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KAZAKHSTAN AND TURKMENISTAN: A Look at Political and Regulatory Environments April 30, 2009 1 STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com KAZAKHSTAN AND TURKMENISTAN: A Look at Political and Regulatory Environments Kazakhstan Country Overview Since the fall of the Soviet Union in 1991, Kazakhstan has been the most important of the Central Asian states. It is the largest, most resource-rich of the region’s five countries and tends to serve as a bellwether for the region’s politics. Kazakhstan is strategically and geographically the middleman between its fellow Central Asian states (all of which it borders except Tajikistan) and Russia and China. With an estimated 100 trillion cubic feet of natural gas and 27 billion barrels of oil, Kazakhstan boasts more energy reserves than all four of the other Central Asian countries combined. Kazakhstan was the first Central Asian country in which Westerners seriously began developing oil and natural gas wealth after the Soviet collapse. Because of this, Kazakhstan has received more foreign direct investment than any other former Soviet state (including Russia). And most other Central Asian states with energy resources — Turkmenistan and Uzbekistan, for example — must traverse Kazakhstan to reach their customers, whether those customers are Russia, China or Europe, making Kazakhstan essential to any outsider with designs on the region. But its geographic location and size have proved to be a mixed blessing. Kazakhstan is roughly one-third the size of the lower 48 U.S. states, but has only 5 percent of the U.S. population. It also lacks natural barriers separating it from any of its neighbors. Thus, even if the country were run perfectly (which it is not), it would be impossible to rule without the cooperation of at least one of its two larger neighbors. While Western and Chinese money flows into the region have modernized the country’s infrastructure, Russia has continued to play a dominant role in Kazakh political matters. Moscow made Kazakhstan the center of the Central Asian universe in that it made Astana the political go-between for Russia and the other four Central Asian countries. From Russia’s point of view, most of the Central Asian states are not important enough to be dealt with on a daily basis. Russia holds quite a few critical meetings a year with the Central Asian states collectively and bilaterally, but the region does not hold Moscow’s attention compared to the former Soviet states to its west or the Caucasus region. Instead, Russia has looked to Kazakhstan to help Moscow deal with the other Central Asian states and to keep them in line. 2 © 2009 STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com A Discernible Shift In the past few years there has been a discernible shift inside Kazakhstan politically, economically and in terms of foreign relations. It is important to note that, after the fall of the Soviet Union, Kazakhstan — with its enormous reserves of natural gas and, to a lesser extent, oil — was seen as a potential new energy source for both the West and the East. Kazakhstan has had very good business relations with Western companies, which are responsible for developing most of the country’s oil and natural gas fields. When Western companies and investors swooped into Kazakhstan, wooing Astana with lucrative energy, investment and development deals, Russia was pretty much in the same position as the other former Soviet republics. Both Kazakhstan and Russia were broke and in political and economic disarray and had enormous potential for partnering with the West. Both counties allowed the West, which had modern energy technology and the cash to back it up, to flood their energy industries with investment dollars. 3 © 2009 STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com Neither country was happy about giving up control over its own industries (or, in Russia’s case, over Kazakhstan’s industries), but this was tolerated throughout the 1990s because neither Moscow nor Astana wanted the heavy burden of funding their vast projects, and neither had the technology to meaningfully tap their reserves. (This was especially seen in Russia’s Sakhalin and Kazakhstan’s Caspian projects.) Lastly, Kazakhstan and Russia were still linked through energy, with Kazakh exports going through Russia, so the Kremlin had a direct say in how Astana conducted its energy development. Both countries initially saw the benefits of having Western partnerships, although Russia eventually realized the value of controlling its own strategic energy interests, a realization that would also emerge in Kazakhstan. There are many things that have contributed to this change in mind-set in Kazakhstan, starting with the fall of the Soviet Union and Western infiltration into the former Soviet sphere. The investment environment that looked so promising to the West in the 1990s looks considerably less promising today, mainly because of four issues and trends: 1. Kazakh President Nursultan Nazarbayev’s vision for his dynastic succession. 2. The consolidation of Russia (politically and under economic nationalism), which has become an example for Kazakhstan. 3. The global financial crisis, which has given Astana the incentive to lock down Kazakhstan’s strategic sectors. 4. The Russian resurgence, which pits Russia against the West. As these issues and trends play out within and around Kazakhstan, they are having a distinct impact on the government, its foreign relations and the ability of foreign firms to operate inside the country. 1. The Kazakh Dynasty During his 16 years as president, Nazarbayev has been transforming his family into a dynasty — albeit a dysfunctional one — ruling the country’s strategic industries while gradually pushing out any opposition. Nazarbayev, 69, is a former steelworker who became Communist leader of then- Soviet Kazakhstan in 1989. He has ruled Kazakhstan for 20 years as an “Asian democracy” in which all political parties, media and businesses are tightly controlled. In 2007, Nazarbayev signed a constitutional amendment that allowed him to seek as many terms as he wishes, thus making him president for life. Early on in his rule, Nazarbayev balanced the country’s energy boom and the subsequent rise of an oligarchic class with his political clans — made up of Kazakhs, Russians and Uighurs — and his desire for a Central Asian dynasty. The idea of a Central Asian dynasty is not unique to Kazakhstan and is a common theme among Central Asian states. Former Kyrgyz President Askar Akaev’s children and in-laws littered the political and parliamentary scene until the 2005 Tulip Revolution that ousted Akaev. Uzbek President Islam Karimov’s daughter, Gulnara Karimova — dubbed the “Uzbek Princess” — runs most of the country’s economic sectors, including natural gas, real estate and cement. Gulnara recently married the country’s foreign minister, increasing her odds to be Karimov’s successor. Tajik President Emomali Rakhmon’s nine children and his in-laws run every major industry in the country (businesses, media, banks, even the stock market), though they keep this a state secret with businesses registered under pseudonyms or no names at all. Nazarbayev’s plan was to expand a state dynasty into a regional dynasty when he married off his youngest daughter, Aliya, to the son of Kyrgystan’s president. The match was dubbed “Central Asia’s Royal Wedding,” though differences between the two countries soon ripped the couple apart, and Aliya returned to Kazakhstan to marry one of the country’s top construction oligarchs. 4 © 2009 STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com But Nazarbayev has made it clear that the only people in the country he can trust are his family members (though not, it would appear, his in-laws), and this affects all aspects of politics, business and life in Kazakhstan. Consolidating control over his family and country, the president has passed numerous laws that provide privileges for him and his family (including legal immunity), eliminated outside clans and purged political opponents. He also constantly reshuffles top government and industry leaders to ensure that no group or individual can emerge to rival him. It is all part of a highly secretive succession plan devised by the aging president, who at 69 is three years beyond the average life expectancy in Kazakhstan, and whose health is thought to be deteriorating. The Opposition There is no real opposition movement in Kazakhstan, where most political forces are consolidated behind the president’s political party, Nur-Otan. Many of the country’s leading opposition politicians have been ejected from the country or murdered. Nazarbayev has publicly discounted any connection to this purge, blaming most of it on his former son-in-law, Rinat Aliyev, although there is much evidence that Nazarbayev signed off on Aliyev’s plan before the two had a falling out. There has also been a concerted movement by Nazarbayev’s Interior Ministry to neutralize or break up opposition parties. Results were apparent in the 2007 election, in which the opposition won no parliamentary seats. The parties faced numerous obstacles in their campaigns, from the inability to register as political parties to a new requirement to win 7 percent of the vote (up from 5 percent in previous elections) to gain parliamentary representation. The longest-standing opposition party is the Communist Party of Kazakhstan (KPK), which was split into two parties in 2004 under government encouragement to prevent it from becoming a viable opposition force. The Family Nazarbayev and his wife Sara Nazarbayeva have three daughters — Darigha, Dinara and Aliya — each of whom controls a different sector of the economy as well as her own internal family clan.

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