Publication: Eurasia Daily Monitor Volume: 2 Issue: 180

Kazakhstan hopes to use its privileged position as the largest oil producing state in Central Asia to foster good relations with key members of the international community. This tactic is probably best illustrated by a recent Kazakh-government sponsored conference for American business leaders in San Diego, California. It may be mere coincidence that the conference took place in the wake of the announced Chinese takeover of the Canadian PetroKazakhstan oil company operating in Kumkol, South Kazakhstan (see EDM, September 7). But the American oil giants do not welcome China’s slow infiltration into Kazakhstan’s new oil fields.

The San Diego conference can be viewed as a veiled attempt to recover the right balance between the geopolitical ambitions of Washington and Beijing. Experts in Kazakhstan believe that with the lingering political and economic uncertainty in Iraq, the United States will badly need Kazakh oil in the coming years, and it would be in the best interests of the American administration not to press the regime for radical political reforms. Evidently, President George W. Bush was deeply aware of this delicate circumstance when he commented on the parliamentary decision to hold presidential elections this December (Delovaya nedelya, September 23).

However, the “Iranian syndrome,” an unavoidable subject for Astana and a source of irritation for Washington, cast a shadow over the otherwise warm atmosphere of the San Diego meeting. Kazakh Minister of Energy and Mineral Resources Vladimir Shkolnik has made no effort to hide Kazakhstan’s desire to lay a new pipeline to bring Kazakh oil to northern parts of Iran. Kazakhstan is also counting on the Iranian ship-building industry to create its tanker fleet, as local economic experts believe that shipping oil by tankers to Azerbaijan and Iran is less expensive than constructing a seabed pipeline.

While Kazakhstan seems to put purely economic considerations ahead of political reasons, the political aspects of Astana’s oil strategy cannot be overlooked. China’s purchase of shares in PetroKazakhstan sparked deep indignation in parliament. One legislator, Kenjegali Sagadiev, insisted that the government must buy back China’s shares. This demand is motivated not so much by a sense of economic loss vis-à-vis Beijing as by an awareness of the impending Chinese demographic and political threat to southern regions of the country.

China has now apparently set its sights on the Darkhan oilfields in the northeastern Caspian section of Kazakhstan. On September 8 a representative of the China National Offshore Oil Company announced that the Chinese National Petroleum Company and Kazakhstan’s KazMunayGaz had reached an agreement to jointly develop the Darkhan fields. But the sides did not reveal the date when the agreement was signed. These latest announcements have added to the existing worries of the American oil companies that increasingly face new challenges from China’s slow but successful inroads into the oilfields of Kazakhstan. While admitting that the purchase of PetroKazakhstan is likely to generate international criticism, the Chinese Ambassador to Astana, Chou Xiaopei, cautioned journalists “not to politicize the point” (Delovaya nedelya, September 23).

Another loser in the fierce battle for Kazakhstan’s oil seems to be the Russian Lukoil Overseas company. According to company spokesman Vladislav Mikhailov, Lukoil Overseas poured millions of dollars into the Tyub Karagan field only to discover that the field does not hold oil. Lukoil, a partner of Canadian PetroKazakhstan, has claimed a portion of Turgay Petroleum, a subsidiary of PetroKazakhstan. But that move may be too little too late, as Chinese companies already have a firm foothold in the region (Kursiv, September 25).

Caspian oil is Kazakhstan’s major source of budget revenue, a dependence that causes both domestic and international problems. “Kazakhgate,” the bribery case involving the oil sector, has resurfaced amid this year’s presidential election campaign and reportedly involves the highest echelons of power. The U.S. administration likely does not welcome any increased attention to this scandal. Analysts note that Washington sees Kazakhstan as potential major supplier of oil globally, a rating that even Russia did not merit.

Kazakhstan has demonstrated more flexibility than Russia in its relations with Western states. Astana joined, albeit somewhat belatedly, the Extractive Industries Transparency Initiative, launched by British Prime Minister Tony Blair in 2002. In a move reminiscent of Soviet-era propaganda campaigns, Shkolnik sent messages to dozens of ore, oil, and gas extracting companies calling on them to join the transparency movement. Anton Artyemyev, the manager of Soros Foundation’s Kazakhstan Revenue Watch program, says that as long as contracts concluded between oil companies and the state are kept secret from the public, there can be no serious talk of transparency (Turkistan, September 22).

Currently Kazakhstan produces 1.3 million barrels of oil per day. The rising prices on the global world oil market are a welcome development for the Kazakh economy. But oil wealth also breeds corruption. Government members realize that an economy that relies solely on oil resources is doomed. It is time for Kazakhstan to make a decisive move from an oil-based economy to long-term high-tech development.