Kazakhstan Sits On The Powder Keg Once Again

The Russia Ukraine war and the imposed sanctions significantly impact Eastern and Central Europe.  The collateral damage goes beyond Europe as Central Asia also suffers financially from the Russian invasion.  The value of  Kazakhstani tenge and Kyrgyzstani som drops significantly due to the close connection with Russian rubles.  Even though Central Asian countries remain politically neutral and denied the possibility of sending troops to Ukraine, the regional economy still took a significant hit. 

The financial hit is particularly hard on Kazakhstan.  As someone who lives in Kazakhstan, the influence of sanctions on Russia has already been shown.  Kazakhstani tenge lost almost a quarter of its value, the gas price also went up, while many essential products are imported from Russia, which makes the supply chain unstable.  As the country recently recovers from the turmoil in January and the long-existing problems still need immediate attention, the sanctions may deliver a lethal hit to Kazakhstan.

After immense political turmoil since its independence in January, Kazakhstan sits again on the powder keg.  The worsening economy since the beginning of the Russian-Ukrainian war, plus the recovery process of the January protest could further drag this country into instability.  This instability may create further political turmoil and risks. 

Kazakhstan is a resource-based economy, which is still not in the best shape.  The Kazakhstani economy reached a peak in 2013 with a high oil price.  However, it started to decline afterward and has never been fully recovered.  The depreciation of tenge and the drastic price hike in recent years have driven the people to their absolute limits.  In the past two years, the Consumer Price Index in Kazakhstan went from 797.6 to 923.2.  In October 2021, the cost of food increased by 11.4%.  These increases are hindering the people’s livelihood and therefore providing a warm bed for future chaos.  

With a close tie between Russia and Kazakhstan, the current sanctions targeting Russia also damage the Kazakhstani economy.  When the ruble value goes down quickly, so does the value of tenge.  Even though the Kazakhstani government poured in more than 800 million US dollars to maintain the currency value, the devaluation still happened quickly.  Within three weeks, the exchange rate between USD to tenge went from 1 dollar to 427 tenges to 1 dollar to 520 tenges.  

A weakened tenge also hurts Kazakhstan’s import greatly.  One-third of Kazakhstan’s imports come from Russia, and the sanction could greatly hinder Kazakhstan’s ability to purchase the goods it needs.  Kazakhstan and Russia are in the same customs union, and the sanctions could block Kazakhstan from accessing the Russian market and cheaper manufacturing goods.  As previously mentioned, with a weakened tenge, it could only be more expensive for Kazakhstan to seek alternatives for Russian products. 

Not too long ago, the drastic rising of the LPG prices drove the people on the street in Zhanaozen, which led to a massive protest across Kazakhstan in January.  However, this time, the gasoline price may start to go up quickly.  In February, one liter of gasoline costs 203 tenges in Kazakhstan, which is one of the lowest prices in the world.  Yet, the future of this price is uncertain. The Nursultan government is bracing for the potential shock from the rising oil price while Kazakhstan relies on imports for refined fuel.  The gas price may experience a significant spike.

Meanwhile, Kazakhstan is an active participant of BRI, and BRI is inevitably under severe impact due to Russia’s military aggression.  The future for the China Europe railway, in which Kazakhstan plays an important role, becomes uncertain.  Kazakhstan still has cargo cars trapped in Ukraine, while the fate of Russian and Belarusian participation in the BRI remains uncertain.  This could further hinder Kazakhstan’s economy, with a potential growth point snapped.  Politically, Kazakhstan is still in the process of reconstruction and reformation from the protest. The protest delivered 2 to 3 billion US dollars of property loss, and the reformation is still undergoing while the reconstruction is still not finished.  Although the government has new projects and imposing new tax laws to provide a better living standard and narrow the wealth gap, these methods still take time to be effective.  No one knows if there is enough time to address these dire economic situations. While Kazakhstan’s average salary is less than $600, and half of the country makes less than $214 a month, a spike in living expenses brought by the sanctions could trigger even more anger than it was back in January.

As President Tokayev criticized Nazarbayev and his group in a speech on January 11, the internal political struggle targets Nazarbayev’s group.  Dariga Nazarbayeva, President Nazarbayev’s daughter, resigned from her Kazakhstan legislature position.  However, nothing substantial has happened since the drastic replacement of pro-Nazarbayev politicians and reformations introduced in January and February.  This lack of action could further catalyze the country’s already fragile political and economic situation with further instability.

The support of external powers plays a crucial role in the stability of Kazakhstan.  In January, President Tokayev called the Russian-led CSTO forces to enter Almaty to restore peace and order.  However, no one knows what will happen this time if Kazakhstan is in another major protest.  Russia is deeply involved in the war in Ukraine, with most of its military resources and manpower dedicated towards the frontline.  Russia has no troops to spare to help the Nursultan government maintain order in Kazakhstan. 

As for China, despite China having a growing investment and interest in Central Asia, Chinese participation in the region is on the quiet side, especially in politics.  The potential Chinese involvement in politics in Central Asia is almost none.  Beijing did not take action in the January protest; it may also stay quiet for any potential conflict in Kazakhstan unless it interferes with Beijing’s interest. 

While Kazakhstan has rapidly developed since its independence, it is at another crossroads. Kazakhstan suffered financial shock due to the 2014 sanctions targeting Russia, and it is almost inevitable that the loss will be more extensive.  With existing internal issues and the recovery from the January protest, Kazakhstan sits on a powder keg that could deliver a detrimental hit to the country.