Almost 800 years after Marco Polo trod the silk road to China, six former Soviet republics straddling this ancient trade route are emerging from obscurity to become key pieces on the geopolitical and economic map. This time the trade isn’t silk, but energy and minerals. The visitors are more likely to be British and French oil engineers than Venetian textile merchants. Instead of caravans of hardy Mongolian ponies, there are natural gas pipelines snaking across the steppes to energy-hungry Europe. In place of the fabulous cities and palaces, sacked and levelled by the Mongols, there are oil derricks and gas rigs.
From Kazakhstan to the FTSE 100
West to east, the republics of Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan and Kyrgyzstan spread from the borders of the Russian Caucasus to the foothills of China’s Tienshan mountains. This area is the size of Europe but has only 80 million people. By rights they should all be rich.
There are huge deposits of oil, gas, uranium, copper, molybdenum and gold, plus the occasional advanced industrial town, like the Baikonur space centre in Kazakhstan, legacy of Soviet days. Western companies are swarming to the region for its minerals, just as China is once again looking there to slake its thirst for oil and gas to power expansion.
Make no mistake, what happens in central Asia matters to investors and to the West. The UK, with its increasing dependence on foreign natural gas, is no exception. Thus Kazakh copper miner Kazakhmys, which only listed in London in October, is already entering the FTSE 100, powered by its soaring exports to China.
Moscow’s money in Central Asia
In geopolitical terms, Central Asia is the last economically important region on earth that is still up for grabs. Western, Chinese and Russian spheres of influence all overlap here, but none dominate. Militant Islam, fuelled by Afghanistan to the south and Chechnya to the west, is making inroads into traditional Sunni belief. For almost a century these largely Muslim countries were run as secular Russian fiefdoms. This kept the lid firmly on political and religious freedoms.
In the 1980s, Moscow learned from its experiences in Afghanistan that Islamic fundamentalism would flourish where mainstream worship was repressed. By 1991, when I visited Uzbekistan and Kyrgyzstan during the last gasp of Soviet rule, it was Moscow’s money that was restoring the fabulous turquoise minarets of Samarkand.
Russia’s legacy up for grabs
The Soviet legacy lives on. Roads, railway lines and airlines all go to Moscow. The gas and oil pipeline network, even for southerly Turkmenistan, is linked into the Russian system, giving the Kremlin huge power to set prices, turn the taps on or off, and rake off fees.
Elsewhere though, Moscow is in retreat. Hundreds of thousands of Russians, some moved to the republics by Stalin, are returning to the Motherland, fleeing ethnic resentment and persecution by indigenous majorities.
Like China, the Central Asian economies are growing rapidly but political expression remains bottled up. Four of the six countries still labour under the same ruler they had when the USSR collapsed in 1991. A fifth, Azerbaijan, last month re-elected Ilham Aliyev, the son of the former president. And just this week, Nursultan Nazarbayev was reelected President of Kazakhstan for the third time.
Both countries’ elections were regarded as flawed by Western observers. Nazarbayev, a firm friend of the West for his support in George W. Bush’s war against terror, sports an ego that would not disgrace North Korea’s Kim Jong Il.
The biggest oilfield outside the Middle East
He is moving the capital city of this nation of 15 million from the pleasant tree-lined city of Almaty to the frozen steppes 1,200km northwest. The new city, inventively named Astana (meaning ‘capital’ in Kazakh) is a multi-billion-dollar bauble dedicated to the presidential personality, including a huge tower topped by a golden egg the size of an airship.
Norman Foster is just one of the architects retained to design a ‘university of civilisation’ under a giant glass pyramid in this new city. Kazakhstan can easily afford this because it is soon to become the world’s tenth largest oil producer. Its $29bn Kashagan field is the biggest outside the Middle East. It is being tapped by ExxonMobil of the US, Italy’s Eni, Royal Dutch Shell and Total of France.
Growth threatens civil war and anarchy
Growing economies create middle classes, and a demand for political freedoms. The despoilation of the environment, the ugly impoverished cities, and the wealth doled out to presidential cronies are all strains. One day the lid will blow.
The best result would mirror the collapse of the Soviet Union itself, a series of peaceful popular protests. Ukraine’s Orange Revolution, or the Rose Revolution in Georgia, when peaceful demonstrators bearing flowers burst into the parliament building, show that asserting democracy does not have to involve bloodshed.
But the worst scenario would be another Algeria, where in 1989 the Islamic opposition, poised to win at the ballot box, saw the election cancelled by the government. The country then spun out of control into a civil war in which around a hundred thousand died, and from which the country has barely recovered.
The evidence in Central Asia so far is not encouraging. In Kyrgyzstan, the government was swept away in March, but by an anarchic mob that looted shops before turning its attention to the hated ethnic Russian minority. The new government of Kurmanbek Bakiyev has yet to demonstrate better democratic credentials.
America losing influence fast
In Uzbekistan, the tyrant Islam Karimov had his troops slaughter hundreds of peaceful protesters in May, and attempted to cover up the evidence. Subsequent US lectures to Karimov that he should embrace reform and openness have backfired spectacularly.
Shortly after 9/11, the Uzbek leader agreed to operate secret ‘rendition’ camps where the CIA could interrogate prisoners seized in Afghanistan. Aware of the allegations of US torture of suspects, he may scent hypocrisy. In any case, Karimov, who had two political opponents boiled alive in 2002, doesn’t forgive and forget.
In July he gave Washington 180 days to close its huge Khanabad airbase, which has a crucial role in supporting operations in Afghanistan. And by turning his back to the US he got much more sympathetic hearings in Moscow and Beijing. He claims he was threatened by Islamic radicals and that the only people he had shot were terrorists. Since then, Karimov has signed a mutual defence pact with Moscow.
Urgent threat to Britain’s new and vulnerable supply of gas
Karimov isn’t the only Central Asian leader able to play global powers off each other. The new Kyrgyz government has just bumped up the rent for its US airbase by several million dollars, having discovered that the Pentagon was apparently making under-the-table bribes for the facility to the previous president, Askar Akayev. Having lost its Khanabad runway, the US has little choice but to pay up.
More urgently for readers of The Fleet Street Letter, however, is the fact that over the next couple of years, Central Asian gas will start finding its way to Britain via Russian and Ukrainian pipelines. So next time you hear about trouble in some far-off republic with an unpronounceable name, it might just be worth getting out the atlas and taking a closer look. Just whose fingers are on the tap supplying gas to your home?
Nick Louth has been a financial journalist for 20 years. He is a regular contributor to the Financial Times, Investors Chronicle and MSN website.
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