Editor: From the deep grounds of our archive, this article Nurzhan wrote back in February (and never posted due to ongoing research) is very interesting in the light of the ongoing Russian-Georgian crisis. Nathan, in a post on The Registan, discussed Kazakhstan’s position in the conflict and whether the country has to take sides with anyone.

According to the official statements of the Georgian President Mikhail Saakashvili, which was broadcast on radio “Georgia” Kazakhstan has become the largest investor in Georgia (KUB.kz, February 10).

The Caucasus Republic’s head of state has come up with an ambition to turn the Black Sea coast of Adjaria into an international resort. There is an agreement between the government of Georgia and Kazakhstan’s second largest bank Turan Alem, whereby the Kazakh side would commence construction of new hotels in Adjaria in the year 2007. Previously the Kazakh bank had already stated its willingness to invest into Georgia up to a billion US dollars. The bulk of the investment would involve reconstruction of tourist sites in Adjaria. In addition, the Kazakhstani entity is primarily interested in Batumi refinery (mizinov.net, February 9).

The leading specialist of Georgian ’s prime minister’s apparatus Nikolai Lagidze believes that the aforementioned phenomenon has an enormous importance for Georgian economic development and growth. The Batumi refinery has been processing the Central Asian oil and has been an integral part of “Eurasian corridor”, specifically in the context of this corridor the purchase of and privatization of the Batumi refinery is newsworthy and groundbreaking (KUB.kz, February 10).

Most importantly, the relations between Georgia and Kazakhstan revolve around natural gas. During the recent visit of Georgian Prime Minister, Zurab Nogaideli to Astana, there was an agreement reached. In that agreement, Kazakhstan would supply Georgia with natural gas at a price of 68 US dollars for thousand cubic of meters. The agreed price is very favorable to Georgia given that the South Caucasus state is in desperate need for this high-value commodity after recent disruptions of gas supplies to Georgia as well as Russia’s energy dispute with Ukraine (vesti.ru, February 10).

However, since Kazakhstan is a landlocked country and depends almost entirely on Russia for its energy exports, the Central Asian economic giant is not capable of transporting its natural gas to Georgia without the help of Gazprom, which owns transmission pipelines in the Russian territory. Nevertheless, the agreement between Astana and Tbilisi had a positive impact on Georgia’s leverage in its ongoing negotiations with the Russian energy behemoth. The fact that Kazakhstan is ready to provide Georgia with natural gas at a relatively low price, Georgia managed to get a concession from Gazprom in price reduction. Instead of 230-250 US dollars, Georgia will be able to purchase Russian natural gas for 110 US dollars in the year 2006 (vesti.ru, February 9).

During the official visit of President Mikhail Saakashvili in October 2005, the President of Kazakhstan, Nursultan Nazarbaev expressed interest in increasing the transit of Kazakh oil through Georgia to the West. The Georgian president once again reiterated that the economic reforms implemented in Kazakhstan are a good example for cash-strapped Georgia (Kommersant, October 2005).

Nursultan Nazarbayev in turn mentioned that Georgian-Kazakhstan relations go beyond present and extend into far history. “The Georgian czar David IV used the Kazakh ancestors - kipchak warriors in the war against Turks. In response to Saakashvili noted that Georgia provided hotel Iveria to Kazakhstan for reconstruction and renovation (Kommersant, October 2005).

Moreover, Kazakhstan and Georgia have been working on the grain terminal in the port city of Poti in Georgia

The growing positive economic relations between Kazakhstan and Georgia may have an impact on the strategic alliance and partnership between Astana and Moscow. The Russian establishment does not favor Kazakhstan’s independent foreign policy with the “democratic” and solely Western-oriented countries such Georgia and Ukraine as the Russia’s relations both with Georgia and Ukraine critically deteriorated as a result of energy disputes since January. On the other hand, Kazakhstan has stepped in to fill the vacuum and extend its leverage into the CIS countries including Georgia and Ukraine in terms of gas supplies.

In the past five years, buoyed by high oil and metal prices in the international markets, Kazakhstan has become a regional power in the Central Asian region and the Caucasus.

It is premature to conclude that Kazakhstan will continue to extend its economic influence to its neighboring countries by investing in banking, construction and oil, since Kazakhstan’s economy heavily relies oil and gas and Kazakhstan is mindful of Russian displeasure with Kazakhstan’s independent foreign policy. In addition, what direction Kazakh and Russian relations will take remains to be seen as Kazakhstan has opened a pipeline Alashankou-Atasu into China last year to decrease dependence on Russia for energy transport. Moreover, Kazakhstan is set to join Baku-Ceyhan-Tbilisi to further diversify its energy exports away from Russia.

Undoubtedly, Kazakhstan is becoming a major force to reckon with in the Commonwealth Independent States particularly for Russia, as Kazakh energy production is projected to increase threefold up to 3.5 million barrels a day given Kashagan promising oilfield in the next decade putting Kazakhstan potentially in top ten oil producers

Astana and Moscow relations have been positive so far as Kazakhstan totally depended on Russian territory to transport its energy and Kazakhstan has been mindful of a large Russian minority. The status quo of the 90s is changing.

Russian and Kazakh relations will be tested in the light of future Kazakh and Russian competition for energy exports and investment in Central Asia and the Caucasus in the next decade.