Beyond the suffering and humanitarian crisis that resulted from Russia’s invasion of Ukraine, international sanctions against Russia have resulted in global supply chain disruptions, factory closures, job losses and inflation. The world economy suffers from a shortage of Russian exports such as hydrocarbons, metal products and agricultural products, especially in countries that depend on trade in these items with Russia.
The sanctions also had an indirect impact on countries bordering Russia, including Kazakhstan. Yet the new geo-economic reality that followed Russia’s invasion of Ukraine may work to Kazakhstan’s advantage. The more Western third-party companies in Russia distance themselves from sanctioned Russian entities, the greater the attractiveness of Kazakhstan as a relocation destination. Many Western companies still serve the entire region of the former Soviet Union from their branches in Moscow. It is conceivable that they could move quite easily to the capital of Kazakhstan, Nur-Sultan, or to its business city of Almaty. At least 97% of the population of Kazakhstan is fluent in the Russian language.
Even if supply chains move 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 that may attract unauthorized Russian companies setting up shop 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 area and a customs union comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. Theoretically, Russia could import sanctioned goods through other EAEU members. Therefore, calls have been made in the West to preemptively impose certain sanctions on the other four members of the EAEU alongside Russia and thus close possible trade loopholes.
The exploitation of such loopholes, however, seems unlikely, at least in the case of Kazakhstan. The government of reformist President Kassym-Jomart Tokayev has shown no interest in circumventing recent sanctions against Russia and has shown respect in word and deed. Timur Suleimenov, the country’s first Deputy Chief of Staff, has publicly stated that “Kazakhstan will not be a tool to circumvent sanctions against Russia [placed] by the United States and the EU. We will respect the sanctions. A spokesman for the European Commission claimed that “the Kazakh authorities have in fact committed themselves to setting up a monitoring and control system to ensure that the sanctions are not circumvented”. Indeed, the Kazakh branches of the sanctioned Russian banks Sberbank and VTB Bank were quickly closed. The country diverts imports and exports from Russian ports.
Russia is Kazakhstan’s second largest trading partner after the European Union. Kazakhstan is fortunate that the US Treasury has exempted its oil from the existing sanctions regime, which travels through the 1,500 kilometer Caspian Pipeline Consortium (CPC) pipeline through southern Russia, arriving at the Russian port of Novorossiysk on the Black Sea to be re-exported to world markets. Kazakhstan is the 12th largest oil producer in the world and relies on the CPC pipeline to export 80% of its international crude sales.
Russia also serves as a major land corridor for rail freight. Ports, warehouses and other transport infrastructure crossing Russia along the corridor are on the list of potential sanctions targets. Kazakhstan is aware of this risk and instead routes its exports through the Trans-Caspian corridor. For goods moving east into Russia, openings from the European Union suggest that Kazakhstan could become the transit country of choice.
A slew of Western businesses are closing in Russia as their consumers demand they demonstrate their opposition to the invasion. Kazakh Deputy Foreign Minister Roman Vassilenko hinted that companies leaving Russia would be welcome in Kazakhstan. Vassilenko announced that it’s not just companies fleeing Russia sanctions that are welcome, but “any reputable company that wants to move production here.”
The current situation will confirm Kazakhstan’s role as the economic center of the region and provide the country with an opportunity to promote regional economic development. Uzbekistan, a more populous landlocked republic on Kazakhstan’s southern border, will also have to look elsewhere to ensure its own economic prosperity. This would be a win-win approach, as regional cooperation driven by Kazakhstan would provide its neighbors with the means to compensate for losses or other consequences resulting from international sanctions against Russia.
In the first three months of 2022, Kazakhstan suffered a failed coup attempt as well as the fallout from the Russian invasion of Ukraine. Despite these blows, Standard & Poor’s in April reaffirmed Kazakhstan’s sovereign credit rating to “Outlook Stable” due to “the strength of government and external balance sheets, as well as high oil and gold prices to help mitigate external shocks to the economy”. The rating agency rightly considers that Kazakhstan can turn misfortune into fortune.
*Allen Collinsworth is a Eurasia expert, political analyst and commentator.