The Russia-Georgia conflict has had repercussions throughout the post-Soviet space. While Western states have decided to increase their material support to Georgia, Central Asian governments find themselves in a more complex and difficult situation due to their dependence on Russia. For example, Astana announced it would abandon a project to build a grain terminal in the Georgian port of Poti and oil refineries in Batumi, doubly bad news for the already weakened Georgian economy.

BACKGROUND: Relations between the South Caucasus and Central Asia are relatively tense. The two regions have had difficulties coordinating their political and economic policies, both during the Soviet period and following its collapse. However, since the beginning of this decade, Kazakhstan has emerged as the principle power center in Central Asia-South Caucasus relations, particularly as they pertain to Georgia. In 2007, despite already strained relations between Georgia and Russia, Astana and Tbilisi continued to develop their economic relations. Kazakhstan became the first post-Soviet investor and the third largest foreign direct investor after Great Britain and the United States in Georgia. By 2006, Kazakhstan had invested more than US$150 million in the construction, tourism, telecommunications, and most of all energy sectors of Georgia.

The core of Kazakh-Georgian cooperation has focused on ways to separate from Russia. In addition to the Baku-Tbilisi-Ceyhan pipeline (BTC), there are the Baku-Poti and Baku-Akhalkalaki-Kars railway projects, which would connect Azerbaijan, Georgia, and Turkey by 2010, and enable Tbilisi to partially circumvent the Russian embargo. This new line of triangular cooperation between Kazakhstan, Azerbaijan, and Georgia was confirmed during the three-party negotiations held in Baku in April 2007. There, the Kazakh transportation minister stated that his country planned to transit by rail over ten million tons of various products to European markets. Oil is obviously the first priority, followed by grain. KazMunaiGas and the private investment company Greenoak Group, which turned Batumi into one of the biggest oil ports on the Black Sea, signed an agreement for the construction of a one billion dollar oil refinery in Batumi. Thereafter, in February 2008, Greenoak Group sold its entire stake to KazMunaiGas for US$220 million, making the latter the sole owner of the Black Sea oil terminal at Batumi. In June 2007, Astana and Tbilisi also signed a ten million dollar contract to construct at the port of Poti a grain warehouse with an annual capacity of 350,000-500,000 tons.

The war in August between Russia and Georgia seems to have stopped, perhaps temporarily, these joint projects. On September 22, Kazakh Minister of Agriculture Akylbek Kurishbayev stated that Astana had abandoned plans to build the grain terminal due to “the current situation in Georgia.” That same week, KazMunaiGas announced the suspension of the oil refinery project, but refused to cite the conflict as a cause. It claimed the decision was based purely on economic reasons, saying that “our experts have carefully studied it and decided that it is not feasible.” At the height of the conflict, Kazakhstan suspended oil shipments through Batumi, but flows were restored in early September. The Georgian authorities have not hidden their disappointment, noting that other foreign partners had not stopped their investment projects.

IMPLICATIONS: This turning point in Kazakh-Georgian relations indicates a possible geopolitical shift in the South Caucasus. In early September, Turkish president Abdullah Gül made a much-discussed trip to Armenia. It revealed the concerns of Ankara, which appears to have recognized the need to establish normal relations with Yerevan. A Turkish-Armenian rapprochement, although fragile, would allow states in the region to begin a new era of cooperation, supported by the international community. The Baku-Akhalkalaki-Kars railway has not yet received such support from the European Union and the United States, due to the exclusion of Armenia.

Yet Astana’s indecision hampers these prospects. The Georgian economy is being increasingly squeezed by the Russian embargo, and the conflict in August did put Georgia’s role as an energy transit route bypassing Russia into question. Thus, turning the ports in Batumi and Poti into Georgia’s gateway to Southeastern Europe is crucial to Tbilisi’s effort of recovering economically from its conflict with Moscow.

Kazakhstan’s pullback is not only due to political reasons. The delay in the operation of the Kashagan oil field, originally scheduled for 2008 but postponed to 2013, and the difficulties at the Tengiz field, hamper Astana’s economic ambitions. Kazakh authorities have been forced to acknowledge, albeit grudgingly, that the country will not reach the 150 million ton oil production mark by 2015, most likely delaying its entry into the group of the world’s ten largest exporters of crude oil. This announcement came to the chagrin of neighboring countries like Kyrgyzstan, for which Astana is a major investor.

Baku is also rightly concerned over the negative impact that the Russia-Georgia conflict could have Kazakhstan’s involvement in the BTC pipeline. The launch of the Kazakhstan Caspian Transport System (KKST), operational in 2012, will enable Kazakhstan to transport through the BTC pipeline twenty million tons of oil each year. It will transform the small Kazakh processing port of Kuryk, located 70 kilometers south of the regional capital Aktau in the Mangystau peninsula (one of the country’s most isolated regions), a hub of Kazakh oil exports and economic development. It will receive shipments of 500,000 barrels of oil per day through a 600-kilometer pipeline to the reserves of Atyrau, located further to the north. A complex system of barges will then carry the oil to Azerbaijan, where the KCTS consortium has established storage structures and connections to the BTC. The Azerbaijani authorities are strongly opposed to any delay by Kazakhstan of this project, which is important for Baku’s geopolitical positioning toward Europe.

CONCLUSIONS: For now, it remains unclear whether the disengagement of Kazakhstan from Georgia is only a response to pressure from Moscow at a time of high tension, or if it is a turning point in long-term relations between the two countries. It is likely that Astana will henceforth look in retrospect at its economic partnership with Tbilisi. Although Kazakh authorities continue to promote a multi-vector policy that does not please Moscow, they were aware of the risks of political destabilization in the South Caucasus. At any rate, the conflict this summer has already weakened the flexibility of Kazakhstan and other Central Asian states vis-à-vis Russia, and could leave a permanent mark in the Central Asian capitals, which are now more hesitant to defy Moscow’s opinion.

AUTHOR’S BIO: Marlène Laruelle is a Senior Research Fellow with the Central Asia-Caucasus Institute & Silk Road Studies Program Joint Center. She is the author of, among others, the recently published book, Russian Eurasianism: An Ideology of Empire (Washington DC: Woodrow Wilson Press/Johns Hopkins University Press, 2008).

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