EurasiaNet Eurasia Insight - Caspian Basin: Russia Faces a Collapse of its Economic and Political Clout

EURASIA INSIGHT

CASPIAN BASIN: RUSSIA FACES A COLLAPSE OF ITS ECONOMIC AND POLITICAL CLOUT
Sergei Blagov 12/30/08

The global economic crisis is forcing Russia to rethink its economic and geopolitical approaches toward the Caspian Basin. Whereas the Kremlin not too long ago was entertaining notions of prolonged regional dominance, now Russian officials are scrambling to avert a geopolitical implosion.

Only six months ago, when Russia was riding on top of skyrocketing energy prices, the Caspian Basin states seemed ready to dutifully follow Moscow’s blueprint for regional development, in which the Kremlin worked through several regional groups - in particular the Eurasian Economic Community (EEC), the Collective Security Treaty Organization (CSTO) and the Commonwealth of Independent States - to cement its dominance in place.

But the global crisis has caused Russia’s domestic economy to crash. And as a result, its regional clout has waned dramatically. In a sign of the changing times, Russia, a country that normally set the terms for discussion within the EEC, recently had to appeal to other member states to coordinate actions in order to counter the global crisis.

In recent months, Russia had been pressing other EEC members to adopt the Russian ruble as the EEC common currency. But at their December 12 meeting, EEC members signaled no desire to peg their fate to the ruble, which has been battered amid the recent financial turmoil. EEC prime ministers signed agreements on currency policy coordination, on investment protection, on the prospects of the common energy market and some other deals too. However, there were no firm common currency commitments, let alone a formal agreement on a future role of the Russian ruble, leading observers to believe that the common currency plan has fallen by the wayside.

Russia’s hope to forge a broad customs union also seems stalled by the reluctance of Kyrgyzstan, Tajikistan and Uzbekistan to join. Uzbekistan further deflated Russia’s plans by announcing its withdrawal from the EEC. Officially, Tashkent explained its move by saying that the EEC was inefficient. However, some experts say the Uzbek decision was a reflection of Russia’s diminishing economic and political influence.

Tashkent’s move to suspend its EEC membership may end up having a considerable impact on Caspian Basin energy developments. Specifically, doubts are growing about a Russian-led initiative, first unveiled in May 2007, to expand the Prikaspiisky pipeline network. Construction was slated to begin in late 2008, but that is obviously not going to happen. Experts now wonder if there will be any movement on the project in 2009.

In recent months, Moscow had been also courting Caspian gas suppliers by offering them lucrative purchase terms. In March 2008, Russia agreed to raise gas price for Turkmenistan, Kazakhstan and Uzbekistan up to European levels starting in 2009. The Russian offer was certainly enticing earlier this year. But now, with gas prices set to fall significantly in the coming year, the Russian conglomerate Gazprom is coming under considerable pressure, and no longer has much negotiating flexibility.

Central Asian gas producers currently seem more amenable than earlier this year to an export diversification strategy. It was hardly a coincidence that recent talks between Turkmenistani leader Gurbanguly Berdymukhamedov and his Azerbaijani and Turkish counterparts featured possible gas transit routes via Turkey to Europe.

Moscow rushed to uphold its earlier deals with Turkmenistan. Russia’s Deputy Prime Minister Viktor Zubkov traveled to Turkmenistan to discuss gas prices. However, following talks in Ashgabat, he announced on December 9 only that both sides had tentatively agreed on the volume of Turkmen gas to be delivered to Russia, while the price remained under discussion.

Russia’s major energy companies have repeatedly announced plans of major investment projects in Central Eurasia, but implementation has tended to be slow. Now with a background of the global economic crisis and falling energy prices these plans have been effectively scrapped, thereby diminishing the Kremlin’s political influence.

In the geopolitical sphere, Moscow once believed it could turn the CSTO into a regional force that could keep NATO at bay. That vision, however, now seems endangered. The organization proved in September that it would not be a rubber-stamp outfit for the Kremlin after it refused to endorse Moscow’s recognition of South Ossetia’s and Abkhazia’s independence. Russia’s subsequent loss of economic clout will only make it more difficult for the Kremlin to get its way within the CSTO.

In 2009, the economic problems confronting Russia may well get far worse before they get better. Accordingly, other states in Central Asia may follow Uzbekistan’s lead and seek to distance themselves from Russia-dominated multilateral organizations.

Editor's Note: Sergei Blagov is a Moscow-based specialist in CIS political affairs.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

The views expressed in this publication do not necessarily represent the position of the Open Society Institute and are the sole responsibility of the author or authors.