Central Asia’s Energy Risks,* the latest report from the International Crisis Group, examines the resources of three countries – Kazakhstan, Turkmenistan and Uzbekistan – and the dangers of mishandling them. It argues that a trans-Caspian gas pipeline cannot largely write Russia out of the European energy equation, as Brussels hopes. But it also disputes the common view that the 12 May Russian-Central Asian gas agreement prevents that pipeline from being built.

“Central Asia can make a contribution – a modest one – to helping resolve Europe’s energy security concerns”, says Charles Esser, Crisis Group Energy Analyst, “but only if outside investment is tied to the good governance that is needed to improve regional and human security. If Western governments turn their eyes away from mismanagement and human rights abuses in expectation of short-term gains, they risk stimulating instability in Central Asia that will only add to their energy and other security problems”.

The three countries present different challenges, but all three are suffering from the “resource curse”. Kazakhstan has used its money best and is impressive compared to its neighbours but should aim for a higher standard now. It is at a point where enormous oil revenues need to be translated into commensurate outcomes that benefit its citizens. Corruption, an undiversified economy, improper management of state funds and a lack of the legal guarantees that are part of a true democracy hold it back.

All these problems are more extreme in Turkmenistan, a major gas exporter that was pillaged by the eccentric and brutal dictator Saparmurat Niyazov until his death in December 2006. Despite a relatively high per capita income on paper, most Turkmen live in poverty. Investment in energy production has faltered. It remains to be seen if anything fundamental will change under the new leader, a close protégé of Niyazov’s who came to power in a rigged election. He may not have much time before revenues fall, as gas production will decline without substantial new investment.

Uzbekistan has the least oil and gas of the three producers. It is a net importer of oil, and much of its declining gas output has been sold to Russia. Despite wishful thinking in some European capitals, it will never be a part of EU energy security arrangements. The gas also perpetuates a system that impoverishes and represses its people. Domestic supplies are often cut in winter, for example, so the gas can be sold abroad, leaving cities unheated in freezing weather, provoking protests and serious unrest.

“The hard fact is there is no substitute for arrangements with Russia that stress mutual dependence on commercial oil and gas delivery”, says Michael Hall, Crisis Group Central Asia Project Director. “The international community needs to pay more attention to Central Asia as a security risk, without expecting it to solve its outside energy needs”.

PIN/ICG