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The battle for Central Asia: Part 1

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World Pipelines,

Central Asia and the Caucasus (CAC) have become a major prize in a new complex mix of geopolitical struggles. Ironically, the region’s deteriorating economic and security conditions have enhanced rather than diminished its appeal for those sucked into an increasingly confusing battleground that includes a revived Cold War, the US-led War on Terror and the Islamic State’s (ISIS) campaign for a global caliphate.

The US, China, Russia, India and Japan are stepping up diplomatic, military and economic efforts to court the region’s eight troubled countries that include Kazakhstan, Turkmenistan, Azerbaijan and Uzbekistan that have oil and gas reserves, and Armenia, Georgia, Kyrgyzstan and Tajikistan that do not. ISIS is recruiting Central Asians to extend its terror into the region and beyond, most notably into China. The US and Japan are loosely allied against China and Russia, while India has a foot in each camp, and they are all sworn to fight ISIS. The US – backed by its European allies – and Russia are fighting a new Cold War, but may have to set aside their differences to stop the greater threat posed by ISIS. The West covets greater economic ties with China, yet wants to check Beijing’s global rise, which has Russia’s support.

In Central Asia, Russia has roped in Kazakhstan and Kyrgyzstan – along with Belarus and Armenia – to form the Eurasian Economic Union (EEU), which will support China’s plan to revive the old Silk Route under its ambitious ‘One Belt One Route’ strategy to connect the markets of Asia, the Middle East, North Africa and Europe.

China is deepening its reach into Central Asia with plans for more infrastructure investments, focused particularly on the region’s two most hydrocarbon-rich countries – Turkmenistan and Kazakhstan – to aid its push into the Middle East and Europe.

The world’s rush into Central Asia has gained urgency in recent months amid mounting evidence of the region’s alarming economic decline that began when oil and gas prices started crashing in mid 2014.

Region’s oil importers not benefitting from low prices, says IMF

The IMF stated that the CAC region will continue to reel from the impact of weak oil prices through 2016, with little hope of their economies recovering to the levels before the collapse of the energy markets in mid 2014.

“A wave of external shocks – primarily falling commodity prices, spillovers from Russia, and movements in major exchange rates – continue to weaken growth prospects and heighten financial vulnerabilities in the region,” the IMF said in its External Shocks Dim Growth Prospects for Caucasus, Central Asia survey.Growth will barely recover in 2016 despite improving trade with Russia and the Eurozone, as well as the short term impact of the wave of currency depreciations recently undertaken by the region’s beleaguered governments.

Despite weak energy prices, the CAC’s four oil importers will suffer more as they remain largely dependent on worker remittances and trade with its four oil exporters and Russia, said the IMF. Armenia, Georgia, the Kyrgyzstan and Tajikistan will feel the dual impact of Russia’s recession and the rouble’s collapse.The IMF expects the economies of Georgia and Kyrgyzstan to each grow by 2% in 2015, down sharply from 4.8% and 3.6% respectively in 2014. Armenia’s economic growth will fall to 2.5% from 2014’s 3.4%, while Tajikistan’s will plunge by more than half from 6.7% to 3%.

Despite the weak outlook on energy prices, Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan can still rely on revenue from oil and gas exports, and their hoard of past savings.

“The region’s oil exporters have been able to draw on savings built up when oil prices were higher. In the short term, this has helped them tackle their immediate fiscal challenges, but more needs to be done,” said the IMF.

The region’s largest economy, Kazakhstan, will be its worst performer with growth expected to collapse to just 1.5% in 2015 and 2.4% in 2016. Azerbaijan’s economy will expand by 4% in 2015, making it the only one in the region to show year-on-year improvement compared with 2.8% in 2014.

Part 2 coming soon!

Written by Ng Weng Hoong and edited by Stephanie Roker

To read the full version of this article, please download a copy of the February 2016 issue of World Pipelines.

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