Kazakhstan: An Unlikely Solution to Food and Energy Security?
Ranson Lo | 27 March 2024
Summary
Kazakhstan, one of the world’s largest oil and food producers, could offer Europe and the Middle East an alternative solution to long-term food and energy security issues.
However, as the country remains highly autocratic, there remain high operational risks for foreign businesses and reputational risks for democratic governments to strengthen diplomatic ties or trade agreements.
Given its rich reserves of natural resources and food production, Kazakhstan will likely emerge as a regional power in the medium to long term, as national governments have increasingly prioritised energy and food security.
Since the start of Russia’s war in Ukraine in February 2022, the world has suffered from supply shocks on fuel and food, as the fighting parties are two of the world’s largest fuel and food suppliers. Besides having 43% of the global uranium supply, Kazakhstan has emerged as a major producer of food and fuel to alleviate part of the pressure and shortages currently experienced worldwide, while distancing itself from Russia by avoiding showing support publicly for the invasion. Kazakhstan has proven oil reserves of 30 billion barrels, making it the 12th largest in the world, with around 3% of total global reserves. The oil fields in Astana, the capital city, produce up to 1.8 million barrels of oil per day, as the Central Asian country presents itself as a viable and stable energy supplier, especially as the global maritime trade is under severe disruptions and delays amid recent attacks on cargo ships by the Iranian-backed Houthis in Yemen.
Apart from its energy production and reserves, Kazakhstan produces around 18.3 million tonnes of grain and 6.6 million tonnes of fertiliser annually, together with significant exports of barley flax seeds, sunflower oil and cotton fibre, putting the country as one of the largest agricultural products suppliers alongside Ukraine and Russia. The mass supply of food products could solve the ongoing food and fuel shortages and long-term insecurity experienced across the globe, especially in the Middle East, Maghreb and Europe.
Astana's recent investment in upgrading the Middle Corridor holds the potential for Kazakhstan to establish itself as a reliable supplier of oil and gas, free from concerns about interference or suspension from Moscow. Such a development would contribute to the sustained growth of the EU, as affordable Russian gas and oil have played a significant role in the bloc's rapid economic expansion over the past decades. With the new pipelines and port plans connecting Kazakhstan to the European market, the country's energy resources will likely outperform other energy-exporting countries such as the US, Qatar, and Saudi Arabia due to shorter shipping times and lower transportation costs and geopolitical uncertainties.
However, given that Kazakhstan remains a highly autocratic country, despite partially opening up after the transition from Nursultan Nazarbayev, who has been leading since the fall of the USSR until 2019, to the current President Kassym-Jomart Tokayev, there remain operational and reputational risks for foreign businesses looking to explore and invest in the country. As demonstrated by Russia's invasion of Ukraine, autocratic regimes are often more volatile and can contribute to instability within their borders and international trade. Considerations such as human rights, political stability, and the rule of law should be carefully evaluated before establishing deeper ties with the country to prevent blowbacks of becoming over-reliant on a supplier, particularly in authoritarian countries.
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Forecast
Short-term:
Kazakhstan will almost certainly become an alternative source of energy and food, especially for Middle Eastern countries suffering from food insecurity amid the Ukrainian War. The potential increased energy and food imports will likely ease the impacting countries’ existing economic crisis and high inflation rates.
Medium-term:
Opportunity for foreign investment will likely increase as the Kazakh government is almost certain to increase public investment and funding to improve its infrastructure and capacities to exploit natural resources. Yet moderate operational risks remain for businesses as Kazakhstan remains highly autocratic.
Long-term:
Kazakhstan will likely emerge as a regional power in Central Asia due to its vast natural resource reserves, food production capacities and weakened Russian state as the Ukrainian War continues to drag on.