent policies. Therefore it would be important to examine the
Kazakh leadership and the measures Nursultan Nazarbayev and other politicians pursued to
improve the Kazakhstani economy and energy sector.
The oil revenues stems from exports but also from taxation. Therefore the Kazakh leadership
has a great interest in fostering the production of oil in the country. President Nazarbayev was
aware of the need to transform the economy and the legislation of the country in order to
attract foreign investments. The main protagonist of the economic liberalisation and
decentralisation was Kazakh Prime Minister Akezhan Kazhegeldin (1994-1997). He was the
one who initiated the privatisation of energy sector and who introduced foreign management
contracts (Cummings, 2006:186). These steps towards the market economy helped
Kazakhstan to attract foreign investments and to get integrated with the international
community but the excessively rapid privatisation led to under-prizing of the energy sector.
This period is also associated with wealth accumulation by the elites (Pomfret, 2005:859) and
rising corruption.
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The decision-making of the Kazakh leadership brought along also a lot of positive aspects that
helped the country to overcome the periods of economic recessions. The Kazakh oil sector has
appealed to a tremendous amount of foreign capital mostly in form of direct investments into
the energy sector. Since 1993 Kazakhstan has received more than $30.7 billion in foreign
investment which represents almost 76% of the total foreign investment (US Department of
State, 2009). This was also boosted by the adoption of a new investment law from 1994
assuring a legal protection of investors activities and the use of income. This law has also
guaranteed the rights of investors in the case of nationalisation or other changes in
legalization (Law of the Republic of Kazakhstan on investment, 1994). Therefore the ground
for a favourable environment was laid and the foreign direct investment to the Kazakh energy
sector has been quickly increasing. However several limitations on the guarantees of
investors rights were adopted in 2003 and resulted in the downturn of the FDI. The following
slight decrease in foreign investment inheres also in the fierce strengthening of the
presidential power and favouritism that has been exerting on his family and close colleagues.
For instance the Presidents son in law, Timur Kulibayev, who is in charge of the oil sector,
made foreign activities more difficult. He has also contributed to the flowering of the
corruption in the country that strongly repels the foreign investors. Since 1993 we can notice a
progressive grow of the FDI that was, however, affected by the fall of oil prices on the
international market in late 1997 and by the discovery of the Kashagan oil field in 2000 and
the opening of the international CPC pipeline in 2001 that led to the great increase of the FDI
(See table 7) (WTRG Economics).
Table 7: Foreign Direct Investment (million US dollars)

Year
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
FDI
100
473
635
964
1137 1320 1143 1584 1278 2796 2138 2500
Source: European Bank for Reconstruction and Development, Transition Report 2003, p. 65.
Thanks to foreign investment many energy projects were launched which largely contributed
to the economic development of the country. The oil revenues have been growing rapidly and
increased the state budget about 20% in 2003. This tendency has even grown after the
introduction of rent tax on export of oil a year later, which raised the state share of oil income
to between 65% and 85% (US Department of Energy, 2005. In: Najman and col., 2008:18).
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Many international institutions such as the European Bank for Reconstruction and
Development (EBRD), the International Monetary Fund (IMF) or the World Bank (WB) have
started to be interested and active in the countrys economy and development projects.
Prominent academics Gael Raballand, Richard Pomfret, Boris Najman and Patricia Sourdin
have identified five major types of revenues that Kazakhstans state gain from oil industry.
First of all, it is an export sale of crude oil that is based on Kazakhstans share in consortia.
Secondly it is a tax applicable to subsurface users that is derived from the contract and its
specific tax system. For example in a product sharing agreement (PSA) the company is
obliged to give a part of production. On the other hand in an excess profit tax contracts, the
company has to pay bonuses, excess profit tax and a rent tax on export of crude. The third one
comes from the taxation of business profit and the last one represents an indirect tax (VAT or
customs duties). There are also some minor taxes such as property tax or environmental fees
(Najman and col., 2005:5).
The large flows of income from the oil industry brought also some challenges about how to
manage and redistribute these revenues among the population. According to Najman the use
of oil revenue is one of the most important bargaining processes between central power and
regional governors (Najman and col., 2008:19). It is, however, crucial to find a compromise in
order to transfer the oil revenues from oil wealthy regions to Astana and consequently
maintain the regional governors politically as allies. Despite this arrangement the inequalities
between the regions are strengthening along with public discontent. The public pressure to
redistribute the oil windfall more effectively comes from the high poverty rate which is
obvious in the country.
4.1.3.1 National Fund of the Republic of Kazakhstan

Later in 2001 the National Fund of the Republic of Kazakhstan (NFRK) was established
(Najman and col., 2008:21) to assure the accurate redistribution of oil revenues in the long
term. In other words the oil funds represent a way to cope with the difficulties associated with
with oil revenues: firstly the volatility and unpredictability of world market prices of oil, and
secondly the interest to save some revenues for the future (Kalyuzhnova, 2006:585). These
funds create an institutional framework for counterbalancing the effects of inconstant oil
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prices on state expenses and serve to stabilize the Kazakh economy (Lucke, 2010:6). Since
2004 six major companies, specialised on the exploitation of natural resources, have been
transferring their fiscal payments to the NFRK. Further management of the fund is assured by
the National Bank. According to Gael Raballand and Regis Gente, the NFRK had
accumulated $10 billion by 2006 (Najman and col., 2008:21). The budget of the National
Fund is mainly formed by the revenues (70% of total Fundbudget) from the Kazmunaygas
group, the national oil company (Kazmunaygas annual report, 2010). The weak point of this
newly founded institution is the lack of transparency. The revenues are coming directly from
energy companies to the National Fund without any significant state control. The legitimacy
of the fund is, moreover, endangered by the insufficient legal and regulatory framework
regarding the management of the NFRK. Many steps were, however, made to ameliorate the
situation by strengthening the legitimacy of the fund. For example in 2006 a new law was
adopted stating that the Parliament must now approve the amount of transferred money from
NFRK to the state budget for a period of three years. Consequently in 2006 a Sustainable
Development Fund (Kazyna) was established to improve economic diversification, financing
technical innovations, infrastructures but also supporting small and medium businesses
(Najman and col., 2008:21). In other words the non-oil sector should be developed through
this fund.
To summarize the Kazakh post-Soviet economic reforms and the distribution of oil revenues,
we have to admit that there were also negative outputs of such a flow of capital. First of all,
the fast privatisation undervalued the oil sector and subsequent grow of energy industry
overshadowed other sectors. Moreover the level of corruption has significantly increased and
the power has been accumulated in the hands of a small group of individuals who had
relations with the Kazakh political elite or people who had an access to the energy sector.
Secondly, it has served to the consolidation of presidential power and gradual elimination of
opposition (see more on state building chapter). The state capacity to distribute the revenues
from oil was weak and caused an increase of inequalities among the regions and population as
such. Enormous amounts of money have been spent on the construction of the new capital
Astana and public expenditures on health, education and social services. Thirdly the countrys
economy became more volatile to the external dynamics and crisis (see Pomfret, 2005:859;
Smit,2008: 101). Kazakhstan has failed in assuring domestic income extraction from different
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sectors than the energy one and became strongly dependent on external revenues from the oil
industry. Therefore it was not surprising that Kazakhstan was heavily hit by two regional
crisis - the Asian crisis in 1997 and the Russian Economic crisis a year later, which meant the
decrease in Kazakh oil export and subsequent fall in oil revenues. On the top of that the
unexpected fall in oil prices on global market has shaken the Kazakh economy. This is an
accurate example of the major distress coming from the vulnerability to the external economic
fluctuation.
4.2 OWNERSHIP OF KAZAKH OIL INDUSTRY

The Republic of Kazakhstan is endowed with significant reserves of oil crude and it is
expected to join the top 10 worlds oil producers in the early future. The majority of oil
production is currently concentrated in five main fields: Tengiz, Uzen, Karachaganak,
Kumkol and Kashagan. The latter is considered as one of the biggest discoveries recently and
it is expected to export the crude by the end of 2012. Besides that they are also several
pipeline projects that aim to lessen the dependency on Russian export routes (see further on
transport facilities). Regarding the global energy scarcity and the increasing demand for
hydrocarbon resources among newly industrialised countries such as China and India, it is not
surprising that the Kazakh oil market attracts a lot of international interests and many foreign
investors. The ownership of the Kazakh oil industry (comprising oil fields and pipelines,) is
split among three major groups - National Oil Companies (NOCs), Transnational Oil
Companies (TNOCs) and local private companies. In this section we will examine the nature
of the political impact of the NOCs and TNOCs activities in Kazakhstan and how does this
help to drive a foreign policy strategy. First we will look at the development and the structure
of NOCs and local private companies in Kazakhstan. Afterwards we will study the
investments and activities of TNOCs with a focus on their political impact. This section
furthermore aims to analyse the cooperation and conflicts among the NOCs and TNOCs.
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4.2.1. National Oil Companies (NOCs)

National oil companies (NOCs) currently control around 77% of world oil and they are
gradually strengthening their power. Similarly they dominate in the world oil production but
fall short of the Western companies in making the same profits. The creation of the NOCs in
the first half of the 20th century was motivated by the will to reassert state position in relations
to the foreign oil companies. The existing oil concession agreements guaranteed only a few
rights to the host states. Therefore the will to renegotiate these contracts emerged among the
national political elites but they met a strong opposition from the foreign companies. In many
oil-producing countries the national emancipation led to the seizure of oil industry in order to
boost the national economy. To increase the role of the NOCs, new types of contracts, such as
production sharing agreements (PSAs), joint ventures (JVs) and service agreements, were
introduced (Ostrowski, 2010:11).
PSAs have become the most applied contracts. Under product sharing agreement the state is
the owner of the crude but it has to share a profit from oil production with the foreign
company. The difference with the joint ventures is that foreign oil companies under the PSAs
provide technical and financial service for the exploration of field and take en entire
exploration risk. On the other hand the common profits from the successful exploration firstly
go to cover the initial expenses of the foreign investor and then they are divided between host
country and foreign oil company. Whereas joint ventures are often based on the common
participation on the exploration works and both parties, NOC and foreign companies carry the
exploration risk. The NOCs are often playing a leading role in oil-producing countries and
represent the most desirable partners for the foreign oil companies. The NOCs have usually
accurate information about the hydrocarbon reserves and technological requirements that are
needed for the exploration (Ostrowski, 2010:11-12). On the other hand they are sometimes a
political mirror of the host country and often fall in the inefficiency.
Nana Graaff (2011) argues that the power of the NOCs has been strengthening during the last
decade, which is the result of the rise in oil prices and increases demand from Asian countries
for such a scarce commodity. She also stresses two aspects that are characteristic for our
current era - the rise of the BRICS countries and the transnationalization of the global
political economy (p.262-63). The former one represents an important geographical shift in
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economic and political power. Newly industrialised countries, such as China, have
significantly increased its demand for mineral resources. This tendency is also spreading
outside the BRICs and has a great political impact on oil-producing countries that are trying to
strengthen the power and the strategies of the NOCs. The aspect of transnationalization is
also very important because of the increase of capital between the public and private sectors
that flows across national borders and the establishment of the interdependencies between
different countries and non-state actors. This allows to mediate the effects of the financial
crisis, geopolitical tensions, oil price fluctuations or changes in demand and supply on global
oil sector (Graaff, 2011:264).
4.2.1.1. Kazmunaigaz (KMG)

Kazakhstans abundant oil reserves make the Kazakh national oil company, Kazmunaigaz
(KMG) a very valuable and considerably influential unity on the regional and partially also on
the global scale. It is the third largest producer of the Kazakh oil crude with the income
reaching almost $ 4.8 billion dollars in 2005 (KMG, financial information). KMG operates
mainly in Mangistau and Atyrau regions. It possess a minority stakes in all oil projects in the
Kazakh territory and holds more than 50% in all the projects initiated since 2000. According
to the data collected by Gael Raballand, KMG holds approximately 12% of total Caspian oil
reserves in 2006 (See Figure 3) and their regional power is quickly growing. The
Kazmunaigaz group of companies contributes 2.9 billion dollars in taxes and payments to the
state budget, which represent a quarter of all revenues and almost a third of all tax revenues of
the budget (Kazmunaygas annual report, 2010).
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Figure 3: Share of Caspian oil reserves (2006)
Source: Najman and col. calculation based on Azeri and Kazakh PSAs (2008) The Economics and Politics of Oil
in the Caspian Basin.
Kazakhstans national oil company, Kazmunaigaz (KMG), was established in 2002 and
represents one of the youngest NOCs in the world. The split oil and gas sector was integrated
in one complex unity by merging the oil transport company Trans Neft i Gaz (TNG) and
KazakhOil National Oil and Gaz Company. The main reason for the creation of Kazmunaigaz
inheres in the plan to increase the efficiency and competency of this sector and thus
counterbalance the leverage of foreign companies. Wojciech Ostrowski (2010) even states
that such a vertically integrated structure would serve for a greater control of foreign oil
companies and promote the interests of the Kazakh political elite in the energy sector (p. 74).
Therefore the ethnic Kazakh was prioritised and instituted in key positions but also in the less
important ones.
Nazarbayev has appointed to the key positions his fellow oil men and the members of his
family. Liazat Kiinov became the chairman of Kazmunaigaz and Timor Kulibayev, the
Presidents son-in-law, was appointed the first vice-chairman of KMG (Najman, 2008:23).
Thus the interests of the Nazarbayev family were guaranteed. The oil men from the West of
the country brought together their relatives, friends, colleagues as the tradition requires and
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gradually established a clan system within the Kazakh national oil company (Ostrowski,
2010:75). In addition to that Nazarbayev offered a chance to some Kazakh young outsiders24,
seeking access to the petrodollar so as to join the Kazakh oil business. Regarding the negative
consequences we have to emphasize that corruption has found a fertile ground in such an
environment and started rapidly to flourish.
4.2.1.1.1 KMG and the state legislation

The relation between Kazmunaigaz and the state is very strong as the oil industry is firmly
linked to Nazarbayev family. The President stands at the centre of the energy policy and often
has a last word during the consultation with the Ministry of Energy and Natural Resources.
KMG is a subject to the state legislation and therefore it is liable to the Ministry of the
Finance, the Environment and the Ministry of Labour and Social Protection. The Kazakh
government has introduced several laws that represent a legislative framework for KMG : the
Petroleum Law, the Subsurface Use Law, the Tax Code and the PSA Law that was recently
modified in order to reinforce the power of the NOC KMG. Since 2004 all new PSAs have to
guarantee at least a 50% stake to KMG and contribute to the local development (Olcott,
2007:23-24).
Today several PSA are under discussion as the state requires the renegotiation of these
contracts to assure the majority stake for KMG. The Kazakh government justifies its policy by
highlighting the need to protect national economic interests. However the main rational for
such a behaviour most probably stems from the geopolitical importance of the energy sector
in a time of an increasing demand for hydrocarbon resources and rise of oil prices. Since 2003
many legislative changes were taken that strongly favour the interests of the national company
KMG and its subsidiaries. President Nazarbayev, for instance, adopted the Edict On the
Government Development Program for its Sector on the Caspian Sea from 2003 that
emphasizes the importance of mutually beneficial relations between foreign companies and
the Kazakh government but also gave to KMG the ability to pressure its foreign partners in
different oil project to increase local support by hiring more Kazakh employees or by buying
Kazakh domestic products (Olcott, 2007:25-26). Despite that many other measures were taken
24
Young professional who had no relations with Nazarbayev family or other political elite
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to promote Kazakh interests and enhance the state stake in national oil industry. This fact
strongly supports Nana Graaffs argument about the increasing role of NOCs in the world.
4.2.1.1.2
KMG Exloration and Production
The KMG has several daughters companies. The most valuable one is the KMG Exploration
and Production (KMG EP), which represents the main source of KMG income. KMG EP was
created in 2004 and today operates in 41 oil fields in the West of Kazakhstan. It is the
operating company for Uzen and Emba oil field. In 2010 KMG EP became the 2nd biggest
Kazakh oil producing company (KMG EP, General Information) after TengizChevroil (TCO).
The total reserves of KMG EP oil are estimated to 1.52 billion barrels 25 (Olcott, 2007:9-10).
Most of its produced oil (79%) goes for the export mainly through the Uzen-Atyrau-Samara
(UAS) pipeline and CPC pipeline, which is the most profitable route of KMG EPs oil sales
(KMG EP, General Information). The interesting part of the research directs towards the
shareholders structure of company. The KMG national oil company holds 57.9% of KMG
EPs shares but the rest is divided between (the) Asian and Western shareholders (KMG EP,
Shareholder structure 2010). From figure 4, we can conclude that the principal oil producing
subsidiary of KMG, the national oil company, keeps only what is needed to assure the
majority but the rest was offered to a wide range of shareholders. The most important one is
the Chinese state investment fund that purchased 11.2% of the share. Chinese interests in
Kazakh oil is not a surprising fact but rather a logical one concerning the Chinese growing
demand for hydrocarbon resources. Almost 20% of the Companys shares belong to Western
investors and it is quite equally divided among the UK, the USA and Continental Europe.
25
According the KMG EP analysis from 2010 there are 1.7 billion barrels of proved and probable estimated
reserves.
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Figure 4: Shareholders structure of KMG EP

1
includes
not
identified
shareholders
2
on September 30, 2009 the state
investment fund of the Peoples

Republic
of
China,
China
Investment Corporation (CIC),

announced
its
purchase
of
Companys GDRs equivalent to

11% of the Companys shares in
form
3
of
GDRs.
includes treasury shares
Source: Kazmunaigaz EP, 2010
In 2006 the government shares of the KMG EP were transferred under the control of the AO
Samruk State Holding Company whose foundation was initiated by President Nazarbayev in
order to improve the states asset management and reduce corruption within the ministerial
sector. This act shows the Presidents will to modernise the countrys economy but in the
same time to combine the public interests with the ones of tthe Kazakh political elite (Najman
and col., 2008:24). Two years later Samruk emerged with Kazyna into the Samruk-Kazyna
National Welfare Fund and became the total owner of Kazmunaigaz shares. The main goal of
this fund remains pretty much the same - to manage portfolios of shares from national
companies and institutions with a view to increase their competitiveness on the world markets
and the stability of national economy (KMG, Sore shareholder).
4.2.2 Foreign oil companies and their relations with KMG

Transnational oil companies (TNOCs) represent an indispensable part of the Kazakh oil
sector. It was the foreign investment that boosted the oil industry and contributed to the
economic development of the country. TNOCs activities in Kazakhstan have emerged in the
mid of 1990s following the economic reforms and privatisation of the state industrial sector.
The main protagonist of the liberalisation and the promoter of the rapid privatisation was
Kazakh Prime Minister Akezhan Kazhegeldin. When he launched the third phase of the
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privatisation process, many shares in Kazakh energy companies were sold out (Ostrowski,
2010:84).
The rapidity of this action, however, led to the undervaluation of most of the Kazakh oil
properties. In addition to that the following economic crisis of 1997 and 1998 has hindered
the flow of expected oil revenues and caused the public discontent against the Kazakh
government but also against the labour policy of TNOCs operating in Kazakhstan. What was
reproached to the management of foreign oil companies? First of all, it was the dismissal of
many local employees and their replacement by foreign workers. Furthermore the Kazakh
workers wedges were significantly cut down compared to the foreigners ones. For instance,
in 1996 the Canadian company Hurricane Hydrocarbons Ltd., which has purchased the largest
oil producer in the Kyzylorda region Yuzhneftesgas, has reduced, during four years, staff
from 5,100 to 1,900 (Ostrowski, 2010:85). These developments led the Kazakh government to
the adoption of several legislative changes which deeply affected the TNOCs functioning, in
order to reinforce local recruitment but also to encourage the development of infrastructures
and public sphere.
4.2.2.1 The contracts with foreign oil companies

The types of the contracts that were provided to the TNOCs by the Kazakh administration
have slightly changed during the time. The general tendency was to reinforce the role of
KMG in different consortiums and foster foreign involvement in the local development.
According to Mark J. Kaiser, there are essentially three types of contracts in use:
1. Concessionary (Royalty/Tax),
2. Contractual (Production Sharing Contracts),
3. Participation Agreements (Joint Ventures)
Under the concessionary contracts, the ownership of the natural resources is transferred to the
hands of TNOCs which is subject to the Royalty/Tax (R/T) system. The foreign company
acquires the exclusive exploration rights for a specified period, and furthermore is given the
development and production rights. The total costs and exploration risks are carried out
uniquely by the TNOC. On the other side under the joint venture the risk and production costs
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are equally divided between the foreign company and the Kazakh government that is
presented by the KMG. Only the exploration works are carried uniquely by the TNOCs.
Under the production sharing agreements (PSAs) the state remains the owner of the
hydrocarbon resources and keeps a control over its management but the foreign company is
still tied to the exploration risk. The main task of the TNOCs is to explore and develop these
commodities in return for a production share. Currently more than 60% of Kazakh oil
production, including Tengiz oil field, comes under the Royalty/Taxes system and the rest,
especially Kashagan and Karachaganak, is managed by the PSAs (Kaiser, 2007:1305-06).
Most of the KMG oil assets are managed together with foreign oil companies under the
product sharing agreements or joint ventures.
Table 8: List of major energy projects with types of the contracts
Source: Kaiser, M. (2007) A review of the oil and gas sector in Kazakhstan
4.2.2.2 The share and role of the foreign oil companies in Kazakhstan
Most of the major international oil enterprises, such as Chevron, ExxonMobil, ConocoPhilips,
ENI-Agip, Total, BG, Royal-Dutch/Shell, BP, are present in Kazakhstan and largely
contribute to the Kazakh state budget. Among the other important oil producers belong the
regional and national oil companies such as Lukoil, Rosneft, China National Petroleum
Company (CNPC), the Turkish National Oil Company, the Romanian National Oil Company;
but also many small oil firms that come from Canada (PetroKazakhstan), Japan (Inpex) or
Korea (KNOC, LG) (Kaiser, 2007:1302-3). These companies create different consortiums or
joint ventures that are in charge of the development of Kazakh oil fields. Table 9 presents the
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overall overview of the Kazakh oil projects, its partners and some basic economic figures
related to these projects.
Table 9: Major Caspian oil projects
Source: EIA, World Energy Outlook 2010: p.509
4.2.2.2.1 The role of the Russian oil companies in Kazakhstan

Russian investments in Kazakhstans oil and gas sectors have been estimated to $4.5 billion,
including $1.3-1.4 in direct investment (Silkroadintelligencer, 2010). Nonetheless, Russian
activities have so far been relatively limited in the development of Kazakh oil fields compared
to the strong involvement of Western oil companies. However Russia has maintained
significant influence over the transport facilities that assure the export of Kazakh hydrocarbon
resources. This comes from the fact that all the pipelines were constructed to link the Kazakh
oil field with Russia. Thus Russia has still a great control over the Kazakh oil export. This
domination was disrupted in 2001 by the commission of the Caspian Pipeline Consortium
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(CPC) pipeline that represents the first pipeline system with the international participation that
aims to ship crude oil directly to the international market. Although the main goal was to
avoid the dependency on the Russian pipeline system, the Russian government has gained the
biggest share in the Consortium. Nowadays, the Russian government holds the major stake of
31% in the CPC. On top of that the Russian private company LukArco (Lukoils subsidiary)
possesses another 12,5% in the consortium. CPC has a significant beneficial impact on
Russian economics. In the period from 1993 to 2004 approximately $525 million was paid to
Russia in taxes, duties, fees and charity donations (CPC.ru) The Russian obvious domination
might be, however, shaded by the recently commissioned Kazakhstan-China pipeline that lead
from Kumkol field to the Western part of China. Nevertheless Moscow rather views this
pipeline as the possibility to ameliorate financial profits by supplying Russian oil to China as
the Kumkol field would probably not be able to fulfil the pipeline capacity.
Lukoil
The Russian representation in Kazakh oil sector is mainly assured by two oil companies Lukoil and Rosneft. Lukoil is the largest Russian private oil company operating in
Kazakhstan. It possesses 521 million barrels of Kazakh oil reserves (Lukoil Fact Book, 2011:
12). Lukoil was the first Russian company to start cooperating with Nazarbayev over the
Caspian oil since the dissolution of the USSR. Nowadays, the oil business with Kazakhstan
creates almost 90% of Lukoils foreign production and represents a significant source of its
income. In 2010 Lukoil produced almost 42.4 million barrels of Kazakh oil (Lukoil Fact
Book, 2011: 14) and it has been participating on many projects with Kazmunaigas, Kazakh
NOC, but also with the TNOCs or regional oil companies.
One of the first Russian joint ventures with Kazakhstan was Turgai Petroleum in the Kumkol
field, which is situated in the central part of the country. This field was divided in two parts northern and southern. In 1995 Lukoil bought a licence for the exploration of the half of the
Northern Kumkol and the rest was offered to a Canadian company, operating in Kazakhstan
under the name of PetroKazakhstan. The Southern part was finally also purchased by
PetroKazakhstan in 2003. However several legal constraints from the Kazakh government
eventually forced PetroKazakhstan to sell its holds to the Chinese state company (CNPC) in
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2005. Ona year later Lukoil has gained a licence for the entire Northern part of Kumkol
(Marten, 2007:27). According to Kimberly Marten, Lukoil seems to cooperate with Astana in
order to disable and lessen the influence of foreign shareholders in the Kumkol field, which is
a strategically very important oil station. Firstly, Kumkol supplies the new pipeline with
China and secondly it is connected to the old Central pipeline that goes to Russia. Taking into
account the decreasing production volume of the Kumkol field, we could expect that Moscow
will fill the pipeline heading to China with its own oil. Therefore the importance of Russia in
Kazakhstan might significantly increase.
Besides that, Lukoil also cooperates with the TNOCs in Kazakh major oil projects, where it
holds rather a minor part of the stakes. In 1997 Lukoil has signed a PSA on the exploration
and production of the Karachaganak oil field and gained a 15% share (Lukoil Fact Book,
2011:37) in the Karachaganak Integrated Organisation, which consists of the Italian joint
operator ENI (32,5%), the British energy company BG (32,5%) and American joint operator
Chevron (20%). The TengizChevroil consortium is operated in the partnership with Lukoil
daughters company LukArco (5%), Chevron (50%), ExxonMobil (25%) and KMG (20%)
(see appendix 1). Russian Lukoil, however, prioritizes the investment into smaller fields and
on the basis of equal cooperation. The example of such a policy is shown on the Khvalynskoe
field that is explored evenly between Lukoil and KMG. The other example of bilateral
cooperation is evident on the North Buzachi, whose share is divided between Lukoil and the
Chinese national oil company called CPNC.
Rosneft
The only Russian competitor for Lukoil in Kazakhstan is Rosneft Russia's largest state oil
company, which is gradually closing the oil deals with Kazmunaigas. Rosneft is an open joint
stock company26 and the official representative of the Russian government in projects with
Production Sharing Agreements (PSA). Its first activity in Kazakhstan dates back to 2003,
when Rosneft started the production at the Aday block close to the Caspian. Moreover
Rosneft cooperates with Kazmunaigaz in a project to explore and develop the Kurmangazy
structure, in which holds 25% of the shares. However the results of the first drilling were very
26
Type of corporation, which consist of two or more individuals that own shares of stock in the company.
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negative at that time (Rosneft.com). Rosneft has also opened a partnership with the Royal
Dutch Company Shell in the Caspian Pipeline Consortium. They have established a joint
venture Rosneft Shell Caspian Ventures Ltd, which possess 7.5% share in the CPC. Rosneft
holds a 51% stake in this joint venture and the rest belongs to Shell (Rosneft.com). Rosneft
has also recently got in contact with Lukoil with the aim to purchase its stake in Caspian
Pipeline Consortium and finally signed an agreement on Rosnefts possible acquisition of
46% stake in Lukoils daughters company LukArco that owns 12,5% of the CPC shares
(Neftegaz, 2010).
Although Lukoil is a private company, similarly to Rosneft, it often aligns its action in the
Caspian region with the Russian foreign policy. Lukoils head managers, for example, have
decided to not invest in the prestigious project Baku-Tbilisi-Ceyhan (BCT), projected pipeline
directing from Azeri port Baku to Turkey. Despite the Russian participation in the CPC
pipeline, Russia was reluctant to support any alternative export routes for the Kazakh oil,
because it lessens the Russian leverage over the Kazakh oil sector and cuts financial benefits
from taxes for the use of pipelines that lead across the Russian territory. Currently Lukoil
stands as the leader among Russians in the Caspian oil. Lukoils increasing power in the
region helps Russia to reassert its influence and increase its importance as the largest Kazakh
economic partner.
4.2.2.2.2 Western oil companies - the impediments to Russian interests in

Kazakhstan?
Many other international oil companies are present in Kazakhstan. Besides the economic
aspect, they also serve to counterbalance the Russian attempt to regain its influence on the
Kazakh political decision-making. Because of the great number of TNOCs operating in
Kazakhstan we would not be able to analyse the role of all of them but we will only pick one
exemple of western TNOCs. The main goal will be, however, to understand their joint power
and their significance all together. Table 9 on Kazakh major oil projects and its shareholders
will help us to get a clear overview of the scale and the ownership of the oil fields.
The investment environment was very fertile in Kazakhstan because of the bad economic
situation in the 1990s. Nowadays the share of US direct investment in Kazakhstan economy
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accounts for 23,5% of total FDI (Sultanov, 2010: 166). Chevron was the first company that
got involved into the oil sector in Kazakhstan and formed a joint venture TengizChevroil with
local Tengiz Company. They started to operate in the Kazakh largest oil field Tengiz already
in 1993 (Yesdauletova, 2009:33). Today Chevron represents the largest Kazakhstan private
oil producer with its 50% stake in Tengizchevroil and 20% interest in KPO that operates in
Karachaganak field. Chevron has also 15% share of the CPC Pipeline (Chevron, 2011).
Therefore it has a great influence on the economic growth of Kazakhstan and represents the
main actor of American influence in Kazakhstan. In addition to that Chevron is considered as
the most generous TNOC that contribute to local development. Since 1993 it has provided
more than $645 million to sponsor social projects for the inhabitants of the Atyrau region
(Chevron, Kazakhstan Fact Sheet, 2011:2). The other important American companies such as
Exxon Mobile and ConocoPhillips are participating in the exploitation works in the Kashagan
oil field which is believed to be the fifth largest in the world and has a strong potential for
future export. According to Yesdauletova the USA aspired to weaken the geopolitical
influence of Russia and in the same time to lessen the dependency on oil from Middle East
(Yesdauletova, 2009:33). The US was, therefore, promoting the construction of pipelines that
would bypass Russian territory. The first road of this kind is BTC pipeline that lead from
Baku towards Europe. The transport from Kazakhstan is, however, managed only by tankers.
Thus the main task of many Western companies but also Kazakhstan is to build a connecting
route under the Caspian Sea. This is, nevertheless, a very difficult task because of the
unresolved legacy of the Caspian Sea and the Russian fierce opposition. Recently American
companies have been a target of Kremlin in order to limit their power, particularly in the
Caspian Pipeline Consortium where Russia has enlarged its stake up to 31%.
If we combine the shares of Chevron and ExxonMobil in the TengizChevroil consortium we

would get the absolute majority (75%) of votes for the American representatives. In such a
composition, the US companies have a great power to decide the crucial questions about the
production, price and destination of the export from specified oil field. It is also probable that
such a power could be transferred in the form of leverage on the Kazakh government. The
similar projection appears within the second largest Kazakh oil field Karachaganak where the
European oil companies (BG and ENI/Agip) holds the majority stake of 65% and together
with the American Chevron it reaches 85% of the total shares. Exactly the same scenario rises
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in the case of Kashagan oil project, in which Kazmunaigaz is the only one regional oil
company with the share of 8.33%. The rest is divided among the European (ENI, Total,
Shell), American (ExxonMobil, ConocoPhillips) and Japanese (Inpex) oil companies that
together possess substantive 91.77% (See table 9). Most of these TNOCs are also represented
in the BTC (Baku-Tbilisi-Ceyhan Pipeline) which is a pipeline transporting oil from
Azerbaijan via Turkey further to Europe but has a strategic importance for the Kazakh oil
industry. It represents an alternative way to export the Kazakh oil to the international market
via tankers across the Caspian Sea in order to completely bypass the Russian territory.
4.2.2.2.3 Chinese economic influence

China plays an important role in Kazakhstans oil sector due to its great potential. It is
represented by the Chinese National Petroleum Company (CNPC) that aims to promote the
interests of its nation-state. The first Chinese investment in Kazakhstan was headed to the
development of the Uzen oilfield. CNPC offered $9,5 billion to update this oil-rich area in the
southwest of Kazakhstan and construct a pipeline connecting Kazakh western region Aktobe
with western China (Auty, 2006:233). Later the other phases of the Kazakhstan-Chinese
pipeline were discussed to link the Caspian Sea with China (see map 5). After the finalisation
of the last phase, a single Kazakh-Chinese pipeline system was established and integrated to
the Chinese pipeline system. The project was carried out with the Kazakhstans national oil
Company Kazmunaigaz and the Chinese CNPC (Sultanov, 2010:154).
CNPC also acquired a 60.3% stake in the national Aktobemunaigaz Oil Company. Despite the
interests of other powers in this project, the arrangement with China suited land-locked
Kazakhstan most, because it was looking to lessen its dependence on war-troubled Russia for
shipment of its oil (Yermukanov, The Jamestown Foundation). Beijing also aimed to achieve
a share in the North Caspian Sea PSA operating mainly in Kashagan field. Therefore in 2003,
Sinopec Group and CNOOC, the two largest Chinese companies, required a 16,67% stake of
British Gas Company (Jafar, 2004: 213). Notwithstanding the western oil companies in the
consortium, namely Exxon, Shell, ENI, Total and ConocoPhillips exercised their pre-emptive
right to refuse such a deal. The BG (16,67%)
share was eventually purchased by
KazMunaiGaz national company despite Kazakhstan initial support for involvement of

Beijing (Auty, 2006: 234). Hereby the Chinese effort to expand its economic leverage to the
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West of the Kazakhstan was blocked. This case reflects clearly Western concern about
Chinese increasing infiltration into Central Asia. Western companies were not the only ones
to be aware of the Chinese rising influence; Russians had also concern about Beijing.
In contrast, Nazarbayev greeted China with enthusiasm and supports most of their mutual
projects, particularly the Kazakhstan-Chinese pipeline. The main reason for that was the
expansion of pipeline routes towards the East, which could significantly reduce Kazakh
dependence on Russian pipeline network. This project, that became operational in 2009
(CNPC.com), represents for Kazakhstan the first direct link towards the consumer country
and it was managed without Russian or Western participation. Moreover the cooperation with
China enables Kazakhstan to get an access to the Pacific Ocean (Legvold, 2003:127). On the
other hand the pipeline leading from Kazakhstan across the Chinese vast territory towards the
Pacific would be extremely expensive.
4.3. MAJOR POWERS STRUGGLE OVER KAZAKH OIL AND

THEIR INTERESTS
New Great Game over control of the Caspian natural resources has emerged in the postCold War period with the formation of new independent states in Central Asia. Since the
1990s, many external powers (mainly the US and EU countries) took advantage of the weak
Russian position and appeared on the stage (Rywkin, 2010:94). This was firstly carried out by
investing in the development of Kazakh oil fields and purchasing advantageous product-share
agreements (PSA). This post-Cold War Great Game has even intensified after the terroristic
attack of 9/11 that brought the US military presence in the region. In addition to that, the
increasing Chinese need to assure its energy security and significant engagement in the
Central Asian region created the conditions for a new geopolitical struggle in the region.
The analogy to the Great Game of the 19century between Great Britain and the Russian
empires in the same region is often pointed out. The Post-Cold War Great Game, however,
differs in many factors. Firstly the centre of interest was shifted from Western Caspian
seashore to the eastern coastline; in other words, from Azerbaijan to Kazakhstan. Secondly,
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the actors involved are not the same as in 19th century where only states played a crucial role.
On top of nation-states, this time many transnational actors, NGOs but also terrorist groups
are involved. This gives the space for implementation of Critical Geopolitics as it claims that
the state is not anymore a principal actor in global politics (Agnew, Amineh, OTuthail).
This section studies the interests of three great powers: Russia, China and the US which
significantly differs in their interests, policies and attitudes towards Kazakhstan. Moreover we
aim to answer the question if Russia has changed its foreign policy due to the other countries
involvement in Kazakhstan. For this purpose we will study Russia as the last one. Therefore
two logics are essential for studying states interests: the geo-economic logic and the geopolitical one. According to Mercille and Jones the former logic arises from the state interest in
control of energy resources and the latter from the need to maintain states credibility
(Mercille and Jones, 2009:856).
4.3.1 The US interest in Kazakhstan

The interest in securing the uranium and nuclear disarmament was the first step in the US
foreign policy towards post-Cold War Kazakhstan. The goal was to assure that Soviet nuclear
arsenal will not end up in the wrong hands. After completing this mission Washington has
turned its concern towards Caspian natural resources, mainly Kazakh oil. Closer cooperation
with Kazakhstan in the energy sector was possible due to the political and economic chaos in
Russia. Therefore American and some Western companies have invested much into the
Kazakh oil projects.
The events of 9/11 brought a new dimension for the US-Kazakh relations. Nazarbayev has
condemned terrorist attack on the World Trade Centre and offered its support for the US
counter-terrorist action in Afghanistan. A closer cooperation between both countries was also
developed within NATO. Since 2009, Kazakhstan has permitted air and land transit for U.S.
and NATO troops and equipmentas part of the Northern Distribution Networkto support
stabilization operations in Afghanistan (Nichol, 2010: Summary). Kazakh authorities have
endorsed a continued U.S. and NATO military presence in the region even after the situation
in Afghanistan stabilizes (Weitz, 2008:127).
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The colour revolutions aspiring for the replacement of old ruling elites and rapprochement
to Europe took place in Ukraine (2003), Georgia (2004) and Kyrgyzstan (2005). They were
mainly supported by Washington, but eventually weakened American position. Russia, upset
by this attempt to destabilize its influence in the region, has used the structures of the SCO to
promote the US withdrawal from the military air base in Uzbekistan (Rywkin, 2010:97). This
step was finally supported by Central Asian leaders due to the elites fear from spreading the
colour revolutions aim to change the ruling regime and the American will to push ahead the
democratic principles in Central Asia. After the colour revolutions Kremlin became more
and more aware of the US infiltration into the Russian traditional zone of influence. The
position of Washington has been weakening because of its involvement in Afghanistan and
Iraq. American companies have, however, remained and become even more important
because of the rising oil prices in the world market. In reality, for the US the economic
interests in Kazakhstan have prevailed over the promotion of democracy in the country.
Nowadays, according to the US President B. Obama, the United States strategic aim in
Kazakhstan is to help the country develop into a stable, secure, and democratic country that
embraces free market competition and the rule of law, with a respected regional leader
(Nichol, 2010 Summary). As we mentioned above, the notion of democracy is, however, one
of the most problematic impediments of their mutual relations. Kazakhstans authoritarian and
very corruptive regime is not really heading towards American vision of democracy. Thus
many criticisms have being targeting Nazarbayev and its clan system. That is the major cause
of the Kazakh rapprochement with Moscow in the last few years. The nomination of President
Nazarbayev, the Chair of the OSCE in 2010 could be a way to counterbalance this trend of the
Kazakh rapprochement with the Kremlin.
4.3.2 The Chinese interest in Kazakhstan

Since the dissolution of the Soviet Union in 1991 China has made a great effort to establish
good relations with its border countries. Initial prior interest of Chinese administration was to
secure a long frontier it shares with Kazakhstan and stabilize the borderline region Xinjiang,
where the abundant Muslim population lives. The effort to achieve this goal was addressed
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bilaterally but also on the multilateral level by signing the Shanghai Five agreement 27. In
the mid of 1990s the centre of interest was shifted towards the energy resources that
Kazakhstan possesses. Chinese economic growth and finite oil resources have significantly
stimulated the demand for diversifying energy supplies. In 1993, China has already become a
net exporter of crude due to the domestic lack of oil production (Legvold, 2003:126).
Therefore Central Asian countries represented a possible new market that could help China
enhance its energy security and reduce its dependency on the Middle Eastern oil (Auty,
2006:231).
Many scholars (Legvold, Auty) argue that China is seeking to diversify its imports routes of
oil due to its growing population and need for energy. Therefore Kazakhstan, as a direct
neighbour, has become an important player in the Chinese foreign policy since the collapse of
the USSR. Beijing is, moreover, trying to link Kazakhstan economically with its Western
region Xinijan. Hence the development of infrastructure between both countries is also one of
the main strategies of the Chinese policy.
Within the framework of Kazakh-Chinese cooperation, Beijing aims to bring an economic
growth to the Xinijan region and avoid possible separatists tendencies of Muslim Uighur
population that is spread in the frontier territory of China, Kazakhstan and Kyrgyzstan.
Therefore China promotes the construction of pipelines, rail road and air links within this
region. The focus is put on establishing closer economic integration with Central Asian states.
According to the Auty Chinas primary concern in the Central Asian region is to prevent
destabilizing factors such as terrorism, separatism, religious extremism, weapons smuggling
and drugs trafficking from affecting China internally( Auty, 2006:235). In order to do this
Beijing has initiated the Shanghai Cooperation Organisation 28, a regional organisation with
the goal to defeat the transnational threats in Central Asia.
How did Moscow react on such a Chinese involvement in the region? The rising transnational
threats have brought both countries, Russia and China, closer in order to discuss a possible
cooperation on the multilateral level. Shanghai Cooperation Organization represents a
27
See section on Regional Security Cooperation in 2nd Chapter.
28
See section on Regional Security Cooperation in 2nd Chapter.
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platform for regional coordinated response to new threats the region has to challenge. China
has identified this cooperation as a struggle against the three threats: national separatism,
religious extremism and international terrorism (Legvold, 2003:133). President Putin has
endeavoured to keep the Chinese influence under control through this multilateral cooperation
in the SCO. In the same time closer cooperation with China represents for Kremlin an
important means to counterbalance the US presence in Central Asia. Thus Putins strategy
was to maintain a good relationship with China and deepen the cooperation within the SCO.
To conclude on Chinese interest in the region the statement of prominent scholar Robert
Legvold (2003:127) will be the most appropriate one.
China seeks neither to develop privileged relations with any one country to the disadvantage
of others, nor to make the region a Chinese sphere of influence.
4.3.3 The Russian interest in Kazakhstan

The Russian Federation has a very specific relation with Kazakhstan as it shares a common
history and similar culture. Both countries are also economically interlinked. It was the
Russian explorers who found the oil fields and the Soviet administration who decided to
construct the appropriate infrastructure to link these oil rich regions with Moscow. Therefore
the logical Russian interest would be to maintain its influence that it has in the country since
the Tsarist regime. The large scale of the Russian interests in Kazakhstan could be divided in
three main parts: economic, political and security ones.
The economic interest is the one we can easily analyse due to its evident nature. The main
economic interest would be to increase Russian benefits from the Kazakh oil export. This goal
was easy to reach as the majority of the pipelines leads from Kazakh oil fields across the
Russian territory. Thus Moscow could determine the amount of the transit fees. Moreover
many Russian oil companies have been operating in Kazakhstan which also contributes to the
rise of Russian economy and the growth in GDP. The best example of strong Russian
economic interests in Kazakhstan is the construction of the Caspian Pipeline Consortium
(CPC). The implementation of this project means for Russia two political aspects. Firstly this
multinational project served to secure the transportation of large proven Caspian oil reserves
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via its (Russian) territory and secondly it gave Western companies a stake in what has
become the largest US investment in Russia (Akiner, 2004: 255).Therefore we could claim
that the ground for cooperation between the US and Russia was laid. In this case we could
observe how deeply the economic concerns are interconnected with the political ones.
Russian political interests are, however, more difficult to determine because the real states
interest could largely differs from the official Russian statements and discourses. The
prominent academic Emre Iseri argues that Caspian energy resources give to Russia a
possibility to re-establish its political dominance over the newly independent states (eri,
2009: 40). This could be one of the main interests that Moscow has in Kazakhstan. It allows
Russia to regain its power on the regional level and to counterbalance Western economic,
political and military involvement in the region. The Russian government, however, assures
that the economic interests are essential for Russia and that it would not use transportation
routes through its territory as a means of exerting political pressure (Akiner, 2004: 255) on
Kazakhstan.
Russia has also substantive security interests in the Kazakh-Russian relations. This is
illustrated on several regional security partnerships such as the Shanghai Cooperation
Organisation (SCO) or the Collective Security Treaty Organisation (CSTO) that serve to
counterbalance the US military involvement in the region. CSTO has moreover another task
to accomplish to secure the existing pipelines. In other words Moscow has an interest in
protecting Kazakhstan against any external attempts that could endanger the transport
facilities. Thus we could perceive this regional cooperation as a means to consolidate and
extend the Russian leverage in Kazakhstan.
Russian interests often diverge with the US ones in many domains. The pipeline diplomacy in
the Caspian region is one of the most obvious fields. Although Moscow supports the pipelines
leading across its territory, Washington prefers to bypass Russian territory and thus it has
initiated the construction of the BTC pipeline. This one could in the future serve as an
alternative export route for the Kazakh oil industry. Today only a small amount of Kazakh oil
could flow through the BTC, because the only way to connect Kazakh oil fields with Baku is
via tankers. As for Russia again Kimberley Marten claims that Russia might become the sole
alternate supply state for regional markets, in either Europe or East Asia if a crisis in the
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Persian Gulf or the chokepoint Straits of Hormuz or Malacca were to block the exports of
OPECs Arab members (Marten, 2010:23). That would give Moscow a great power to
reinforce its position as a regional leader.
4.4 Conclusion
The last chapter aimed at capturing the importance of Kazakh oil on the global level and at
analyzing the interests of major powers and TNOCs involved in this great game. There are
several outcomes and observation from this study. First of all, Russia seems to stand out as
the main administrator of the pipeline system and thus can regulate the export of oil. On the
other hand, its power has been restrained by the commissioning of the CPC pipeline and the
Kazakh-Chinese pipeline. In the former, Russia, however, secured the share of 31% and the
Russian oil company Lukarco another 12,5%. In addition, this pipeline leads across the
Russian territory. Therefore, Moscow has a great leverage on the decision-making in the
consortium. The other finding stems from the observation of Russia strengthening its power
by reinforcing its national oil company Rosneft. That is evident on the pressure that Moscow
developed on Lukoil to sell a part of its stake in CPC to Russian NOC Rosneft.
Russia is, moreover, seen as a possible great player, who can deliver a necessary volume of
oil from its own oil fields via Kazakhstan-China Pipeline to satisfy the Chinese market.
Therefore the potential for development of relations between Kazakhstan, China and Russia is
huge. Western countries are however concerned about the possible growing power of these
countries that could change the current world order. Therefore we assume that the US and
some other Western countries would try to support their Transnational Oil Companies (TOCs)
operating in Kazakhstan and maintaining their influence through these TOCs in the region. It
appears that the position in traditional relation company-state, is significantly changing and it
is the state which is doing lobby on TNOCs now. Moreover Russia believes that the fairly
strong alliance with China via Kazakhstan is one of the means to counterbalance US in the
region.
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5. CONCLUSION
This thesis aims at describing the geopolitics of oil in Kazakhstan with a focus on RussianKazakh relations and at providing an answer to the question: What is the Russian interest in
Kazakhstan?
To answer this question, I employed the theoretical framework of critical geopolitics that
emphasizes the role of economy as a determinant element in order to achieve control over the
space. Moreover, critical geopolitics claim that the international economic integration
relatively reduced the power of the state on political and economic level and the new actors
such as transnational corporations reinforced their position in global politics.
The assumption that the political decision is mainly conducted by the will to control oil is
predominant in this research. Departing from this theoretical paradigm, we could assume that
the principal interest of the Russian Federation is to control the Kazakh energy sector in order
to secure its sphere of influence in the region. The reason for this lies in the geographical
position of both countries and the historical development of Kazakh-Russian relations. The
geopolitics revolving around oil and consequential involvement of the major powers and
TNOCs also influence Russias attitude towards Kazakhstan.
Kazakhstan represents the largest reservoir of oil in the region. Its importance has even
increased with the discovery of the Kashagan oil field that is expected to possess abundant
reserves of oil. It is also believed that in the case of disruption of the oil flow from Middle
East, Kazakhstan has the capacity to supply the regional markets in Asia or Europe. If this
will happen, Russia would be able to dominate/lead the oil export from Kazakhstan as it has
control over the pipeline infrastructure.
Departing from Putins strategy we could claim that Russia considers the control of energy
resources as not only means to regain its dominance in the region but also to reconstruct its
own domestic economy. Therefore, two aspects of the Russian concern the political and
economic one emerge. In addition, Moscow has been following the concept of
Eurasianism that permits Russia to position itself as the bridging country essential so as to
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assure stability between Asia and Europe. This provides Russia with an opportunity to justify
its military presence in Central Asia.
The Russian administration has initiated the foundation of several regional organisations such
as SCO and CSTO that would promote cooperation on the security level. The main Russian
interest for such a cooperation inheres in the need to secure the pipeline system and hence the
access to Kazakh oil. Energy for the Russian leadership is strongly linked with security. In
addition, Russia also aims to counterbalance the US presence in the region, which is believed
to be achieved by the strong alliance with China.
Russian concern in the energy cooperation via SCO structures could be, moreover, seen as a
hidden interest to supply China with its own oil. It is highly probable that Moscow would try
to export its oil via the newly commissioned Kazakh-Chinese pipeline. Thus Kazakhstan
might become a platform for Russia to find the best way to send oil to economically growing
consumer countries such as China but also India which is one of the observer members of the
SCO. On the other hand the SCO serves to protect the Kazakhstan energy sector from the
external powers and to mitigate the completion among regional powers. The Russian security
concern could also be interpreted as a will to reintegrate Kazakhstan into the Russian security
system.
The geopolitics of Kazakhstan revolving about oil are based on economic interests that are
crucial and predominant. Therefore, the vital interest of all the actors involved is to maintain
political stability in the region and to avoid any possible conflict that would endanger the
export of oil. Most of the TNOCs operating in Kazakhstan are highly concerned with the
profitable outcome of their large-scale investments and, therefore, their economic interest
predominates over the political ones. The oil companies, however, often face the pressure
from their nation-states that aim to promote their political will. Hence several economically
advantageous projects were frozen down, especially in the sector of oil infrastructure, because
it did not play in favour of the state. The best example is the Russian opposition to the
construction of the route that would connect Kazakh oil and gas fields with the BTC pipeline.
Western oil companies, however, seem to be less vulnerable to the political lobbying more
easily influenced by of their nation-states than the Russian and Chinese ones.
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We could also claim that the Russian economic and security involvement has intensified as a
result of gradual western spreading over the Kazakh oil sector and their purchasing of the
important stakes in the Caspian oil fields. However during the decade of the vigorous
cohabitation with the western oil companies in Kazakhstan, the Russian awareness about the
profitability of the international cooperation has risen. This is evident in the rapid construction
of the CPC pipeline that became the first pipeline with the wide international representation in
the executive board. This project, which though lessened the Kazakh dependency on Russia,
brought substantial profit for all the consortium members and the Russian Federation in
particular. In the authors opinion the Russian approval to construct the CPC pipeline stems
from the reconciliation with the Kazakh will to build the export routes, which would reach the
international market as directly as possible, but also comes from the reconsideration of the
financial benefits.
We could agree with the critical geopolitics on the assumption that the role of economy is
determinant in order to achieve the control over the space. Therefore Russia aspires to
maintain the economic interdependence that was established with Kazakhstan via pipelines.
This research showed that the most important point in Russian-Kazakh relations is the energy
infrastructure. In other words, the Russian priority is to maintain control over the pipelines
that leads from Kazakhstan across the Russian territory towards the international markets.
Therefore, the TNOCs that participate on exploration and production of oil play a crucial role
in global oil politics. Despite the international character of the TNOCs, their nation states
often have leverage on their functioning. On top of that, we could observe the rising strength
of the NOCs in the context of the geopolitical struggle for the Kazakh oil. Therefore, the
power is gradually shifting towards the states.
The results of the research have proved that applied theoretical framework, in our case critical
geopolitics, provides explanations. The author, however, suggests that more importance
should be dedicated to the NOCs that have started to rise again in power. In the world where
energy scarcity and growing demand for oil is alarming, it is highly probable that the nationstates will tend to secure the access to oil by any means. Nowadays, the best way how to
achieve this inheres in the economic interdependence.
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Map 1 Political map of the Republic of Kazakhstan
Source: https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html
Map 2 Political map of the Russian Federation
Source: https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html
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Map 3 Central Asian Oil Pipelines
Source:http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elca
no/elcano_in/zonas_in/dt59-2009
[103]
Map 4 The Caspian Pipeline Consortium
Source: ENI, 2010
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Map 5 Kazakhstan-Chinese pipeline
Source: http://www.atimes.com/atimes/Others/China_Business_Energy.html
[105]
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Map 6 The Caspian Sea Legal Regime - National Sectors
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[118]
APPENDICES
Apendix 1 Kazakhstani oil and gas projects
[119]
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[120]
I Summer 2011
[121]
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I Summer 2011
Source: Olcott, M. B. (2007) Kazmunaigaz, Kazakhstans national oil and gas company
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I Summer 2011
Apendix 2 Transport
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[123]

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New geopolitics of oil in Central Asia,

Student: Katerina Ivascenkova 6257046 i.katka@seznam.cz

MSc. Political Science, International Relations

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

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

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

WTO World Trade Organization WTO World Trade Organization

1. What is Russian foreign policy towards Kazakhstan?

1.1 Theoretical Framework

1.3 Thesis structure

RUSSIAN FOREIGN POLICY TOWARD KAZAKHSTAN

Azerbaijan, Iran, Kazakhstan, Russia, Turkmenistan

Historical background of Russian-Kazakh relations

2.1.1 The dissolution of the USSR and New Geopolitical Order

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

2.1.2 The Concept of Eurasianism

Therefore Yeltsin has started to use the traditional

New Russian foreign policy under Vladimir Putin

2.2.1 Official concepts of Russian foreign and security policy

2.2.2 Vladimir Putins new realism

2.2.3 Russia as a normal power

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

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

2.2.5 International Reconstruction of Russian position

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

More about colour revolutions in section on security and geopolitics

Russian diplomatic and security relations with Kazakhstan

2.3.1 Historical background of Russian-Kazakh diplomatic relations

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

2.3.3 The regional security organisations

2.3.4 Legal status of the Caspian Sea

Economic relations with Kazakhstan

2.4.1 Historical background of economic relations and mutual trade

Table 1: Kazakhstans major imports partners (2010)

2.4.2 Regional Economic organisations

3. POLITICAL SYSTEM AND FOREIGN POLICY IN

3.1 Historical background of the Central Asian region

3.1.1 The Kazakhstan Soviet Socialist Republic [1936-1991]

3.2 Nation-state building and Political system

3.2.1 Nation-building in Kazakhstan

3.2.2 Political system and leadership of Nazarbayev

3.2.3 Constraints to the process of the nation-state building

See official pronouncements in Kolsto, 1998: 56-58.

See the section on Kazakh-Chinese relations

3.3 Kazakhstan Foreign policy and relations with major powers

3.3.1 Kazakhstan foreign policy concept

3.3.2 Factors shaping Kazakh foreign policy

3.3.3 Multilateralism in Kazakh foreign policy

Table 2: Kazakhstans membership in the most important regional and international

Commonwealth of Independent States (CIS)

United Nations (UN)

Economic Cooperation Organisation (ECO)

World Bank Group (WB)

Eurasian Economic Community (EAEC)

Organisation for Security and Cooperation in

Shanghai Cooperation Organisation(SCO)

Organisation Organisation of Islamic Conference (OIC)

Source: Authors mapping of the Kazakh membership in the international institutions

3.3.4 Kazakh relations with Russian Federation

3.3.5 Kazakh relations with the USA

3.3.6 Kazakh relations with China

See chapter 4. (Geo-economics and Geopolitics)

4. GEO-ECONOMICS AND GEOPOLITICS OF OIL IN