HIGHLIGHTS
● Political Developments
● Economic Developments
● India-Central Asia Relations
Political Developments
Turkmenistan warned Russia against trying to extend its influence over the Central Asia-China natural gas supply chain after Moscow said more countries could join its “gas union” with Kazakhstan and Uzbekistan.
Turkmenistan, Uzbekistan and Kazakhstan all pump gas to China via a pipeline crossing the three countries; the lion’s share of gas comes from Turkmenistan as the two other countries have faced strong growth in domestic gas demand. Russia, trying to open up new Asian markets for its gas after Western sanctions, said last year it was forging a gas union with Kazakhstan and Uzbekistan that would streamline shipping and exporting gas to them and to third parties. So far, the only practical step the union has announced was a plan to reverse another gas pipeline, which connects Turkmenistan, Uzbekistan and Kazakhstan to Russia, so that Russia’s Gazprom could ship gas to Uzbekistan which has started experiencing energy shortages.
Russia’s foreign ministry said this week the gas union could be expanded as other countries were interested in joining it; it did not name any. Turkmenistan’s foreign ministry responded by saying that although Russia’s comments were vague, Ashgabat wanted to make it clear that it has not been consulted about the potential addition of new suppliers to the Chinese pipeline and that ‘’such an approach was incomprehensible and unacceptable and it views it as going against international law and the established practice in the gas sector.’’ Russia used to be the main buyer of Turkmen gas before the construction of the Chinese pipelines, but now its share in Turkmen exports is small, and reversing the pipeline between Russia and Central Asia would put an end to such shipments.
Presidents of Tajikistan, Turkmenistan and Uzbekistan held a summit in Ashgabat on August 4. Water was on top of the agenda. All three countries border Afghanistan and stand to suffer immediate repercussions from ongoing work there on construction of the Qosh Tepa Canal. Though not yet complete, the canal is already being filled with water drawn from the Amu Darya River, whose tributaries rise in the Pamir Mountains on the border of Afghanistan and Tajikistan, and later runs into Uzbekistan and Turkmenistan. The thinking in Kabul is that the 285-kilometer canal could one day be used to provide irrigation to 550,000 hectares of now-arid farmland. Without explicitly mentioning Afghanistan, the joint declaration reflected strong shared anxieties about Qosh Tepa. One point of particular concern is that construction methods at the Qosh Tepa project appear rudimentary, which is significantly raising the likelihood of water losses. Uzbekistan and Turkmenistan could lose up to 15 per cent of the current supply once the waterway is completed in 2028. The project, with a cost tag estimated at USD 684 million had been in the works for several years before the Taleban seized power, with the groundwork and feasibility studies initiated under Afghanistan’s former government with support from the USAID development agency. Another strand of the Ashgabat summit focused on the prospect of cooperation in the natural gas and electricity sectors. On the gas front, attention may turn to the long-delayed project to build a fourth strand of the Central Asia-China pipeline. When and if it is finished, Line D would carry 30 billion cubic meters of the Turkmen fuel to Chinese buyers. Chinese President Xi Jinping namechecked this route during his keynote speech at the China-Central Asia Summit in Xi’an in May, and urged that implementation be sped up in a way that sounded like Beijing’s patience is perhaps being tested by the wrangling over fees and project parameters. In a post-summit briefing, Foreign Minister Rashid Meredov said that his country intends to increase annual gas production by 60 billion cubic meters “in the near future.” That would represent a startling increase on the almost 84 billion cubic meters produced in 2021, which was a record-setting year. Exploring ways to reduce a regional trade imbalance with China was also a central topic of discussion at this meeting. Participants expressed a desire to boost PRC-bound exports via existing rail links connecting the countries.
The Taliban need the support of the outside world, and Central Asia has been their first step. Besides the existing bilateral political conversations, the Taliban government has also expressed interest in participating in Shanghai Cooperation Organization conferences, which are vital to Central Asian security. Meanwhile, the economic relationship between Central Asia and Afghanistan continues to grow. Taliban wants to change its old image to encourage the outside world to collaborate with it. The Taliban has promised to fighting international terrorism. Furthermore, it also pledged to respect the border between Afghanistan and Central Asia and battle against the spread of drugs. Although Central Asia and the Taliban have had tense relations through the years, the current political reality pushes Central Asian governments to seek detente with Kabul.
An analyst has said that if Turkmenistan does not act before the EU lines up alternate sources of gas, the Trans-Caspian Pipeline project will become unviable. It said that the policy shift from hydrocarbons to renewables exerts a profound impact on international financial support for the proposed project. A half-billion-dollar connector ‘’would certainly be within Turkmenistan’s financial grasp, and given the revenue it would generate, would be a wise investment.”
A big shift is brewing for Caspian Basin energy exports. Turkmenistan has signaled its readiness to develop a Trans-Caspian pipeline that potentially could increase natural gas deliveries to the European Union. The westward shift in Ashgabat’s export intentions is not expected to impact Turkmenistan’s ability to fulfill existing export commitments to China. Turkmenistan is believed to have more than enough reserves to send large volumes of gas eastward and westward. The Turkmen announcement, however, could potentially eat into Russia’s share of the gas-export pie, depriving the Kremlin of revenue it needs to sustain its war effort in Ukraine. Turkmenistan had long remained ambiguous about Trans-Caspian pipeline plans. But in late July, Turkmen officials sent a clear signal of support for it. Specifically, the ministry announced that “Turkmenistan, being committed to the strategy of diversifying energy flows, expresses its readiness to continue cooperation with partners in the implementation of the Trans-Caspian pipeline project.” The ministry added that it is “convinced that there are no political, economic, financial factors hindering the construction” of a Trans-Caspian pipeline. If a pipeline for Europe-bound exports is built, Turkmenistan stands to capture some of Russia’s European gas markets and/or replace Russian exports to Turkey. Russia currently provides around 40 percent of Turkey’s gas needs.
Kyrgyzstan, a country that once wanted to do away with its armed forces, has taken significant steps to rearm itself since the deadly 2021 clashes with neighboring Tajikistan. Recently it announced the funds that had been allocated since 2021 for the modernization of the country’s armed forces. Back in 2020, the country spent 3.5 billion Kyrgyz som on the purchase and update of its military hardware. But this figure increased significantly in 2021, reaching 32 billion som, and followed an upward trend that took it to 53 billion som the following year. In the first half of 2023 alone Kyrgyzstan has spent 40 billion som (approximately $455 million) on its military. In total, Kyrgyzstan has spent close to 129 billion som ($1.4 billion) in the last two and a half years to modernize its army. That’s a significant figure given that the country’s gross domestic product (GDP) stood at $10.9 billion in 2022.
The most significant policy change by Kyrgyzstan since 2021 has been its drone strategy which has turned a country with non-existent unmanned aerial vehicle (UAV) capabilities into one with an array of attack and surveillance drones thanks to its close ties to Turkey. The Turkish-made TB2 Bayraktar was the first drone model purchased by the Kyrgyz authorities in the fall of 2021. These UAVs successfully saw action the following year in yet another conflict with Tajikistan. The Bayraktar UAVs have been followed by other three models: the Akıncı, the Aksungur, and the Anka. The growing supply of Turkish drones is made possible by close security ties between Bishkek and Ankara. Meanwhile, Kyrgyzstan has also invested in smaller Russian and Chinese surveillance UAVs to complete its drone arsenal. Kyrgyzstan has also acquired a range of ground vehicles recently, with Russia once again as the main supplier.
Tajikistan claimed that about 100 Tajik prisoners were sent to the Russia-Ukraine war from Russian prisons. Tajik Interior Minister said that Russian authorities did not provide any information on the issue and that there was no agreement on data sharing between the two countries. Earlier, Tajik media announced the identity of 20 Tajik prisoners who lost their lives in the Russia-Ukraine war.
The Irtysh river, which originates in China and then flows into Kazakhstan and Russia, is experiencing its lowest water levels since the late Soviet era. Drought, which has become increasingly common in Central Asia, is cited as a contributing factor. But perhaps the most significant cause is China’s increased water consumption, including the diversion of water for agricultural and other needs, as well as the construction of multiple dams along the upper reaches of the river. Russia is blaming primarily Kazakhstan for the problem. The Irtysh’s low flow can have serious environmental ramifications for Kazakhstan; in particular, it can potentially result in the shrinking of Lake Balkhash. Not only production and agriculture in East Kazakhstan, but also Central Kazakhstan, including Astana, depend on the water resources of the Irtysh.
U.S. Senator Bob Menendez (Democrat-New Jersey) has called on Kyrgyzstan to ‘’uphold international sanctions against Russia for its unprovoked war against Ukraine and urged it to stop its violations of human rights.’’ Menendez, who chairs the Senate Foreign Relations Committee, said that “since onset of the [Ukraine] war Kyrgyzstan has dramatically expanded its import-export business with Russia.” Menendez added that “at the same time, your government’s lack of enforcement or worse — complicit facilitation of trade with Russia in products that implicate sanctions, such as drones, aircraft parts, weapon accessories, and circuitry — is reportedly enabling Russia to evade international sanctions.”
China and Kazakhstan have finalized an agreement that permits visa-free, multiple-entry travel between the two countries. Under the agreement, citizens of one country can remain in the other for up to 90 days over a six-month period.
For Central Asia, 2022 was packed with high-level summits, including with China, India, Russia and the European Union. In 2023, heads of Central Asian states participated in a summit in China in May, outlined priorities for partnership with the EU in June, and forged cooperation with the Gulf countries in July. With trade and logistics flows shifting, many countries have turned their focus to the region, primarily due to its advantageous geographical location, acting as a strategic transportation hub between Russia and China. Key routes, including the Trans-Caspian and North-South corridors, offer significant time and cost advantages. Central Asia, strategically located between Europe and Asia, holds immense trade and economic development potential.
Hundreds of mostly women protesters faced off with the mayor of Turkmenbashi in what appeared to be the largest rally to date over the breakdown of Turkmenistan’s subsidized food system. As they demonstrated, President Serdar Berdymukhammedov and other top officials were in luxury hotels some 15 kilometers away at a Caspian Sea resort. The demonstrators were initially told that the Mayor was away on business. It was only when the protesters threatened they would march to the resort where Berdymukhammedov was resting that the Mayor suddenly emerged, visibly distressed, promising fresh supplies of subsidized food in the coming weeks. The incident — an extraordinary event in Turkmenistan, where no dissent is tolerated — is just one of a number of recent events that point to a summer of extreme distress for residents of Turkmenistan.
Economic Developments
In January 2017, Turkmenistan halted gas supplies to Iran due to a dispute between the two sides on payment of $1.8 billion by Iran to Turkmenistan for the gas it imported between 2007 and 2013. Iran resumed imports of gas from Turkmenistan recently. Iran said that it had ‘’repaid the debt by breaking it into three stages.”
Volume of Turkmen gas supplied under the swap scheme to Azerbaijan via Iran increased from 4.5 to 8 million cubic meters per day. These began in January 2022. This volume is expected to grow by 70 percent in 2023. Iran said that it has the capacity to swap and transit up to 50 million cubic meters of gas per day.
Central Asia’s largest grain producer, Kazakhstan, is in negotiations with the Abu Dhabi Ports Group (ADP) to create a joint venture that will enable the shipment of Kazakh agricultural exports via Iran and Gulf ports. Both sides are holding discussions to explore the potential establishment of the shortest direct route for Kazakh exports.
A delegation from the Taliban visited Kazakhstan to discuss the facilitation of international financial transactions with private banks to alleviate the isolation of the Afghan banking sector. Afghanistan’s banking sector has experienced significant challenges and limitations in international transactions since the Taliban came to power two years ago. Furthermore, the freezing of Afghan central bank assets held abroad by the United States and other governments has worsened the situation.
China has become the main supplier of trucks to Uzbekistan. According to Uzbekistan’s Statistics Agency, China accounts for 97% of imports by Uzbekistan. Overall, 33,450 Chinese trucks were sold in Uzbekistan during the January-June period this year. South Korea and Poland accounted for the bulk of the remaining foreign truck sales.
Following a series of energy shortages last month, officials in Kyrgyzstan announced plans to declare an emergency situation in the energy sector as of Aug. 1 until Dec. 31, 2026. Kyrgyzstan is facing a steep challenge, as its historic dependence on energy and electricity imports from neighboring Kazakhstan, Uzbekistan, and Turkmenistan is now proving unable to satisfy rapidly growing domestic demand.
Kazakhstan observed a 2.3-fold increase in the number of foreign tourists in the first quarter of 2023. 227,700 foreigners visited Kazakhstan from January through March. This is 130,000 higher compared to the same period in 2022 (97,000 foreigners). The government expects that up to 1,400,000 foreigners will visit Kazakhstan this year.
Kazakhstan holds a valuable resource that is becoming increasingly crucial in the world’s transition away from hydrocarbons: uranium. With 12% of the world’s uranium resources, the nation has emerged as a dominant player in the uranium market. In 2021, Kazakhstan produced approximately 21,800 tonnes of elemental uranium (tU), solidifying its position as a vital uranium supplier. Despite a slight decline in production due to low uranium prices and the impact of the COVID-19 pandemic, Kazakhstan’s uranium sector remains resilient.
Saudi Arabia’s ACWA Power has installed one of the largest wind turbines in Central Asia, located in the Bukhara region of Uzbekistan. The installation is part of the firm’s 500MW Bash wind farm project in the region. When complete in the first quarter of 2025, the Bash wind farm will include 79 wind turbine generators (WTG) and is expected to generate more than 1,650 GWh of electricity annually and reducing carbon dioxide emissions by 750 tonnes per year. ACWA Power has sealed a 25-year power purchase agreement (PPA) with Uzbekistan for the project. ACWA has a portfolio of 10 projects in Uzbekistan, with a combined investment value of $7.5 billion.
Most Central Asian countries have pursued a strategy with Afghanistan based on the assumption that cooperation and engagement with it, particularly in the economic sphere, will promote stability. That’s why Kazakhstan provides humanitarian aid to the Afghan people and has developed bilateral trade and economic links. Afghanistan and Kazakhstan achieved a trade turnover of nearly $1 billion over the past year, a two-fold increase compared to the year before. Kazakh exports to Afghanistan make up $978 million of that amount. Kazakhstan aims to reach $3 billion in mutual trade within the coming years. While the Central Asian region stands to gain the most from this, the United States and its allies would benefit as well. Last year, the Biden administration launched the Economic Resilience Initiative in Central Asia to catalyze economic growth across the region, expand alternative trade routes, increase shipping capacity and enhance infrastructure along Trans-Caspian trade routes. Afghanistan can play a key role here.
The growth of Kazakhstan’s economy reached 5% in the first half of 2023, with a 4.8% increase in the real sector and 4.9% – in the service sector. The highest growth was recorded by the construction sector with a 12.3% growth, trade – 10.4%, and information and communication – 8.8%. Despite the global geopolitical upheavals, Kazakhstan’s economy grew by 3.2% in 2022, showing resilience for several years. According to the International Monetary Fund (IMF), Kazakhstan’s economy will grow by 4.3% in 2023 and by 4.9% in 2024, much higher than the world average increase of 1.8% in 2023 and 2% in 2024.
In 2022, the consolidated assets of public sector holding company Samruk Kazyna in Kazakhstan reached 33.6 trillion tenge ($75.4 billion), the highest figure in recent years. The Samruk Kazyna group’s companies successfully overcame the pandemic’s consequences and restored sustainable growth. The revenue totaled 14.8 trillion tenge ($33.2 billion). The same year, the fund paid 170 billion tenge ($381.8 million) of dividends to the state budget, allocating 132 billion tenge ($296.4 million) to support social and infrastructure projects. The tax paid to the budget reached 1.7 trillion tenge ($3.8 billion).
Cement producers in Tajikistan exported 538,000t of cement during the first half of 2023, down by 20% year-on-year from 676,000t during the first quarter of 2022. Uzbekistan received 342,000t (64%) of Tajikistan’s cement exports, while Afghanistan received 194,000t (36%). The government expects producers to export 1.5Mt of cement through 2023. Tajikistan is expected to produce 4.5Mt of cement in 2023, corresponding to a capacity utilisation of 80% across its 5.6Mt/yr installed capacity.
New immigration regulations in Kazakhstan offer foreigners ten-year residence visas for an investment of US$300,000. Measures to increase the country’s investment attractiveness are being aggressively implemented as part of the programme related to business immigration. The streamlining of the procedure for acquiring an individual identification number (IIN) and an electronic digital signature (EDS) through overseas representative offices on the basis of a “single application” for potential investors has been a major milestone. A new long-term investor A-6 visa has been introduced, which also grants the right to issue residence permits.
Kazakhstan has stepped up efforts to safeguard its oil transport operations amid heightened concerns that a critical crude export route — and revenue source for the government — could become collateral damage if Ukraine’s attacks on Russian assets in the Black Sea escalate. Two recent successful sea drone attacks by Ukraine against a Russian warship and an oil products tanker near the Black Sea port of Novorossiysk caused marine operations in the area to be curtailed. A village near the port hosts the terminus of the Caspian Pipeline that transports oil from Kazakhstan’s huge Tengiz, Karachaganak and Kashagan fields, where major Western oil companies including Chevron, ExxonMobil, Shell and Eni are significant investors. Smaller volumes of Kazakh oil also are exported via the port of Novorossiysk together with Russian volumes. Kazakhstan intends to work out “a political initiative to ensure the stability of operations” at Novorossiysk. The Caspian Pipeline Consortium is understood to export oil to international markets at the rate of over 1.2 million barrels per day, handling over 80% of total Kazakh oil exports that arrive at the loading location via a 1500-kilometre pipeline from Kazakhstan.
Korea National Railway (KR) announced that it has been awarded a contract to undertake a preliminary survey for the construction and operation of an urban railway in Dushanbe, the capital of Tajikistan. Work under the contract is due to begin shortly. The programme is due to conclude in June 2024. The project is focused on upgrading the railway networks of Central Asian countries that were formerly part of the Soviet Union. KR will lead on the sharing of expertise with Tajikistan, with the aim of facilitating the entry of Korean railway technology into the Central Asian market.
A study funded by the European Commission and conducted by the European Bank for Reconstruction and Development (EBRD) reveals the Central Trans-Caspian Network (CTCN) as essential for unlocking Central Asia’s transport potential and enhancing regional connectivity. The EU plays a crucial role in shaping the region’s transport future, offering technical assistance, capacity building, and funding opportunities to revamp infrastructure and foster sustainable transport solutions, promoting economic progress and regional cooperation.
Central Asian countries show strong intra-regional trade growth with a significant leap forward over the last two decades, reaching an average annual GDP growth of 6.2% in real terms. Kazakhstan leads the region’s mutual trade with 80 percent of the total volume, while its trade with Uzbekistan reached approximately $5 billion in 2022, with plans to grow it to $10 billion in the medium term, and with the Kyrgyz Republic to up to $2 billion. The region’s substantial market potential plays a crucial role. Over the past two decades, the population of Central Asia has grown by 40% to reach 80 million people. Improved macroeconomic indicators have accompanied this growth. According to the latest EBRD forecast, Central Asia is projected to be the fastest-growing region in 2023, with an expected GDP growth rate of 5.2%, followed by a 5.4% growth in 2024. The geographical expansion of cooperation opens up new economic opportunities for the region. Enhanced interregional cooperation can boost economic activity, attract investments and foster growth. The diversification of economic ties will positively impact each Central Asian country, necessitating increased intra-regional cooperation in trade and connectivity. With a growing challenge of extremism and terrorism, Central Asia kept a close eye on its security and relations with neighboring countries. Afghanistan and the issues surrounding the Taliban have become crucial to regional politics, especially after the fall of Kabul in 2021.
Inflation in Kazakhstan in July declined to 14% per annum. Food inflation slowed down almost twofold from 26.2% in February to 13.5%. Inflation in non-food and services sectors slowed down to 15% and 13.6% respectively. The National Bank’s base rate is currently at 16.75% per annum. According to preliminary results the volume of foreign trade of Kazakhstan in January-June, 2023 grew by 4.3% to USD 67.2 billion. Kazakhstan’s exports amounted to USD 38 billion, including the exports of processed goods worth USD 12.1 billion. Imports rose to USD 29.3 billion. The positive balance of trade was USD 8.7 billion. The mining industry’s production volume surged by 3.8%. Oil production rose by 5.6%, and gas mining by 2.5%. The amount of construction work expanded by 12.2%.
Hindenburg Research, the short seller that has already tussled with high-profile tycoons such as Carl Icahn and India’s Gautam Adani this year, said its latest target was a Kazakhstan-based holding company Freedom Holdings which recently admitted to providing “brokerage services to certain individuals and entities who are subject to sanctions imposed by the Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury, The European Union, or the United Kingdom.”
India-Central Asia Relations
India and Uzbekistan conducted their 16th India-Uzbekistan Foreign Office Consultations (FOC) in Tashkent. The two sides discussed a range of bilateral issues, with connectivity and enhancing cooperation within the framework of the India-Central Asia partnership taking centre-stage. The two sides discussed the current status and the way forward to enhance their bilateral relations, and exchanged views on regional and international issues of mutual interest. Connectivity, enhancement of bilateral trade and cooperation within the framework of India-Central Asia partnership were priorities taken up for discussion. The meeting was co-chaired by Sanjay Verma, Secretary (West), MEA, and Bakhromjon Aloyev, Deputy Foreign Minister of Uzbekistan. Secretary (West) also called on the Foreign Minister of Uzbekistan, Bakhtiyor Saidov. The two sides stressed the need to further strategize the India-Uzbekistan economic and defence partnership. Secretary (West), along with Director of Uzbekistan Post Alisher Faizullayev, jointly released a commemorative postal stamp on India’s Azadi Ka Amrit Mahotsav (75th anniversary of Indian independence).
IndiGo will launch its direct air services to Uzbekistan and Kazakhstan from Delhi in September, 2023, subject to regulatory approval. The four times a week air services between Delhi and Tashkent in Uzbekistan will commence from September 22, while Almaty in Kazakhstan will be connected with Delhi from September 23 with three flights per week. The introduction of this new route will improve India’s connectivity to Kazakhstan, Central Asia’s prominent financial centre, and Uzbekistan, Central Asia’s most populated country. This direct connectivity will not only promote trade but also foster stronger economic and cultural ties between India and Central Asia.
The Health Ministry of Uzbekistan and TMA University have jointly launched a toll-free helpline and an official website to help Indian students planning to study medical education in Uzbekistan. Meanwhile, reports suggest India and Uzbekistan have signed a memorandum of understanding (MoU) to promote student exchange between the two countries. The MoU will facilitate the exchange of students between Indian and Uzbek universities. It will also provide for the establishment of joint research centres and the exchange of faculty and experts. Last year, Uzbekistan’s Medical Higher Educational Institutes (MHEIs) offered 2000 seats to relocate Indian medical students from Ukraine by accepting the erstwhile MCI and NMC norms (Screening test regulations 2002) and (Foreign Medical Graduate Licentiate – FMGL Regulations 2021).
According to Uzbek state prosecutors, distributors of a contaminated Indian cough syrup that killed 65 children in Uzbekistan paid local officials a bribe of $33,000 to skip mandatory testing. Uzbekistan has put 21 people on trial – 20 of whom are Uzbeks and one Indian – over the deaths, making public for the first time a much higher death toll than previously reported.
