Publication: Eurasia Daily Monitor Volume: 5 Issue: 15

As Uzbekistan’s President Islam Karimov was formally inaugurated for another term as the country’s leader on January 16, his Russian counterpart, Vladimir Putin, lost little time extending his congratulations. “Your authority, energy, and determination will guarantee the further social and economic development of Uzbekistan,” Putin wrote to Karimov, according to the Kremlin press service. “Relations of strategic partnership and alliance between Russia and Uzbekistan continue to develop,” Putin stated, adding that a “trustworthy dialogue” between the two leaders helps them to agree on many international issues (Interfax, RIA-Novosti, January 16).

Karimov won Uzbekistan’s December 23 presidential poll in a landslide, gaining 88% of the votes, according the Uzbek election commission. Karimov, 69, has headed the former Soviet republic since 1989, and became the president of independent Uzbekistan in 1991. He had his powers extended for five more years by a referendum in 1995, and he was re-elected for yet another five-year term in 2000. In 2002, another referendum extended the presidential term in office to seven years. In 2007, the Uzbek election commission ruled that Karimov still had a right to become a presidential candidate, because he was seeking a seven-year term for the first time since the country’s constitution was amended in 2002.

In the wake of Tashkent’s recent foreign policy shift in Moscow’s favor, economic ties between Russia and Uzbekistan have been growing fast. Trade between Russia and Uzbekistan reached $4.2 billion in 2007, up 40% over 2006, Russia’s ambassador to Uzbekistan, Farit Mukhametshin, said on January 23. Russia’s major companies, notably Gazprom and Lukoil, continue working in Uzbekistan, Mukhametshin noted (Interfax, RIA-Novosti, January 23).

Bilateral trade turnover reached some $3 billion in 2006, and Russia has become Uzbekistan’s top foreign trade partner, with nearly a quarter of Uzbekistan’s total foreign trade turnover. In 2005, bilateral trade exceeded $2 billion, up from $1.6 billion in 2004. There are 527 joint ventures set up in Uzbekistan with Russian investments, and 139 representative offices of Russian companies, while Uzbek citizens have set up 293 companies in Russia.

Last year, Russia’s gas monopoly Gazprom imported about 13 billion cubic meters (bcm) of gas from Uzbekistan, up nearly 33% year-on-year. In 2006, Uzbekistan exported some 9 bcm of gas to Russia, an increase from 8.15 bcm in 2005 and 7 bcm in 2004.

In the past several years, Moscow has moved to build stronger economic relations with Karimov’s administration. In June 2004 Putin and Karimov met in Tashkent and signed a partnership agreement. Simultaneously, both sides concluded a 35-year production-sharing agreeing (PSA), allowing top Russian oil producer Lukoil to develop gas fields in the south of Uzbekistan, estimated to have 280 bcm of reserves. Lukoil has a 90% share in the project, with Uzbekneftegaz holding the remaining 10%.

In 2007 Lukoil reportedly invested $300 million to develop the Kandym-Khauzak-Shady-Kungrad PSA project, raising total investments to about $500 million. However, the projected cost of that endeavor is now expected to reach $2 billion – double the original estimate.

In April 2006 Uzbekneftegaz and Gazprom started a $1 billion venture to explore and develop oil and gas deposits in the Ustyurt plains in Qoraqalpogiston (Karakalpakiya) region. In December 2006, Gazprom was granted licenses to develop sizable acreage in Qoraqalpogiston totaling 38,000 square kilometers with estimated reserves of one trillion cubic meters of gas. The new deposits are expected to yield up to 5 bcm of gas annually, but Uzbek officials have criticized the slow pace of Gazprom’s investments.

In turn, Russian officials have voiced concern over imbalances in trade between the two countries. For example, UzDaewoo exports about 70,000 cars per year to Russia out of its total output of 110,000, or some 20 times more than Russian carmakers are selling in Uzbekistan.

Both countries have been wary of the continued influx of illegal Uzbek economic migrants into Russia. Meanwhile, Russian online media outlets claimed that Russian law-enforcement agencies are apparently willing to allow their Uzbek counterparts to operate in Russia. For example, Central Asian News reported that in June 2007 Makhamadsolikh Abutov, an Uzbek citizen, was detained in Krasnogorsk, near Moscow, by two Uzbek police officers. Although Abutov apparently committed no crime in Russia and Uzbek policemen made the arrest without an approval by the Russian authorities, Abutov reportedly remains in a Russian jail in Mozhaisk (, January 23).

Bilateral economic relations have been also adversely affected by Uzbek debt to Russia, which dates to the early 1990s. Russian officials estimated the bill to be about $700 million. Russian Deputy Finance Minister Sergei Storchak previously helped negotiate the controversial debt issue, which Uzbekistan had not serviced since 1998. However, in late 2007 Storchak was arrested by Russian authorities on embezzlement charges, further weakening hopes to solve the Uzbek debt issue.