International sanctions against Russia have not had the full intended effect because the Russian economy is being propped up by allies, including Kazakhstan. With this continued support, international sanctions in their current guise will fall short.
Since Russia’s invasion of Ukraine, the international community has subjected the country to over 6,000 sanctions. However, the Russian economy continues to function. The ruble is recovering to such an extent that the Moscow Exchange has resumed operation. Concurrently, Russia has transferred all payments for gas operations to rubles. Such a recovery can be explained in part by the support it has received from its neighbors – and one neighbor in particular.
Over the past 10 years, the relationship between the members of the Eurasian Economic Union – Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia – has been entrenched under Russian leadership. The integration of these countries can be seen through more than just a common border. Their activities have further intertwined via a customs union, common taxes, and a joint market for goods and services. Russian companies can apply for state bids or tenders announced by the Union countries’ government agencies and quasi-state companies. Member countries have free currency contact and integration within the Eurasian Economic Union, which allows for mass transactions through the Russian equivalent of SWIFT.
Kazakhstan’s position as the second largest economy in the Union has played a significant role in deepening this unification. President Kassym-Jomart Tokayev’s appointment in 2019 engendered a deliberate deepening of ties between Union members. In January 2022, he explicitly expressed his intentions to move toward “real integration”.
The Russian people have particularly benefited from the relationship with Kazakhstan. Since the beginning of the Russian invasion of Ukraine on 24 February, more than 200,000 Russians in the information technology sphere alone have left the country. The destinations for many of these expatriates are Union countries, primarily Kazakhstan. In the first two months of 2022, 9,000 Russians received residence permits in Kazakhstan. The demand for rubles in Nur-Sultan has increased by over three times, reaching a peak of 28.6 million USD, the highest level since 2018.
While Russian people have been fleeing their homeland, entrepreneurs have been actively pursuing a relocation of their headquarters. There has been an influx of businesses assessing the potential of opening new operations, setting up new tax bases, and maintaining wages under the current sanctions. For Russian entrepreneurs, setting up shop in Kazakhstan is a way to avoid a significant drop in profits, and to dampen the effect of international sanctions. The customs union simplifies this process.
The alliance between Russia and Kazakhstan can also be understood by examining big business, which has been playing a hand in Russian negotiations with the outside world. The tight-knit connections between Russian and Kazakhstani businessmen are numerous. KazAtomProm, the world’s largest uranium exporter, is dependent on the Russian market and its Russian counterpart, RosAtom. And the Caspian consortium pipeline, which transports Kazakh oil from the Tengiz field to the Novorossiysk-2 Marine terminal on Russia’s Black Sea coast, includes amongst its key shareholders sanctioned Russian companies such as Transneft, LukArco, and Rosneft.
The Kazakh government is also alleviating the effect of sanctions on Russian supply chains. Kazakhstan’s participation is not limited to business relations. On March 21, the Government of Kazakhstan temporarily abolished the requirement for Kazakh labels to be in the state language, while the Russian government has allowed the import of goods without the permission of the copyright holder into Russia. This allows Russia to bypass sanctions, re-routing their supply of goods through alternative distributors, such as Kazakhstan.
In an interview with Euractiv on March 29, Kazakhstani official stated that the country is “part of the Eurasian Economic Union, but we are an independent state… We don’t want and will not risk being placed in the same basked (as Russia). And we would like to expand our cooperation with the countries of the EU and the EU as a whole.” However, the next day, a telephone call between Putin and Tokayev, according to press release by the Kremlin, stated that Kazakhstan and Russia are deepening their economic integration within the Eurasian Economic Union.
Kazakhstan has demonstrated a move towards Russian rule, too. In January, during and following civic protests, Kazakhstani authorities deprived their own citizens of human rights by unlawfully imprisoning thousands of protestors and political figures, most notably former Prime Minister Karim Massimov. This signals a transition, or more accurately a regression, to Russian-style leadership. The crackdown on peaceful protestors, which led to 230 officially reported deaths, has understandably led the authorities of Kazakhstan to be under consideration for Global Magnitsky Act sanctions.
Under President Tokayev, Kazakhstan remains a close ally to Russia, continuing to provide much-needed support to Vladimir Putin in avoiding the effect of sanctions, while disregarding the human rights of its people. It is now crucial for Western powers to demand that Kazakhstan disclose the extent of its relationship with Russia. Should Kazakhstan refuse such transparency, sanctions must be applied to the country for its complicity in Russia’s war against Ukraine.
