Trouble in Central Asia

In Kazakhstan, China was delayed for seven years in building an 1800-mile oil pipeline across the Kazak border into neighboring Xinjiang province. After China’s acquisition of PetroKazakhstan, an oil company whose assets were in Kazakhstan but which was registered in Canada, the Kazak government passed legislation declaring strategic control of the oil assets would be determined by its lawmakers.

China began developing its relationship with the Kazaks in the wake of the Soviet Union’s disintegration into several sovereign countries. After an initial meeting with Kazak president Nursultan Nazarbayev, China helped create the Shanghai Cooperative Organization (SCO) in 1996 signing a “mutual trust” agreement with Russia, Kazakhstan, Kyrgyzstan and Tajikistan. Pejoratively known as the Shanghai Five mechanism, the bombastic Nazarbayev called the pact, “the most substantial political move in the Asia-Pacific region of this century.”

How long does a handshake with Nazarbayev last? On January 11, 2006, Nazarbayev and Chinese Vice President Zeng Qinghong celebrated the completion of the Sino-Kazakh pipeline, vowing to strategically partner in future energy deals. But before China’s Premier Wen Jiabao inked a deal with Australian Prime Minister John Howard to buy Australian uranium in early April, Russia quietly began negotiations with uranium-rich Kazakhstan.

It was evident China would reach for Central Asia’s uranium, second only to Australia’s known recoverable reserves. In June, three weeks before the G-8 Summit in St. Petersburg, Russia, Kazakhstan’s president and Russian President Putin announced a uranium production deal, worth about $1 billion and lasting through 2020. A month later, on July 25th, the two countries announced a $10 billion joint venture to build three nuclear reactors in Kazakhstan and a joint venture for further uranium exploration at the Zarechnoye deposit in southern Kazakhstan near Kyrgyzstan and Uzbekistan.

After more than a decade of China’s cultivating a relationship with President Nursultan Nazarbayev, Russian President Putin has somewhat undone China’s diplomacy for energy security from this country in a matter of months. On January 13th, the Moscow Times reported Vladimir Putin was rebuilding the nuclear energy ties of the old Soviet states, having first invited the Ukraine and Kazakhstan into the fold. Putin has also built up the Eurasian Economic Community, which is comprised of Russia, Kazakhstan, Uzbekistan, Kyrgyzstan, Belarus and Tajikistan. All are former Soviet states.

The same members also belong to the Collective Security Treaty Organization, of which Uzbekistan’s Islam Karimov announced his country would soon join. His country’s large natural gas fields are being developed in the western part of the country by Russia’s Gazprom to help satisfy European demand. In other words, Russia is slowly edging China out of Central Asia’s prolific oil and gas assets. One might expect China’s hopes for Kazakh uranium are fairly well dashed.

James Finch contributes to StockInterview.com and other publications. You can read all of his articles at http://www.stockinterview.com


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