The New Reality of Energy Geopolitics in Eurasia

On November 28, 2022, Kazakh President Kassym-Jomart Tokayev visited Moscow, meeting with Russian President Vladimir Putin and other top Russian officials. During their meeting, Russian media later reported, Putin suggested forming a “trilateral [gas] union” with Kazakhstan and Uzbekistan. Tokayev reportedly responded positively, “Why not?”

The comments sparked a sudden flash of attention. Despite the vagueness of the proposal, the context of the time – eight months after Russia had invaded Ukraine and as Europe looked to lessen its dependence on Russian gas – generated considerable interest.

A spokesman for Tokayev afterward sought to tamp down the fevered discussion, clarifying that the two presidents discussed how “to coordinate joint actions for the transportation of Russian gas through the territories of Kazakhstan and Uzbekistan.”

A year and half later, Russia, Kazakhstan, and Uzbekistan are engaged in what Shaimerden Chikanayev, a Ph.D. researcher at the Chinese University of Hong Kong, calls “opportunistic” cooperation on closely coordinated bilateral terms. The closer integration in this “gas union,” Anatole Boute, a law professor at the Chinese University of Hong Kong, says, will mean “greater dependence on Russia, in line with previous Russian-led initiatives to secure Russia's influence in the region and counter competing foreign interference.”

In the following interview with The Diplomat’s Managing Editor Catherine Putz, Boute and Chikanayev shed light on what the “gas union” is (and what it isn’t), how it emerged from a complicated geopolitical shift, and how it contributes to Central Asia’s energy security in the short term, but may generate dangerous new dependencies in the long term. The “gas union” may serve to forestall much needed energy market reforms in the region amid rising demand and contractual commitments to exports for China.

When Russia began discussing a proposed “gas union” with Kazakhstan and Uzbekistan in 2022, it immediately sparked considerable attention in light of the war in Ukraine. What do you make of the term “gas union”?

Shaimerden Chikanayev: It seems that the so-called “trilateral gas union” is just one of the facets of the officially not institutionalized, but de facto existing energy alliance between Russia, from one side, and the countries of Central Asia from the other.

As it has been rightly noted by many experts, the war in Ukraine has just given new impetus to Russia’s already close energy cooperation with the Central Asian countries. The latest gas cooperation endeavor is essentially forced for Russia and opportunistic for Kazakhstan and Uzbekistan, as they try to squeeze maximum benefits out of the “new reality” in energy geopolitics (i.e. the collapse in demand for natural gas from Russia in Europe because of the war in Ukraine). Therefore, this newly emerged “trilateral gas union” is an opportunistic cooperation among Russia, Kazakhstan, and Uzbekistan to coordinate the transport of Russian gas to Central Asia, China, and in the future potentially to South Asia.

Kazakhstan and Uzbekistan try to avoid allegations of any official “trilateral gas union” with Russia; therefore, all negotiations with Russia have been conducted strictly in the bilateral format. So, from a purely legal perspective, it seems that the “trilateral gas union” is the de facto existing gas alliance based on the system of bilateral and confidential gas sale contracts, gas transit contracts, road maps for cooperation, and strategic cooperation agreements, between Russia’s state-owned Gazprom and Kazakhstan, or Kazakhstan’s state-owned QazaqGaz, and Uzbekistan, as applicable, signed in 2023.

Such a unique legal framework for the “trilateral gas union” suggests not a common legal regulation and integration of domestic gas markets, but just more coordinated energy policies of Russia, Kazakhstan, and Uzbekistan in the sale to and transit of Russian natural gas through Central Asia.

Anatole Boute: The term “gas union” is reminiscent of the EU “Energy Union,” referring to a political effort to secure energy supplies, at affordable conditions, through closer integration and cooperation between partners. However, a potential gas union in Central Asia would differ in major ways from the EU Energy Union.

First, the EU Energy Union is intrinsically related to climate change mitigation, including the promotion of renewable energy and energy efficiency improvements. By focusing on gas only, a gas union continues the fossil-based approach to energy security. Imports of Russian gas at preferential conditions undermine the case for the urgent deployment of renewable energy to ensure supply security, and decarbonize energy systems, in the region.

Second, a key objective of the EU Energy Union is to limit energy import dependencies. The gas union, by contrast, creates new dependencies on Russian gas in Central Asia. Third, the EU Energy Union is market-based, complementing the liberalization of the EU energy market. By securing gas supplies through an intergovernmental deal, the gas union in effect risks neutralizing the market-based energy reforms announced in the region.

From a geopolitical perspective, the closer integration that is implicit in the term “gas union” means greater dependence on Russia, in line with previous Russian-led initiatives to secure Russia's influence in the region and counter competing foreign interference. Gas plays a key role in this “new great game,” as illustrated by Russia’s use of preferential energy deals to secure control over strategic assets in its sphere of influence – a strategy I discuss in a 2019 book, “Energy Security Along the New Silk Road.”

What impact has the war in Ukraine had on the energy geopolitics of Eurasia?

Boute: The disruption of Russian gas supplies to Europe, and the EU's objective to phase out Russian energy imports in response to the war, have forced Gazprom to look for alternative offtakers for the gas it previously exported to Europe. Redirecting these gas supplies to Central Asia allows Russia to seek closer integration, and thus greater influence, through preferential energy supplies, a strategy that has characterized energy relations in Russia's sphere of influence since the early stages of the Soviet energy industry.

For importers, there are great risks associated with the creation of these new energy dependencies, as illustrated by the weaponization of Russian gas supplies in, e.g., 2006, 2009, and 2022, an issue I discuss in my latest book “Energy Dependence and Supply Security: Energy Law in the New Geopolitical Reality.” There is also a risk that Russia will seek to use its energy influence to obtain control over strategic gas assets in the region, such as pipeline links to China, similarly to its gas-for-infrastructure deals in other strategic transit countries.

At the same time, the loss of the profitable European market also presents a challenge for Russia’s energy geopolitics, as Russia and Gazprom may find it more challenging to subsidize supplies at preferential prices both within Russia and to its strategic partners.

Chikanayev: The emergence of the so-called “trilateral gas union” is the direct consequence of the war in Ukraine, and it symbolizes a significant shift in Central Asia energy dynamics. As Russian President Vladimir Putin noted, these are “the first exports of a kind in the history of these gas pipeline systems, for never before has Russian gas been pumped toward Central Asia.”

The whole idea of the “trilateral gas union” is to enable Kazakhstan and Uzbekistan to export all of their own natural gas to China at a higher price, while purchasing gas from Russia at a lower price for domestic consumption. This would be in Russia’s interest, as Russia must deal somehow with the gas embargo by the European Union. Both Kazakhstan and Uzbekistan are already experiencing a shortage of gas, yet still need to comply with contractual obligations for export to China and meet increased domestic consumption. It seems, therefore, that the “trilateral gas union” can provide economic benefits to Russia, Central Asia, and China and, therefore, it has good chances for success even without being officially recognized as a “gas union.”

It seems also that because of the war in Ukraine, Russia has been forced to curtail all its plans to proceed with the liberalization of its domestic gas market and with the creation of the common gas market of the Eurasian Economic Union.

Can you briefly outline the present energy trade between Russia and Kazakhstan and Uzbekistan? How do the existing arrangements to export gas to China fit into the more recent deals to import from Russia?

Boute: Imports from Russia will help the Central Asian states, and in particular Uzbekistan that had announced a halt to its gas exports by 2025, to continue and possibly increase their gas exports to China.

Chikanayev: It seems that Russia's and Gazprom’s “turn to the East” so far is not very successful, because China hesitates to proceed with the long-discussed Power of Siberia 2 project. So, the “trilateral gas union” is the only success story of Gazprom in the last two years after the war in Ukraine started.

As Kazakhstan’s envoy to Russia announced on May 4, Kazakhstan plans to transit about 35 billion cubic meters (bcm) of Russian gas to China annually. Historically, Gazprom has exported 150-180 bcm to Europe (including Turkey). That is, thanks to the “trilateral gas union,” Russia will solve the problem of reorientation of gas flows from the West to the East, in terms of volume, by one-fourth, without building new gas pipelines.

What are some of the factors contributing to rising demand for energy in Central Asia? What is contributing to the apparent inability of some Central Asian countries to meet those demands domestically?

Chikanayev: A rapidly growing and young population, as well as quite fast-growing local economies, push the energy demand, whereas nothing has been invested by the states of Central Asia in the region’s gas and power industries in the last 30 years. So, an underinvestment in gas exploration and production, as well as gas processing capacity lagging far behind rapidly growing domestic demand, are common problems in all countries of Central Asia.

Boute: Artificially low energy prices and an inefficient energy infrastructure, with significant losses in all segments of the energy industry, including gas transportation, consumption of gas by industrial users, and power plants, are important reasons fueling the energy intensity of the region. Ambitious market reforms are necessary to transition towards more efficient and sustainable energy systems in Central Asia. However, as I argue in “Energy Security Along the New Silk Road,” these reforms face significant and highly complex and deeply rooted institutional constraints.

Without sufficient trust by the population that the energy systems are managed properly, without misappropriation of funds, it is a very delicate task to implement the price increases necessary to incentivize energy efficiency improvements, as illustrated by different events of civil unrest in the region that followed tariff increases. The recent gas deals with Russia could further fuel the region’s energy intensity, and inefficiency, if this brings the Uzbek and Kazakh governments to postpone much needed energy market reforms.

How does the “gas union” relate to the Eurasian Economic Union, of which Russia and Kazakhstan are members but Uzbekistan is not?

Boute: The Eurasian Economic Union (EAEU) includes cooperation in the creation of a common gas market. Besides the supply of gas to EAEU members themselves, under the EAEU gas exporters are required to cooperate in their relations with non-EAEU importing states. This requirement can be interpreted as a way to avoid competing for the same consumer market, thus benefiting Russia’s position as key gas exporter. While the recent gas deals can help the Central Asian states continue to export gas to China by alleviating pressing gas shortages, these exports will have to be coordinated with Russia.

Chikanayev: It seems that the common gas market of the EAEU initially scheduled to be launched in 2025 is now doomed, because Russia is not ready to countenance the equal treatment of all consumers in the EAEU’s common gas market, irrespective of their country of origin. The common gas market of the EAEU has no direct relation with the “trilateral gas union,” which is a de facto already existing and quite successful energy alliance as discussed above.

What do you think is missing in the current global conversations around energy in Central Asia?

Boute: Following the disruption of Russian gas supplies to Europe in 2022, it is important to understand how similar supply shocks could affect the Central Asian region. This requires careful analysis of the creation of supply and infrastructure dependencies, and an understanding of how these dependencies can be weaponized.

The recent gas deals contribute to Central Asia’s energy supply security in the short term, but could also create dangerous new dependencies, and delay the urgently needed energy transition in Central Asia, where conditions for renewable energy would help the region ensure affordable and secure supplies without dependence on Russian gas.

Chikanayev: Central Asia, in general, and Kazakhstan, in particular, is about to become the key gas transit region for Russia, instead of Ukraine. It seems that there is a gap in the literature on the codependent energy relationships of Central Asia and Russia considering the “new reality” of the energy geopolitics.