Home Lifestyle Russia’s war and Chinese ambition are challenging Eurasian energy routes

Russia’s war and Chinese ambition are challenging Eurasian energy routes

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The failed coup by Yevgeny Prigozhin against Russian President Vladimir Putin has highlighted Russia’s toxicity as a global trading partner. Although the Russian oligarchy had ostensibly failed and purged its power base, his failed coup exposed the fragility of the Russian state.

Not only will Russian politics be disrupted and Moscow’s diplomacy will be severely affected, but international energy flows will likely be affected. Today, Russia’s neighbors, adversaries, and clients view the bout of civil unrest in Moscow with a mixture of fear and opportunism.

Over the decades since the collapse of the Soviet Union, Russia has used its neighbors’ energy dependence and hemispheric prestige to force countries to adopt and pursue friendly policies. And the first evidence of this is the ill-conceived German policy, fueled by cheap gas, which led to the impotence of Berlin in Eastern Europe.

Russia’s relative size, volume of exports, and status as a transit country allowed it to wield significant influence. She was helped by “special relations” with leading European politicians, sometimes based on corruption or coercion. Russia’s authoritarian approach has shaped the energy policies of neighboring states, particularly in Central Asia and the Caucasus, as much, if not more, than market forces. For these countries and energy consumers around the world, Russia’s current situation is prompting policy reassessment, reorientation, and innovation.

Middle lane

At the end of June, Azerbaijan and Kazakhstan signed a series of agreements (Georgia signed another series of supplementary agreements soon after), strengthening their cooperation, particularly in the energy sector, and helping to develop strategic alternatives to energy routes through Russia. This degree of cooperation between energy producers on both sides of the Caspian Sea and Russia’s southern neighbors is unprecedented. The joint strategic vision is to significantly accelerate their cooperation by increasing exports of oil, other natural resources, and raw materials from Kazakhstan and the rest of Central Asia across the Caspian Sea to Azerbaijan and then to the rest of the world via Georgia and Turkey.

In a sense, this “middle corridor”—the route that crosses the Caspian Sea bypassing the two heavily sanctioned countries—Russia and Iran—does exist, because energy and goods flow between Azerbaijan and Kazakhstan. However, this pales in comparison to the much larger northern route taken by the Caspian Pipeline Consortium to Novorossiysk, as well as other pipelines and railways running through Russia, such as the Uzhin-Atyrao-Samara pipeline. Thus, Russia has incredible influence, which it used in 2022 to punish its neighbor Kazakhstan, whose President Kassym-Jomart Tokayev publicly refused to recognize the annexation of Ukrainian lands by Russia. Russia’s land approach has stimulated players in the Caspian region to develop important transportation alternatives.

This Middle Corridor has been an unrealized project since the 1990s, and it was not implemented at that time due to financial considerations and the desire to integrate post-Soviet Russia into the international community. The challenge for Kazakhstan and Azerbaijan has been to marshal large foreign investment from the often disinterested West in order to quickly build new infrastructure and integrate a wide range of sectors into highly regulated economies, all while their economic livelihoods were essentially hostage to a much stronger one. neighbor.

Recent strategic cooperation agreements address this challenge. Azerbaijan and Kazakhstan have signed agreements on railway integration, port construction, energy policy coordination, knowledge exchange, mutual technical training, financing and cultural exchanges. The timing is right, and it makes perfect sense since both countries are big energy exporters. With a mix of US, European and Chinese capital, Astana and Baku will quickly attract foreign investment and business to rebuild a better infrastructure for 21H a century.

The expanded Middle Corridor has many geo-economic and geo-political ramifications for the world. In economic terms, this will open up massive flows of energy and raw materials from under-tapped Eurasian suppliers hungry for investment, technology, management knowledge, markets and cooperation from the world. This will increase supply, stabilize and lower commodity prices, and ultimately drive a transition to green energy through cheap critical minerals, rare earth elements, and the abundance of natural gas and uranium in the Caspian Sea.

Companies betting on the middle lane are already seizing the opportunity and local economies are responding positively. The World Bank has noted significant economic gains in recent months with increased exports and revenues from Kazakhstan. Last month, Italian energy giant Eni met with President Kassym-Jomart Tokayev and state energy company KazMunayGas (KMG) to strengthen cooperation. EU officials met with Kazakh officials to increase imports of key minerals.

Azerbaijan has also seen an increase in FDI (Foreign Direct Investment) after it promised to double gas shipments to Europe by 2027, when state-owned oil company SOCAR announced expanding cooperation with several foreign investors and said its profits for 2022 jumped 450%. The agreements between Azerbaijan and Kazakhstan are likely to lead to further expansion of exports and increase profits for Western and domestic companies.

This spirit of regional cooperation and local integration, which is vital for the Middle Corridor, has other manifestations. The C5 + 1 format, which brings together the five Central Asian republics and the United States, has existed since 2015. The C5 + 1 has succeeded in promoting regional integration and strengthening Central Asia’s ties with the West and the rest of the world. In doing so, he sought to prevent predators from dividing and conquering the region, to facilitate Western investment and economic growth, and ultimately to enable the creation of the Middle Corridor.

However, no US president has attended any C5+1 meeting, while Presidents Xi and Putin visit the region regularly, and Central Asian heads of state hold summits with Russia and China. In May 2023 in Xi’an, China agreed to increase trade with the region to $100 billion (90 billion euros) by 2030, an increase of 30%, and to contribute $1 billion in direct investment in infrastructure.

As the 2023 United Nations General Assembly begins organizing and debating issues directly related to the C5+1 and the Middle Corridor, particularly on energy flows and sustainable development, the C5+1 meeting with President Joe Biden will be vital in strengthening the Middle Corridor.

Geopolitically, the Middle Corridor will reshape the international balance of power in Eurasia. A direct and economically viable overland trade route between China and Europe would reduce political risks from Russia, the still problematic Afghanistan, and a nuclear-arms-seeking and terrorist-supporting Iran. And it will encourage the United States to invest in long-term strategic political engagement in Central Asia. This is expected to be the focus of the C5+1 summit with President Joe Biden in New York during the United Nations General Assembly in September. The strategic agreements between Kazakhstan, Azerbaijan and Georgia are the first strategic steps on the Eurasian chessboard.

Translated article from the American magazine Forbes – Author: Ariel Cohen

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