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Russia and the Great Game in Central Asia

Vladimir Radyuhin

The accession of Uzbekistan to the Eurasian Economic Community advances Moscow's goal of setting up an OPEC-like gas cartel in the region.

RUSSIA HAS scored another point in the new Great Game for control of Central Asia, with Uzbekistan joining the Eurasian Economic Community (EEC), Moscow's most ambitious integration project in the former Soviet Union. Uzbekistan, the most populous state in Central Asia, last week became the sixth member of the EEC set up in 2005 by Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan as a customs union.

"We are setting up a common market of countries with a population of 205 million. It is one of the largest integration projects in the world," said Kazakhstan's President Nursultan Nazarbayev at the EEC summit in St. Petersburg on January 25, where Uzbekistan was formally admitted to the group.

The accession of Uzbekistan to the EEC advances the process of geopolitical reorientation of Central Asia away from the United States and towards Russia and China. The U.S. push to win a long-term military foothold in Central Asia suffered a major setback last year when Uzbekistan shut down the Pentagon's main air force base in the region. This followed the U.S.-backed "tulip revolution" in neighbouring Kyrgyzstan and an Islamist revolt in Uzbekistan's Andijan province, in which Tashkent also saw an American hand.

Uzbekistan, which was a U.S. bridgehead in Central Asia in the post-9/11 scenario, has become Russia's key ally in the region. Its authoritarian leader Islam Karimov now sees Russia as the main bulwark against "orange revolutions" in the region. In November he signed a mutual security treaty with Moscow, which allows Russia to establish a military base on Uzbek territory. There is a good chance Uzbekistan may also join the Collective Security Treaty Organisation, a defence bloc which has the same members as the EEC plus Armenia.

Local fears of U.S., Chinese expansion

The dramatic shift in Central Asia in favour of Russia has been driven in large measure by local fears of U.S. and Chinese expansion. The American support for "orange revolutions" in the former Soviet Union is perceived as an immediate threat to the autocratic regimes in Central Asia and to regional stability as a whole. The Central Asian states are also apprehensive that China's growing economic presence will eventually lead to demographic aggression. Kazakhstan with a population of 15 million already has 100,000 Chinese living on its territory and marrying Kazakh girls.

The EEC gained priority for Russia after the pro-Western "orange revolution" in Ukraine a year ago torpedoed another integration project, the Common Economic Space. The alliance, which involved the four industrial powerhouses of the former Soviet Union — Russia, Ukraine, Belarus, and Kazakhstan — accounting for 94 per cent of the erstwhile USSR's GDP, was to become a magnet for economic re-integration of other ex-Soviet states as well. But Ukraine's new leadership has ruled out full-fledged membership in the project, declaring the strategic goal of joining the European Union.

However, Uzbekistan's geo-strategic volte face opened up new opportunities for Russia. Apart from being the world's second biggest exporter of cotton, Uzbekistan is rich in oil, gas, gold, and uranium and lies at the crossroads of transport routes in Central Asia. Uzbekistan with its 26.8 million people already accounts for half the combined population of Central Asia and the share is set to grow, given its high birth rates.

With the admission of Uzbekistan, the EEC comprises all Central Asian states, except for isolationist Turkmenistan. Uzbekistan has filled a crucial missing link in Russian efforts to build a common market and a unified transport system spanning the European and Asian parts of the former Soviet Union. Tashkent has vowed to accede to all the 70-odd EEC agreements providing for freer trade and visa-free travel before the end of the year. By 2007, the EEC plans to set up a full-fledged customs union. The ultimate goal is to establish a monetary union and achieve free movement of goods, investment, services, and workforce.

The enlarged EEC can impart faster economic growth to Central Asia and help deal with the post-Soviet problems of simmering ethnic tension, rising religious extremism, and smouldering disputes over scarce water resources.

In recent years, Russia has regained many commanding positions in Central Asian economies. Following the expansion of the EEC, it looks set to further enhance its economic influence in the region. President Vladimir Putin has made it clear that Russia will use the enlarged EEC to consolidate its grip over the energy resources of Central Asia.

"Russia is firmly determined to widen cooperation within the Eurasian Economic Community in the field of global energy safety," the Russian leader said at the group's summit in St. Petersburg last week.

The stronger EEC will help Russia compete with both the U.S. and China for control over energy flows from Central Asia, which accounts for nearly 5 per cent of the world's proven natural gas reserves and about 3.5 per cent of oil and coal.

The U.S. seeks to channel oil and gas exports from the Caspian region and Central Asia to the West, while China is working to turn them from the West to the East. The U.S. has lobbied through the construction of the Baku-Tbilisi-Ceyhan oil pipeline and a parallel gas pipe, and is prodding Kazakhstan to commit more hydrocarbon exports to these pipes to make them commercially viable.

For its part, China has built a 988-km pipeline from Kazakhstan to China capable of carrying 10 million tonnes of crude a year in the first stage, and up to 20 million tonnes in the second stage. The Chinese National Offshore Oil Corporation (CNOOC) last year bought Kazakhstan's biggest oil producing company, PetroKazakhstan, for $4.2 billion, narrowly outbidding ONGC-Videsh Ltd. Since 1997, CNOOC invested nearly $10 billion in Kazakhstan. Chinese exports to Central Asian states are growing by leaps and bounds, and Beijing's expansion to the region will be further facilitated by the planned construction of a 4,000-km trunk railway linking China to Western Europe.

Russia and China are close allies in promoting regional security in Central Asia through the Shanghai Cooperation Organisation (SCO), but they are competitors when it comes to sharing energy resources in the region. Moscow was unhappy with Beijing's offer last year of $900 million in loans to Central Asian states to facilitate Chinese exports, and blocked its proposal to set up a free trade zone among the SCO member-states.

At the same time, Russia is actively pursuing the goal of a free trade zone for the Eurasian Economic Community, which has the same members as the SCO, plus Belarus and minus China.

Uzbekistan's participation in the EEC advances the Russian goal of setting up an OPEC-like gas cartel in Central Asia. The day Uzbekistan was admitted to the EEC, Russia's Gazprom signed two agreements on joint development of its gas fields worth around $1.5 billion. Earlier Russia's oil major LUKoil sealed a multibillion-dollar oil and gas extraction deal with Uzbekistan.

Russian oil and gas companies have strong positions in Kazakhstan's energy industry. Last week Gazprom signed a deal with Kyrgyzstan for the exploration and development of gas fields and the modernisation and construction of new gas transport facilities. Turkmenistan, the only Central Asian state that is not a member of the EEC, is nevertheless firmly strapped to Russia. Under a 25-year contract Gazprom concluded with Turkmenistan leader Saparmurat Niyazov, the Russian company will buy practically all the natural gas the desert state offers for export.

In the past few months, Russia's Gazprom natural gas monopoly signed five-year accords with Kazakhstan and Uzbekistan giving the company monopoly rights for the transportation of natural gas from Central Asia across their territories to Europe. Gazprom also controls export gas pipelines to Europe running though Belarus, the only European ally of Russia involved in the EEC. Now that Belarus, Kazakhstan, and Uzbekistan are all members of EEC, the gas cartel has de facto been formed. The new arrangement already helped Russia resolve a standoff with Ukraine earlier this month over the inevitable price hike for natural gas supplies, with Gazprom offering Ukraine cheaper Central Asian natural gas, while freeing more Russian gas for export to Europe at a much higher price.

Nuclear alliance

Moscow's next goal is to forge a nuclear energy alliance with its ex-Soviet partners. Addressing the St. Petersburg summit of the Eurasian pact, President Putin proposed extending energy cooperation among the member-states to the nuclear field with an eye on rebuilding the nuclear energy complex of the former Soviet Union.

Mr. Putin's plan calls for pulling together the technological potential of Russia and Ukraine and the extensive uranium ore reserves in Kazakhstan and Uzbekistan to set up in Russia a global centre for nuclear fuel cycle services to other countries, including enrichment under the control of the International Atomic Energy Agency and recycling of spent nuclear fuel.

Stronger positions on the Central Asian energy market should help Mr. Putin advance his goal of positioning Russia as a global energy leader. As Russia took over the rotating presidency in the Group of Eight on January 1, Mr. Putin called for creating an "energy set-up [that] should be equally fair for the producers and consumers of energy resources for the sustained economic growth in the world."

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