Publication: Eurasia Daily Monitor Volume: 5 Issue: 74

Since 1991 Kazakhstan has become one of the world’s rising petro-states. If current development plans are implemented, Kazakhstan’s current 1.3 million barrels per day (BPD) output will rise to 2.7 million by 2020.

While the most of Kazakhstan’s output is currently shipped to the world market via the Caspian Pipeline Consortium line terminating at Russia’s Novorossiisk Black Sea port, Astana is also looking east for exports and trade, most notably with China, to which it currently exports about 400,000 BPD via a pipeline.

Kazakhstan is not, however, limiting its eastward foreign and economic policies to China but has recently been deepening its ties with another formerly isolated Central Asian state, Mongolia. Relations have not developed in a vacuum, as the two nations already share membership in the Shanghai Cooperation Organization (SCO).

While Kazakhstan has been a magnet for foreign investment since 1991, attracting nearly $40 billion, primarily in the energy sector, it has been modestly investing some of its surplus petroleum revenue in Mongolia since 2000. There are now about 7,700 Kazakh companies operating in Mongolia, the majority in the production, service, geology and mining sectors (Montsame, April 15). On April 15 Kazakhstan’s Ministry of Industry and Trade Investment Department Chairman E. Nigmatulin, together with a delegation of Kazakh government officials, attended the opening of the Mongolian-Kazakh Business Forum in Ulaanbaatar. Discussions were held on increasing bilateral cooperation in the mining, banking and financial sectors. There is certainly room for improvement, inasmuch as the current bilateral trade volume remains low at about $50 million annually (Khabar, December 13, 2007).

The expanding ties build upon a meeting last August in Astana between Mongolian President Nambaryn Enkhbayar and Kazakh President Nursultan Nazarbayev, at which developing bilateral relations were discussed. Following their meeting, the pair held a joint press conference. President Enkhbayar told journalists, “We have agreed on the possibility of drawing up a joint program of investments by Kazakh investors in Mongolia’s economy, as well as on the supply of crude oil to Mongolia.” He added that his country was interested in Kazakh investment “in, above all, mining, the infrastructure, agriculture, housing construction and town planning,” along with “the possibility of increasing the supply of wheat from Kazakhstan to Mongolia.” They also discussed the possibility of “increasing the import of meat and agricultural products from Mongolia to Kazakhstan.” Nazarbayev remarked that Astana was interested in importing Mongolian ore for its metallurgical industrial (Interfax-Kazakhstan, August 14, 2007).

Not surprisingly, Mongolia has sought Kazakh assistance in developing its oil potential and energy sector as well. Topics already under discussion include Kazakh investment in constructing an electric power station to utilize Shivee Ovoo’s coal deposits and a fifth thermo-electric power station in Ulaanbaatar.

The Mongolian government is optimistic that if it is successful in attracting Kazakh and foreign investment in its hydrocarbon industries, the country could fulfill its domestic demands for oil products by 2015. Ulaanbaatar’s energy sector has already raised nearly $640 million in foreign investment since 2007. Mongolia’s energy sector’s star attraction is its Tamsaga deposit, which contains an estimated 1.5 billion barrels of oil (Montsame, February 15).

Ulaanbaatar and Astana will continue their intergovernmental discussions at the fifth Mongolian-Kazakh intergovernmental meeting on trade, economics, scientific-technical and cultural cooperation in Astana from April 23 to 25. Ulsyn Ikh Khural (Parliament) member D. Demberel will lead the Mongolian delegation. Two topics high on the Mongolian delegation’s list of priorities are establishing a joint investment fund and concluding an agreement on Kazakh wheat exports (Montsame, April 16).

Despite the good intentions of Astana and Ulaanbaatar about increasing their trade ties, global influences outside their control are also affecting their relations. It seems unlikely that the Mongolian delegation will get its wheat agreement, as the Kazakh government suspended wheat exports from April 15 to September 1 in an effort to curb double-digit inflation brought about by rising food prices in Central Asia’s largest economy (https://government.kz, April 15). After years of relatively low inflation, Kazakhstan saw prices rise by 18.8 percent in 2007. The ban on wheat exports is significant, as Kazakhstan is Central Asia’s only grain exporter. Besides Mongolia, the ban will affect Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. The only silver lining in the cloud is that the ban does not extend to flour.

For the last two years the wheat agreement has been high on Mongolia’s agenda. In 2006 Mongolian Agricultural Minister Terbishdagwa said that for most of the last decade the country had suffered from drought, which had caused wheat shortages (Khabar, May 18, 2006). Kazakhstan’s neighbors may see the export ban lifted in early September, after Kazakhstan’s summer harvest is gathered in; in the meantime, all they can do is wait.

Until the last decade of the twentieth century both Kazakhstan and Mongolia saw their political destinies decided by outsiders. Mongolia was involved in a mini “Great Game” between the USSR and China, as the Mongolian People’s Republic was completely under Soviet domination, while Inner Mongolia remained (and remains) under Beijing’s control. One of the few certainties is, however, that as Kazakh-Mongolian relations develop in the future, both Beijing and Moscow will follow events closely. For their part, both Astana and Ulaanbaatar must tread carefully in their relations with their superpower neighbors, if their exports are ever to reach the oceans. Doubtless all outstanding unresolved issues will be resolved at the upcoming SCO summit in Dushanbe in August.