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OPINION

«Nobody asks Putin anymore.» Vladimir Milov on how China has been strengthening its grip on Kazakhstan

Turbulent events in Kazakhstan have overshadowed the economic component, yet, at the same time, it was the growth of domestic gas prices that initially provoked the protests. Oil and uranium markets became noticeably agitated as the events in Almaty unfolded. Behind the geopolitical events surrounding Kazakhstan are the interests of China, which, in the economic sense, has completely ousted Russia from the region over the past 15-20 years, Vladimir Milov says. Therefore, the CSTO troops that were rapidly sent to the country are being withdrawn just as quickly.

Unwarranted fears

Global commodity markets' fears about instability in Kazakhstan were unwarranted. Even a potential change of power did not threaten the producing companies - most of them are owned by foreign investors and located far from the capitals. There was no reason to expect that any scenario in Almaty or Nursultan would destabilize oil or uranium companies in any way.

Kazakhstan produces 2% of the world's oil, which is a noticeable volume, but there would have to be very serious disruptions in the supply of Kazakhstani raw materials for the market to notice them. Kazakhstan's share in global uranium production is much higher - more than 40%, but, on the other hand, the share of nuclear energy in the balance of world primary energy resources is just over 4% (for comparison, it's over 30% for oil and 25-27% for gas and coal). Even a breakdown of current uranium production would not have a particularly severe impact on the operation of nuclear power plants in the here and now.

In other words, the panic in the markets was premature. And even in the case of hypothetical regime change in Kazakhstan, the new authorities would certainly not be interested in losing their export revenues. Destabilization could have occurred as a result of, say, a protracted civil war as in Libya or Syria -- a highly unlikely scenario.

Why gas prices went up

An important question is the growth of household liquefied gas prices, which became the immediate cause of the protests (which, however, quickly turned into political demands). It should be noted that protests against rising energy prices, which become a catalyst for the collapse of authoritarian regimes, are not a new phenomenon; for example, this is how the Suharto regime in Indonesia collapsed in 1998. However, what we see in Kazakhstan is the beginning of the process of mass unrest caused by dissatisfaction with the Nazarbayev-Tokayev dictatorship, rather than the endgame we saw in Indonesia in the late 1990s.

Many commentators have tried to pin the story of gas prices on Russia and Gazprom, but to no avail - they have nothing to do with it. Liquefied household gas is a product of processing of associated petroleum gas, which is produced by Kazakhstani oil workers. Prices for liquefied household gas have been artificially restrained for a long time by the Kazakhstani authorities for political reasons. This led to a certain «fork»: on the one hand, the enterprises processing associated petroleum gas (primarily, the largest gas processing plant KazGPZ, part of the state-owned KazMunayGas) were unable to generate profits by selling household liquefied gas at low prices. On the other hand, artificially low prices stimulated excessive demand: in the oil-producing Mangistau region, where the protests began, the share of liquefied gas as motor vehicle fuel had reached 80%. Gas was cheaper than gasoline, and eventually all the vehicles were converted to natural gas.

This «fork» has troubled the authorities for a long time - in previous years, they were gradually moving towards liberalization of prices for products of associated petroleum gas processing. This is not a new issue; you can read about it in detail, for example, in this article published last year. It is surprising, however, that liberalization caused such a collapse and allowed prices to grow sharply, almost twofold, which in turn became a powerful social irritant in a depressed economy. And after the beginning of the protests, in the first days of January, the government and the Ministry of Energy continued to insist that everything had been done properly, until Tokayev personally dismissed the Cabinet of Ministers and rolled back the prices.

It is hard to say why the authorities so blatantly «overlooked» a very serious reason for the explosion of social discontent - most likely, it can be explained by a combination of factors: the low level of professionalism of Kazakhstani officials multiplied by a monopolistic economy and the bureaucracy's tendency to favor the interests of big corporations. It is basically similar to the situation in Russia, so we should also expect similar events in the future. Incompetence, monopolism, and lobbyism in dictatorships often lead to situations that catalyze protests.

The authorities «overlooked» the cause for social explosion because of their low professionalism and favoritism towards the interests of big corporations

China's grip on Kazakhstan

It is much more important to look at the overall balance of major economic interests in Kazakhstan. That way it will be a little easier to comprehend further developments such as the rapid deployment and equally rapid withdrawal of CSTO troops. In Russia, the current events in Kazakhstan are largely viewed as an internal struggle among the Kazakhstani power clans. But in reality this is a matter of secondary importance. Although these clans have their share of the economic «pie» under control, the country's main resources and strategic projects have been in the hands of foreigners for a long time. Given that, China's role merits a separate discussion.

The Chinese leadership has behaved quite unusually in relation to the protests in Kazakhstan. Traditionally, the Chinese authorities are reticent to comment on international events, preferring to defend their interests through behind-the-scenes methods, and limiting themselves to formal statements about the need «to respect national sovereignty and the principle of non-interference in the internal affairs of states». In this case everything was different: the Chinese leader Xi Jinping spoke very quickly, sharply and publicly about the events in Kazakhstan as a «provocation by external forces of color revolution» (no evidence of this has been provided by Moscow, Beijing or the Kazakhstani authorities themselves), and expressed his support for the violent suppression of protests.

It is not surprising, given how deeply China has penetrated the strategic sectors of Kazakhstan's economy. Key enterprises in Western Kazakhstan, where the protests began, are controlled by Chinese companies - for example, Mangistaumunaigas, Aktobemunaigas (which was renamed to CNPC-Aktobemunaigaz), a stake in the largest Kashagan oil field, the Karazhanbas, a group of former Lukoil assets in Kazakhstan sold to Sinopec in 2015.

Over the past 15 years, oil and gas export flows from Kazakhstan and other Central Asian countries have been completely rerouted to China, bypassing Russia. For example, CNPC owns half of the equity and is the EPC operator of the Central Asia-China gas pipeline project, which was used to deliver almost 40 billion cubic meters of gas to China in 2020 (Russia supplied only 4 billion cubic meters of gas to China, or 10 times less).

Nowadays, oil and gas from Kazakhstan and other Central Asian countries are completely rerouted to China bypassing Russia

According to the National Bank of Kazakhstan, China's net direct investments in Kazakhstan, together with Hong Kong, are three times greater than Russia's - $9bn vs. $3bn. It is quite obvious that in the last 15-20 years China has completely outplayed Putin's Russia in terms of control over Kazakhstan's strategic resources, and now it can convert its control into political influence. I believe this explains the audacity of Tokayev, when he demanded that Putin quickly withdraw the CSTO troops from the country, contrary to Putin's wish to maintain his military presence in Kazakhstan «as long as necessary». Tokayev has obviously enlisted the support of the more powerful and influential Chinese comrades.

Thus, many Russian observers were quick to declare Tokayev a Putin «puppet» just because he panicked and initially invited CSTO forces into the country. The Chinese Communists, who have a decisive influence on Kazakhstan's political elite, quickly demanded the withdrawal of Russian troops – and Tokayev obediently complied, despite Putin's obvious dissatisfaction. But no one asked Putin in this case - the Kazakhstani regime has long had other bosses.

Incidentally, the rapid withdrawal of CSTO troops is not the only anti-Putin gesture of recent days: for example, Tokayev demonstratively appointed Askar Umarov, who is considered an open «Russophobe» by imperialistic circles in Moscow, as Minister of Information and Social Development in the new government. Of course, Tokayev could not have taken such bold and irritating steps without the support of China.

In Kazakhstan itself, by the way, this factor has long become a serious cause for public concern - it is worth recalling that the previous mass protests of 2019 were blatantly anti-Chinese in character, the Kazakhstani people protested against the creeping transformation of the country into a Chinese colony. Independent Kazakh social media have long been sounding the alarm about the transition of strategic sectors of the country's economy to Chinese control.

Additionally, the magnitude of direct foreign investment in Kazakhstan explains another element - the muted reaction of Western countries to the shootings of protesters and the bloody suppression of protests by the Tokayev regime. The demonstrative silence of the West has angered many, but one possible explanation is the huge economic interests of Western countries in Kazakhstan. Yes, few countries can compete with China by the degree of penetration into various strategic areas of the Kazakhstani economy - but the large investments of companies from the United States, the Netherlands, France and other countries in Kazakhstan's largest oil fields (Tengiz, Karachaganak, Kashagan) are measured in tens of billions of dollars. They are too big to make a fuss about protests. This, of course, has caused great indignation but as regards the situation surrounding the suppression of protests in Kazakhstan, the West so far has blatantly shown double standards.

We will return to the political component of the events in Kazakhstan, but the economic background of the situation, as you can see, explains a great deal.

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