Elif Baş | 20 May 2024

Summary

• Central Asia emerges as a region of potential amidst ongoing disruptions in maritime trade, shifts in the global energy market and redirection towards renewable energy due to environmental concerns.

• Investments in infrastructure and energy in the region are booming, with several projects approaching completion before 2030. One is the Tajik Rogun hydropower plant, which is expected to alter regional dynamics.

• Whilst Tajikistan is likely to become more influential in the region, Central Asia will consolidate itself in the global energy market and serve as an alternative route to maritime trade. Global powers will likely increase their competition in establishing influence in the region. Governments and businesses will increase their partnerships, improve relations and invest in the infrastructure to benefit from the region’s potential.

The wider implications of Russia’s invasion and the Red Sea Crisis continue to unfold as the disruption in energy and maritime trade shifts focus on Central Asia as a viable solution. The region boasts abundant resources, a strategically important location, and significant potential for international emergence. On the other hand, the region is predominantly autocratic, increasingly hit by climate change, and landlocked but dependent on ageing infrastructure from the Soviet era to supply and connect its vast mountainous terrain. 

Kazakhstan, the current regional power, holds the most energy resources ranking among the top producers in Europe and Eurasia behind Russia and Norway, with an estimated daily production of 1.8 million barrels. Under Tokayev’s leadership, Astana has maintained and established strong relations with global players Russia, China and increasingly the US through C5+1 forums.  

China has been investing in over 100 projects to enhance the region's resource extraction and infrastructure, particularly Kazakhstan and Uzbekistan, by financing projects such as the China-Uzbekistan-Kyrgyzstan railway or the construction of solar and wind power projects. By the end of 2020, Chinese investments in the region amounted to roughly USD 40 billion. As Astana and Tashkent are turning towards green energy with Chinese investments, the countries are hoping to lessen their dependence on Russia.  

Regional dynamics are undergoing changes with Tajikistan approaching the completion of its USD 8 billion project, after decades of construction, the Rogun hydropower plant is expected to finish its final turbine by the end of 2025. Hydropower is the largest renewable energy source in the region, producing over 380 gigawatts as of 2019. The plant is projected to double the energy production in the country with an output equivalent to three nuclear plants. Although only partially operable at present, it has already been causing controversy from environmental and humanitarian groups as well as neighbour Uzbekistan, which has been struggling with droughts. Whilst the latter raises concerns about the dam’s adverse effects on its cotton industry, civil society groups highlight the transboundary environmental and social impact.  

Tajikistan is one of the world's most mountainous countries, with a population of ten million divided into two population cores divided by the Alay mountains. The country is highly remittance dependent, and, due to a very low urbanisation rate of 27%, the economy is dominated by agricultural and mineral exports. As 90% of the country's energy is sourced through hydropower, the novel potential would serve as exports to its neighbours Afghanistan and Kyrgyzstan. Dushanbe's novel hydropower potential could soon turn it into a major energy producer and drastically increase its regional influence. Global energy markets are in transition.  

Regardless of their resource riches, the countries are struggling with inadequate ageing infrastructure from the Soviet-era, opening foreign investment opportunities. Reports estimate the Central Asian Regional Economic Cooperation (CAREC) requires energy investment of USD 340 billion to reach its full potential. Particularly wind and solar power are currently only making up 6% of the region's installed capacity, thus developments in the region will likely be driven by foreign investments into green energy and infrastructure, however as the EU and America are approaching Central Asia and the Caucasus seeking energy security, civil society raises concerns regarding the human rights records of the region.  

As the CAREC region continues to establish itself as an important energy exporter and trade route alternative, Tajikistan completion of the Rogun plant will likely reshuffle regional dynamics and allow it to punch above its weight. 

Forecast

• Short-term

  • Investments in the region will likely continue and increase, aiming to reap the benefits of current demand. To stabilise the region and attract foreign investors, the Central Asian Governments will potentially strengthen cooperation and address transboundary issues such as terrorism.  

• Medium-term

  • As the region continues to establish itself as an important energy exporter and trade route alternative, Tajikistan’s completion of the Rogun plant will reshuffle regional dynamics and allow it to punch above its weight. The impact of climate change will increase, creating environmental risks, however, projected economic growth allows for diversification, reduced reliance on agriculture, and investment in climate resilience.  

• Long-term

  • Central Asia is expected to become a major exporter of renewable energy, attracting diplomatic interest from countries with high energy demands. This is likely to lead to economic growth, job creation, and reduced reliance on remittances. However, geopolitical tensions and environmental concerns are expected to persist and may intensify due to climate change-induced water scarcity, glacier retreat, and extreme weather.