Politics and Oil in Kazakhstan

Wojciech Ostrowski

• Publisher: Routledge
• Year: 2010
• Print ISBN: 9780415485807
• eBook ISBN: 9781135248239
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

In Kazakhstan, the oil industry plays a crucial role in its economic and political life due to the country's considerable oil revenues and accompanying conflicting interests. As an arena of political struggle, this industry provides a good test case for uncovering regime maintenance techniques. This book examines the ways in which the post-Soviet Kazakh regime has managed to sustain itself in power, and the regime maintenance techniques it has used in the process of establishing and upholding its position. It scrutinizes the tools that the Kazakh regime employed in order to bring the country's oil industry under its control and, while doing so, shifts the emphasis from the prevalent zhuz-horde, tribe, and clan-based approaches to Kazakh politics towards corporatism and patron-client mechanisms of control.

Based on extensive field work in Kazakhstan and in-depth interviews with high ranking representatives of companies working in Kazakhstan's oil and gas industry, both local and foreign, the National Oil Company and its subsidiaries, government agencies, foreign diplomats, journalists and representatives of oppositional parties and NGOs, this book provides a comprehensive study of the issues of politics of oil and state-business relationships in Kazakhstan.

1
Introduction

In Kazakhstan, an oil-rich country, the oil industry plays a key role in economic and political life due to the country’s considerable oil revenues, and accompanying conflicting interests. As an arena of political struggle, this industry provides a good test case for uncovering regime maintenance techniques. How did the post-Soviet Kazakh regime sustain itself in power? What sort of regime maintenance techniques did the Kazakh regime use in the process of establishing and upholding its position? This book attempts to answer these questions by scrutinizing the tools that the Kazakh regime applied in order to: a) bring the country’s oil industry under its control; and b) to maintain its grasp over it.

The Kazakh regime

At the beginning of the 2000s, a number of articles were published by leading transitologists (Carothers 2002; Diamond 2002; McFaul 2002; Bunce 2003) in which the authors attempted to define and categorize the political regimes that came into existence in Kazakhstan and other Central Asian republics in the aftermath of the collapse of the Soviet Union. This intellectual endeavour had its basis in the following puzzle: if the Central Asian countries did not follow an evolutionary path towards democracy, what kind of regimes did emerge in these republics? The analysis that followed stressed the authoritarian character of the regimes in Central Asia, and this was reflected in labels that scholars assigned to them, for instance: dictatorships, dominant-power systems or competitive authoritarian regimes. Marina Ottaway (2003) – who coined the term semi-authoritarian in order to describe some undemocratic regimes that were born in the post-1991 world, including post-Soviet Kazakhstan – is a good example of a transitologist who strongly advocated the use of this authoritarian prism. Ottaway pointed out that on the surface, semi-authoritarian regimes do everything by the democratic book. They hold regular multiparty elections, allow parliaments to function, and recognize (within limits) the rights of citizens to freely form associations.

At the same time, all of these mechanisms generally associated with Western democracies are seen by those at the apex of power as the end of the process rather than the initial phase of democratization. Thus, parliamentary or presidential elections may indeed take place every four or five years. But regardless of these, it is impossible for the opposition or outsiders – who may themselves not necessarily be dedicated democrats – to challenge the power of the incumbents. Semi-authoritarian regimes pursue their aims in a highly controlled and sophisticated manner, when contrasted with the more traditional authoritarian regimes that cast their shadows over many corners of the world in the 1960s and 1970s. Rulers and their cronies rarely resort to open repression or the crude stuffing of ballot boxes. Instead, they use subtler tactics – for example, pressuring the independent press into self-censorship. Semi-authoritarian regimes also enjoy a degree of popular support. Thanks to their Machiavellian manoeuvrings, they manage to present themselves as the only capable political forces in their respective countries. They address the issue of widespread poverty – to which at times they have themselves greatly contributed – or ethnic or religious problems, in such a way that ‘many citizens believe that they offer some public goods that democratic governments are incapable of delivering’ (Ottaway 2003: 17).

The transitologists’ findings did not fundamentally diverge from the conclusion reached by other Central Asian scholars, who had already been pointing to the authoritarian nature of these regimes (Roeder 1994; Treacher 1996; Kubicek 1998), including Kazakhstan (Bremmer and Welt 1996; Olcott 1997) for some time. In recent years, a wide range of other scholarly writings on the political and economic aspects of post-Soviet Kazakhstan have also painted a picture of the ruling regime as essentially authoritarian (Brauer and Eschment 1999; Luong and Weinthal 1999; Cummings 2000, 2002, 2003a, 2005; Nazpary 2002; Olcott 2002, 2005; Gleason 2003; Luong 2004; Schatz 2004; Furman 2005; Junisbai and Junisbai 2005; Murphy 2006; Dave 2007; Satpaev 2007). According to these authors, the Kazakh regime is not a failed democracy or ‘democracy in transition’, but rather a complete, carefully constructed and maintained system.

At times, these accounts echo the classical definition of authoritarianism. Juan Linz considered limited pluralism as the most distinctive feature of authoritarianism. According to Linz, in an authoritarian state one should be able to locate some groups – legal or de facto – that are independent of the regime and have some kind of political influence. Moreover, authoritarianism, as opposed to totalitarianism, is largely free of any ideological underpinning, such as that provided by Marxism-Leninism in the Soviet Union or National Socialism in Nazi Germany. Rather, contends Linz, what matters most in authoritarian regimes are certain ‘distinctive mentalities’, which are apparently more emotional than rational, and not as future oriented as the utopianism of ideologies. Authoritarian regimes are also very unlikely to politically mobilize large sections of their societies. If some groups are mobilized, it is generally for a very short period of time and under the close supervision of the authorities. Finally, in an authoritarian regime, a leader or a small group exercises power within formally ill-defined, but actually quite predictable limits (Linz 1964: 255–256, 2000: 159–171).

The aim of this study is to contribute to these ongoing debates concerning the authoritarian nature of the Kazakh regime. The oil industry is treated as a microcosm, which, examined in a focused way, should allow us to gain insight into the different strategies adopted by the regime for its survival that a broader analysis might lack sufficient detail to uncover. Such a concentrated analysis also provides an opportunity to observe more closely the transition from one regime maintenance technique to another. Authoritarian regimes, like all other political systems, develop over time and constantly try to find the ‘magic’ formula, so to speak, that might assure their durability. Arguably, then, the study of one segment of contemporary Kazakhstan allows us to identify the stages and specific points of transitions in the regime’s evolution.

What makes an investigation of the oil industry–regime relationship worthwhile is the fact that this relationship is shaped not only by broader political developments in Kazakhstan – to an extent reflecting them – but also in turn has an effect on the country’s politics. It would be no overstatement to assert that the task of bringing the oil industry under the regime’s control is critical to its grip on power, and thus has absolute priority. This in turn means that the oil industry can be a testing ground for clarifying the regime’s maintenance techniques which, if successful, can be applied to resolve political problems outside this realm. Finally, the study of the oil industry in this book aims at contributing to the growing literature on the oil-rich Caspian Sea region and its political economy.

The politics of oil

So far, scholars have discussed oil in relation to international politics, domestic politics and the economies of individual countries. Students of international politics have focused their attention on the importance of the Caspian Sea region to its neighbouring states, in particular, Russia (Blank 1995; Shoumikhin 1999; Rutland 2000; Dannreuther 2001), Turkey (Bolukbasi 1998; Aras and Foster 1999; Sayari 2000), Iran (Entessar 1999; Efegil and Stone 2001) and China (Gladney 2000; Andrews-Speed 2002; Liao and Dannreuther 2002; Karasac 2002). Much also has been made of US interests in the Caspian (Lenczowski 1997; Sobhani 1998; Starr et al. 1998; Rashid 2001), with some suggesting that in the 1990s, the significance of this region to American foreign policy was grossly exaggerated (Lieven 1999/2000). This however changed in the aftermath of 9/11 and the subsequent invasion of Afghanistan (Rasizade 2002a, 2002b). Other strands of the broadly understood international politics literature have preoccupied themselves with the headache-inducing problem of how to ‘get the oil out’, in other words, with pipeline politics. The number of scholarly works dedicated to this and related problems is significant (Forsythe 1996; Menon 1998; Molla-Zade 1998; DeLay 1999; Gorvett 1999; Olcott 1999; Manning 2000; Hill 2001; Sinker 2001; Andrianopoulos 2003; Bahgat 2004; LeVine 2007; Kandiyoti 2008). Finally, political scientists and legal experts alike have spent much time addressing the issue of the legal status of the Caspian Sea, the problem known as the ‘sea or lake dilemma’, as well (Bundy 1995; Croissant and Croissant 1999; Raczka 2000).

The literature that focuses on the relationships between oil and domestic politics looks at the ways in which oil, or more precisely petrodollars, aid the Caspian Sea regimes in sustaining themselves in power. Scholars have tried to demonstrate how the distribution of state perquisites has enabled rulers to capture key elites, thereby reducing the potential threat of political opposition. Most of the work on the empowerment of authoritarian rulers has been conducted in relation to post-Soviet Azerbaijan (Hoffman 2000a; Rasizade 2002c, 2002d, 2003, 2004; Bayulgen 2003, 2005; Ottaway 2003); when it comes to Kazakhstan, the study by Eric McGlinchey (2003) is particularly informative. In order to explain the relationships between oil and regime maintenance in the case of Turkmenistan, some authors (Ishiyama 2002; Kandiyoti 2002a; Kuru 2002) advocated the use of the rentier state concept,¹ which focuses on those states in which the economy is dominated by ‘rents’ rather than by productive enterprises such as agriculture and manufacturing, and where the origin of the income is external. In addition, the rents are generated by small elites, and the state is the principal recipient of these rents (Beblawi 1987: 51–53). Whereas Kazakhstan, Azerbaijan (Franke et al. 2009) and Russia (Luong 2000a; Kim 2003; Wood 2007) also bear features of rentier states, only Turkmenistan closely exemplifies the classic version of this concept, due to the country’s excessive dependency on revenues from natural resources (which the regime uses to gain popular support, as in other rentier states, by providing free housing, electricity, water and bread).

Finally, the impact of petrodollars on the Caspian Sea economies has been discussed within the framework of the so-called ‘Dutch Disease’ economic phenomenon. The ‘Dutch Disease’ is a process whereby favourable price changes in one sector of the economy (e.g. oil) lead to distress in other sectors, such as agriculture or manufacturing. This is because large-scale petroleum-related capital inflows from oil sales result in a long-term sectoral reallocation of capital and labour resources. A persistent Dutch Disease state can provoke a rapid, even distorted, growth of services, transportation, and other non-tradable goods, while simultaneously discouraging industrialization and agriculture. Moreover, the booming oil sector generates high wages that attract workers from other sectors of the economy, but drain these industries’ resources and cause output to decline (Karl 1997: 5). Scholars and commentators throughout the 1990s have been arguing that this kind of Dutch Disease is a realistic threat to Kazakhstan and the other Caspian Sea countries (Auty 1997; Amuzegar 1998; Beddoes 1998; Karl 2000). Nonetheless, by the mid 2000s, some scholars believe, even though during the first half of the decade or so Kazakhstan has been ostensibly susceptible to the Dutch Disease, the final outcome is by no means certain (Sabonis-Helf 2004; Pomfret 2005).

The oil literature underscores the importance of petroleum resources to Kazakhstan’s stance on the international stage, the regime’s political survival, and the country’s economic development. It convincingly demonstrates that oil plays an important role in shaping post-Soviet Kazakhstan. At the same time, in such scholarly writings little has been said on how the Kazakh oil industry itself has been shaped over the years. For instance, changes in the structure of the National Oil Company (NOC) and its repercussions for the Kazakh oil industry and the country’s politics are rarely addressed, if at all (Hoffman 2000b; Peck 2004; Olcott 2007). Moreover, fundamental events for the development of the Kazakh oil industry, such as the privatization of key parts, are generally treated in a rather instrumental fashion.

An important exception is an article by Pauline Jones Luong and Erika Weinthal, in which the authors ask why five post-Soviet republics rich in gas and oil, i.e. Russia, Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan, which inherited very similar political and institutional structures in the 1990s, pursued such distinct strategies towards developing their energy resources. In the course of the article, Luong and Weinthal assert that in order to understand the reasons behind the different strategies pursued by these respective republics, we should take under consideration the boundaries within which their respective leaders operate. These include: ‘(a) the availability of alternative sources of export revenues; and (b) the level of political contestation’ (2001: 370).

This study demonstrates that while the reasons given by Luong and Weinthal are significant, their analysis is not fully satisfactory in the Kazakh case, as it does not take into consideration the situation in the country’s oil sectors which confronted the Kazakh leadership on the eve of independence. In other words, political factors external to the oil industry did not exclusively determine the rulers’ strategies: the internal politics of the oil industry itself also mattered. I argue that in order to better understand the development of the Kazakh oil industry, it is imperative to investigate more closely the obstacles that the Kazakh regime faced in the course of achieving and maintaining its grip over it. With this goal in mind, this study primarily looks at Kazakh companies involved in the oil industry, both directly (extracting and production) and indirectly (supply and construction). I collected key information about these companies in the course of interviews, which I conducted during fieldwork in Kazakhstan, in late 2004 (see Appendix).

Outline of the chapters

The focal point of this book is the broadly understood relationship between the regime and the oil industry of Kazakhstan. In chapter 1 I argue that the oil industry is a good testing ground for the type of relationship that has been developing in post-Soviet Kazakhstan due to the importance that oil plays in the political and economic life of the country. The empirical sections of this study predominantly focus on situations where the oil industry creates problems for the regime. These are the heightened points of political risk for the regime. I argue that the process of addressing political threats engaged in by the regime brings into the open the dynamics of regime–oil industry relationships, and in addition is likely to lead to the renegotiation of existing relationships between these two parties. The book focuses on the period from 1991 until the mid 2000s, during which the interface between the Kazakh political system and country’s oil industry took its current shape.

Chapter 2 notes that the existing literature from other areas of study points to two sources of threats that the ruler of an oil-rich country can face, namely: a) the NOC; and b) oil-rich regions. These two areas qualify as high-risk, since they constitute the entity (NOC) and space (oil-rich regions) that are directly linked to the oil industry. Even the slightest possibility of losing control over any of these areas challenges the rulers’ very basis of authority. In both instances, the most problematic actors are various interest groups which, for their own benefit, attempt to wrest as much control over the oil industry as possible from the regime. In addition, in oil-rich areas, unsatisfied interest groups can turn into political manipulators and attempt to destabilize the situation. Thus, an authoritarian ruler has to create a situation in which interest groups are relatively satisfied and remain firmly under his/her control in order to prevent major crises. Furthermore, the second part of chapter 2 proposes to unravel the Kazakh regime–oil industry relationship through the prism of formal (corporatism) and informal (patron–client) mechanisms of control. In doing so, this study moves away from the existing zhuz (horde), tribe, and clan-based approaches, which argue that post-Soviet Kazakh politics is predominantly based on the pre-Soviet institutions that survived the Soviet assault. Importantly, I do not argue that existing zhuz, tribe, and clan-based explanations are inappropriate per se, but rather that the adoption of different approaches can broaden our understanding of the ways in which the Kazakh regime sustains itself in power.

Chapter 3 describes how the Kazakh regime attempted to control the country’s oil industry with the help of corporatist mechanisms in the first years following independence. The corporatist type of regime–oil industry relationship was largely a logical continuation of the way in which the oil industry was governed in the Soviet period. However, this arrangement proved unsustainable due to the challenges from inside the oil industry in which: a) the corporatist structure created the space for the emergence of a ‘strong man’, who attempted to take over the NOC from the president; and b) some parts of the oil industry in the peripheries were captured by local oil men and notables. The inevitable clash between the Kazakh president and these oil men led to a restructuring of the existing relationships. In the next period, the Kazakh regime began the slow process of moving away from corporatist mechanisms and towards patron–client techniques. This transition was greatly speeded up during the privatization of the oil industry, which to an extent was motivated by the growing challenges to the president. In the following years, the Kazakh president was able to consolidate his position further as he successfully centralized the country’s oil industry and turned his adversaries into trusted clients.

Chapter 4 argues that the introduction of patron–client mechanisms was accompanied by the gradual Kazakhization of the oil industry, which intentionally and unintentionally strengthened the patron–client ties between the Kazakh president and his clients. This process o...

Table of contents

• Central Asian Studies Series
• Contents
• Acknowledgements
• Abbreviations
• 1 Introduction
• 2 The oil industry and techniques of regime maintenance
• 3 The Kazakh oil industry in transition
• 4 Strengthening the informal ties
• 5 Controlling the oil-rich regions
• 6 Controlling the oil-rich regions
• 7 The Kazakh oil industry after transition
• 8 Summary and conclusions
• Appendix
• Notes
• Bibliography
• Index