Kazakhstan and Azerbaijan: Becoming Eurasia's newest trade hubs in a post-Cold War world

News.Az presents an exclusive interview with Erkin Baydarov, Ph.D., Senior Research Fellow at the R.B. Suleimenov Institute of Oriental Studies of the Ministry of Education and Science of the Republic of Kazakhstan.

-What key roles do Azerbaijan and Kazakhstan play in the development of the Middle Corridor? And what prospects open up for Kazakhstan and Azerbaijan in the context of further development of the Middle Corridor?

- Geopolitical turbulence has opened up new opportunities for both South Caucasus and Central Asian countries, particularly for Azerbaijan and Kazakhstan. This is largely due to the economic sanctions imposed on Russia, which have created certain problems for the China-Kazakhstan railway corridor - Western China–Europe, which transits through Russia and Belarus, part of the One Belt, One Road initiative. On the one hand, the Russian route, which has served as the main corridor between the EU and China for decades, faces problems as the sanctions against Moscow force Beijing to fear potential negative economic consequences for the Chinese economy. On the other hand, this creates favourable conditions for alternative trade corridors.

One of them is the so-called Middle Corridor or the Trans-Caspian Corridor through Central Asia and the Caucasus. The Middle Corridor is very important for both China, Kazakhstan and Central Asian countries. Beijing places significant emphasis on Kazakhstan in implementing these routes. For example, in his speech at the High-Level Dialogue on Global Development in the BRICS+ format on 24 June 2022, Kazakhstan's President Kassym-Jomart Tokayev noted: "Kazakhstan could play a useful role as a 'buffer market' between the East and the West, the South and the North. In the long-term, it is necessary to maintain an open, fair, interconnected, and sustainable global economy. Here I see great potential in the One Belt – One Road initiative, opening a new era of growth and interaction."

The Middle Corridor is equally important for Azerbaijan, as this country provides its further route in the western direction, as in the period of the operation of the continental Silk Road.
The Middle Corridor is intended to secure a convenient and economical delivery of goods from Europe to Central and South Asia, the Near and Middle East. Essentially, it embodies the idea of reviving the Great Silk Road, which has connected the peoples of Eurasia for millennia, serving as an alternative land route between the two central points of the global economy, i.e., China and Europe, where different countries and points connect with each other: the corridor runs through China (Lianyungang port, Xi'an), Kazakhstan (Aktau/Kuryk port), the waters of the Caspian Sea, Azerbaijan (Baku/Alat port), Georgia (Batumi/Poti port), into Turkey by the Baku-Tbilisi-Kars railway (Izmit, Mersin, Çerkezköy) and further into Europe (Poland, Romania, etc.).

It is clear that the war in Ukraine will end sooner or later. However, regardless of how it ends, the balance of power that has prevailed for decades since the end of the Cold War will change. And an essential element of the changing geopolitical landscape will be the transportation-logistics corridors on the Eurasian continent, whose routes will pass through Central Asia and the South Caucasus.

- What are the main challenges and obstacles in the development of the Middle Corridor, and how can they be overcome?

- To start with, the Middle Corridor has several advantages compared to traditional transport routes. For instance, it is 2,000 km shorter than the Trans-Siberian Railway and passes through areas with a more favourable climate. Compared to the traditional sea route from China to Europe, it is three times faster (15 days). Moreover, the Middle Corridor opens up significant opportunities for freight transportation to Asia and Africa. Using this corridor, goods from East and Southeast Asia can be easily transported to the Middle East, North Africa, and the Mediterranean using the port infrastructures of the participating countries. Naturally, following the onset of the war in Ukraine, China has been actively working to ensure its functioning through Kazakhstan. As the President of Kazakhstan has noted, the country has every opportunity to transform it into a container hub on the route from Asia to Europe.

The main challenge and obstacle for the development of the Middle Corridor in Astana is seen in the construction of the China–Kyrgyzstan–Uzbekistan railway, also emphasizing the effective use of the Transcaucasian corridor, as Uzbekistan needs alternatives to the northern routes to access major international markets. Here, the main focus is on Europe and China. Meanwhile, Uzbekistan is interested in transforming the country into a key link in international transit. However, here, in our view, there should be no room for competition. Joint efforts by China, Kazakhstan, Uzbekistan, and other regional countries can solve existing problems and together implement transportation corridors acceptable to them, especially since the war in Ukraine has shifted global cargo flows in new directions.

Under the current circumstances, the Middle Corridor is in high demand. Kazakhstan has good opportunities through Azerbaijan, Georgia, and Turkey to trade with Europe. Meanwhile, against the backdrop of trade and economic sanctions against Russia, the potential of the Middle Corridor is very significant, as evidenced by the growth of cargo flows along this route. At the same time, as emphasized by the President of Kazakhstan, in conditions where "life does not stand still, and the dynamics of global processes accelerate day by day," it is necessary for Kazakhstan and the regional countries to work towards forming a successful Central Asia where the respect and balance of interests of each country will be considered and complemented in the course of further cooperation.

- What is the significance of the Memorandum of Understanding on the integration of the energy systems of Azerbaijan, Kazakhstan, and Uzbekistan signed in Tashkent?

- The Memorandum of Understanding on the unification of the three countries' energy systems, signed during a trilateral meeting of the ministers of economy and energy in Tashkent on 1 May of this year, is significant as it will contribute to the realization of joint goals towards the production of "green" energy and its export to Europe through Azerbaijan, as well as the integration of energy systems and the effective use of renewable resources.

The document suggests that the participants intend to explore the possibilities of connecting energy systems by laying a high-voltage cable across the bottom of the Caspian Sea and on the territory of other countries to enable the most optimal technical and economic trading of "green" energy from Azerbaijan, Kazakhstan, and Uzbekistan.

Currently, according to Kazakhstan's Minister of Energy Almasadam Satkaliyev, a project specification for laying a deep-sea cable across the Caspian Sea has been formed, according to which a proposed business model for the development of international transmission corridors (financing, revenue streams, and ownership) and for the sale of "green" energy to the European Union will be developed.

Such an inter-system connection of the energy systems of Azerbaijan, Kazakhstan, and Uzbekistan (the "green corridor") undoubtedly has broad prospects for further development of "green" energy, since renewable energy is energy obtained from natural sources that are replenished at a faster rate than they are consumed. Therefore, in conditions of reducing non-renewable energy sources, the implementation of this project could solve many problems in the energy sector of the aforementioned countries. However, this project is still "more in the minds" than a real state of affairs. As they say, life will tell…

- What potential benefits for the economies of Kazakhstan and Azerbaijan could be associated with the integration of their energy systems? And what risks and challenges might arise in the process of integrating these countries' energy systems?

- As noted earlier, the integration of energy systems potentially offers the opportunity to export "green" energy to Europe from these countries, which represents a key benefit. For instance, the current installed capacity of renewable energy facilities in Kazakhstan is 2,868.6 MW. In Azerbaijan, the power generated from renewable sources amounts to 1,688 MW, which is significantly less than in Uzbekistan, where by the end of 2023, six renewable energy facilities with a capacity of 2,400 MW had been commissioned.

The capacity for renewable energy depends on the country's ability to establish such facilities within its territory. How will this impact the integration process? This leads to the risks and complexities that may arise in the process of integrating the energy systems of Kazakhstan and Azerbaijan. This could also include the sizes of the two countries' territories and population, the main beneficiaries of using renewable energy.

- What are the main advantages and potential challenges for Kazakhstan and Azerbaijan in relation to increasing oil transit along the Aktobe–Baku–Tbilisi–Ceyhan route?

- The potential increase in oil transit along the Aktobe–Baku–Tbilisi–Ceyhan route was discussed during a meeting of the ministers of energy of Kazakhstan and Azerbaijan – Almasadam Satkaliyev and Parviz Shahbazov, following the 20th meeting of the joint intergovernmental commission on trade-economic cooperation between Kazakhstan and Azerbaijan held in Astana in early March of this year. During the meeting, the parties discussed several issues concerning cooperation in the field of energy, the transit of Kazakhstani oil, and the implementation of large-scale renewable energy projects.

A few days later in Baku, in the presence of the Presidents of the Republic of Kazakhstan and the Republic of Azerbaijan, an agreement on the phased increase in the volume of Kazakhstani oil transit through the territory of Azerbaijan and a memorandum on strategic cooperation on the purchase and sale of Kazakhstani oil were signed between KazMunayGas (KMG) and the State Oil Company of the Azerbaijan Republic (SOCAR), thus strengthening the strategic partnership between the companies in terms of transporting Kazakhstani oil to global markets.

The agreement on the phased increase in the volumes of Kazakhstani oil transit through the territory of the Republic of Azerbaijan provides for increasing the volume of Kazakhstani oil shipments along the Aktobe-Baku-Tbilisi-Ceyhan route to 2.2 million tons per year compared to 1.5 million tons, about which the two oil companies signed an agreement on oil transit along this route in 2022. That is, we see a small but still, an increase in the volumes of Kazakhstani oil throughput, which is already good in itself. And this is by no means the limit.

Moreover, within the framework of the agreement, the parties discussed the possibility of reducing tariffs for transportation along the Aktobe–Baku–Tbilisi–Ceyhan route. The agreement that was signed speaks of the advantages of this route, which allow for gradually increasing the transit of Kazakhstani raw materials through the territory of Azerbaijan and Georgia to Turkey. The advantages outweigh the risks, as the route for transporting Kazakhstani oil along the Aktobe–Baku–Tbilisi–Ceyhan route is well-established and has growth prospects. Especially since the situation in the South Caucasus is gradually normalizing.

Samir Muradov


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