Nursultan Nazarbayev, president of Kazakhstan since independence, has stepped not down, but up. The 78-year old leader resigned last Tuesday, but continues to hold many of the levers of power. His successor needs to find both balance and reinvention in this oil-producing crossroads between Russia, the Caspian Sea and China.
In 1991, Mr Nazarbayev, head of the Kazakh Communist party, led to independence a landlocked country, the size of western Europe, with no history of self-government and a sparse population which was 37 per cent ethnic Russians. Centrally-planned agriculture had dried up the Aral Sea in the south-west, and the Semipalantinsk area in the east was contaminated by hundreds of nuclear bomb tests. The republic produced about half a million barrels of oil per day, the second largest in the USSR after Russia, but this dropped off sharply in the early years after the break-up.
From that unpromising beginning, the new government opened up to foreign petroleum investment. Mr Nazarbayev turned down Boris Yeltsin’s proposal that he give the large Tengiz oil-field to Russia. Instead, it and Karachaganak gas field, Soviet discoveries, were developed by international consortiums. China National Petroleum Corporation also established a strong presence.
In 2000, a who’s who of the global energy industry found the Kashagan field, with 13 billion barrels of reserves, the largest conventional find anywhere for three decades. Under the shallow waters of the north Caspian, freezing at -40° Celsius in winter and sweltering in 40 degrees in summer, the reservoir is beneath 4,200 metres of rock and a thick layer of shifting salt. The oil is at extreme pressure and highly sour – with toxic, corrosive hydrogen sulphide.
With neither ExxonMobil nor Shell wanting the other to be operator, a compromise candidate, Eni, was appointed, but the Italians struggled with the technical challenges. After spending about $50 billion, production finally began in September 2013 but had to stop as the corrosive gas caused a pipeline leak, costing $3bn to fix. Finally regular output commenced in 2016 and ramped up to 370,000 barrels per day, while it could eventually reach 900,000 bpd with more heavy investment.
This caused national production, on a plateau around 1.6 million bpd since 2010, to jump to 1.81 million bpd last year, almost as much per person as Iraq. The country’s production should gradually expand over the next few years, but major gains will require cracking the code of Kashagan’s geology, sustaining mature fields, exploiting shale oil and gas, and revitalising exploration in the Caspian and the vast steppes. 2017’s plan for super-deep drilling around the Caspian in the “Eurasia Project”, targeting more than 400 billion barrels of oil, brought in Shell last year, but little has been heard since.
After declining throughout the 1990s, the economy grew almost 7 per cent annually since 1999 on rising oil output and prices. With minimal population growth, per-capita incomes boomed and the country was transformed beyond recognition. Even after 2014’s fall in oil prices, the deficit is moderate and growth a respectable 3.8 per cent last year.
Kazakhstan may not be the world’s largest exporter of potassium, but it is the second-biggest oil and coal producer in the former Soviet space, and by a long way the globe’s biggest miner of uranium. It joined the Opec+ pact in 2016, likely under friendly persuasion from Vladimir Putin, but with Kashagan starting up, it has not even pretended to comply with production cuts.
The oil pipeline from the Caspian to China is a vital lifeline that does not depend on easily-interdicted marine routes. Another line runs the other way, to Russia’s Black Sea port of Norovossiysk. Kazakhstan is not nearly as rich in gas, but the key West-East pipeline from Turkmenistan and Uzbekistan to China crosses it.
The country’s geography makes it key to China’s “Belt and Road Initiative”, and Mr Nazarbayev has stayed close to both Xi Jinping and Mr Putin, while remaining friendly with Washington. This is essential, as Kazakhs may fear Russian encroachment in the style of Ukraine and Georgia, and China’s internment camps for their brethren in neighbouring Xinjiang.
Mr Nazarbayev’s regime is authoritarian, but did not descend into the more bizarre personality cult of Turkmenbashi in Turkmenistan, the brutal repression in Uzbekistan under Islam Karimov, or the early 1990s civil war in Tajikistan. With Mr Karimov’s death in September 2016, Mr Nazarbayev became the last of central Asia’s Soviet-era leaders.
His successor is the topic of Kremlinologists’ intense speculation. It could be Kassym-Jomart Tokayev, a political supporter who has been named acting president; Mr Nazarbayev’s daughter and senate chairperson Dariga Nazarbayeva; his nephew and security agent Kairat Satybaldy; his son-in-law and former sovereign wealth fund chief Timur Kulibayev; or a surprise candidate.
Whoever follows will have the former president in his elevated role as a guide and string-puller. The new president will have to continue the tricky balancing act between Beijing and Moscow. The stagnating giant to the north faces an ultimate transition from Mr Putin; the eastern colossus is slowing economically but expanding its reach into central Asia. More populous, restive, agrarian Uzbekistan to the south is slowly opening up under its new president.
Foreign policy cannot neglect Kazakh citizens’ aspirations. Complaints over living standards and human rights led to protests in the oil town of Zhanaozen in 2011, where security forces killed several protestors and Mr Kulibayev was blamed and fired. There were further protests in 2014 and 2016.
Despite a reasonable situation today, the typical economic problems of petrostates remain: falling productivity, corruption, a heavy state hand, and unsophisticated output. If oil prices remain stagnant, and production expands only a little, growth has to come from elsewhere. The canniest post-Soviet leader leaves a mixed 30-year legacy to his successor.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis