Beyond the suffering and humanitarian crisis that has resulted from Russia’s invasion of Ukraine, international sanctions against Russia have led to worldwide supply-chain disruptions, factory closures, job losses, and inflation. The global economy is suffering from a shortage of Russian exports such as hydrocarbons, metal products and agricultural produce, particularly in countries that rely on trade of such items with Russia.
The sanctions have also indirectly impacted countries that border Russia, including Kazakhstan. Yet the new geoeconomic reality following Russia’s invasion of Ukraine can work to Kazakhstan’s advantage. The more third-party Western companies in Russia distance themselves from sanctioned Russian entities, the greater will be Kazakhstan’s attraction as a destination to relocate. Many Western companies still serve the entire former Soviet Union area from their branches in Moscow. They can conceivably move with relative ease to Kazakhstan’s capital Nur-Sultan, or to its business city of Almaty. At least 97% of Kazakhstan’s population is fluent in the Russian language.
Even though supply-chains are diverting away from Russia, it will take time for economically viable alternatives to mature. The Astana Hub, a government-backed information-technology park in Kazakhstan’s capital Nur-Sultan, is a viable option with a potential to attract non-sanctioned Russian firms relocating abroad.
There has been speculation that Russia may seek to mitigate the impact of sanctions through the Eurasian Economic Union (EAEU). The EAEU is a free-trade zone and customs union comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. Theoretically, Russia could import sanctioned goods via other EAEU members. Consequently, there have been calls in the West to pre-emptively impose certain sanctions on the four other EAEU members alongside Russia and thereby close any possible trade loopholes.
The exploitation of such loopholes seems unlikely, however, at least in the case of Kazakhstan. The government of reformist President Kassym-Jomart Tokayev has shown no interest in sidestepping the recent sanctions on Russia and has demonstrated compliance in both words and deeds. Timur Suleimenov, the country’s First Deputy Chief of Staff, has made it publicly clear that “Kazakhstan will not be a tool to circumvent the sanctions on Russia [placed] by the US and the EU. We are going to abide by the sanctions.” A European Commission spokesperson affirmed that “the Kazakh authorities, in fact, pledged to put in place monitoring and control system to ensure that sanctions are not bypassed.” Indeed, Kazakhstan branches of the sanctioned Russian banks Sberbank and VTB Bank have been quickly shuttered. The country is directing imports and exports away from Russian ports.
Russia has been Kazakhstan’s second-largest trade partner after the European Union. Kazakhstan is fortunate that the US Treasury has exempted its oil from the existing sanctions regime, which flows through the 1,500-kilometer Caspian Pipeline Consortium (CPC) pipeline, across southern Russia, and arrives at Russia’s Black Sea port of Novorossiysk for re-export to world markets. Kazakhstan is the world’s 12th largest oil producer, relying on the CPC pipeline to export 80 per cent of its international sales of crude.
Russia also serves as a major land corridor for rail cargo. The ports, warehouses, and other transport infrastructure passing through Russia along the corridor are on the list of potential sanctions targets. Kazakhstan is aware of this risk and is instead channeling exports through the TransCaspian corridor. For goods flowing eastwards into Russia, overtures from the European Union suggest Kazakhstan may become the conduit country of choice.
A multitude of Western companies are closing their businesses in Russia as their consumers demand that they demonstrate their opposition to the invasion. Kazakhstan’s Deputy Minister of Foreign Affairs, Roman Vassilenko, has suggested that companies leaving Russia would be welcome in Kazakhstan. Vassilenko announced that it is not just companies fleeing sanctions against Russia that are welcome, but “all companies with a good reputation that want to move their production here.”
The current situation will confirm Kazakhstan’ role as the economic hub of the region and provide an opportunity for the country to promote regional economic development. Uzbekistan, a more populous landlocked republic on Kazakhstan’s southern border, will also have to look elsewhere to secure its own economic prosperity. This would be a win-win move, as regional cooperation driven by Kazakhstan would provide its neighbors with the means to offset losses or other consequences arising from international sanctions against Russia.
In the first three months of 2022, Kazakhstan has endured a failed coup attempt as well as the fallout from Russia’s invasion of Ukraine. Despite these heavy blows, Standard & Poor’s reaffirmed in April Kazakhstan’s Sovereign Credit Rating at “Outlook Stable” on account of “the strong government and external balance sheets, along with elevated oil and gold prices to help mitigate external shocks to the economy”. The rating agency rightly considers that Kazakhstan can transform misfortune into fortune.
*Allen Collinsworth is a Eurasia expert, political analyst and commentator.