Background

Central Asia is geo-strategically significant for the Kremlin as the region border Afghanistan and Iran to the South, China to the East, and the Caspian Sea to the West. The Central Asian region is considered Russia’s sphere of influence, and Moscow is also the region’s security provider. Furthermore, Central Asian economies are heavily reliant on remittances from Russian Federation. Due to this complementarity, any geopolitical development that affects Russia also impacts Central Asian Republics. In the same way, the Russia-Ukraine conflict has major consequences for Central Asian countries.

On the issue of Russia’s military operations in Ukraine, Central Asian countries have mostly stayed neutral. Kazakhstan, Kyrgyzstan, and Tajikistan abstained from voting in the United Nations General Assembly (UNGA) special emergency session on the Russia-Ukraine conflict on March 2, 2022, while Turkmenistan and Uzbekistan were absent.^[1] The UNGA voted on a Resolution suspending Russia’s membership in the United Nations Human Rights Council on April 7. Ukraine proposed this resolution in response to disclosures of Russian military crimes against civilians in Ukraine, particularly in the city of Bucha. Except for Turkmenistan, which maintains a neutral position, four of the five Central Asian countries voted in favour of Russia in this voting.

Since Russia began its military campaign in Ukraine, a Western narrative has disseminated that any response would put these nations in a situation comparable to Ukraine.^[2] This appears unreasonable because Russia-Central Asia relations are founded on long-term strategic ties and mutual respect for sovereignty and territorial integrity. Central Asian countries also have a balanced foreign policy approach. In addition, all Central Asian countries have Russian-speaking populations and significant economic and political ties with Russia. The Eurasian Economic Union, which Russia leads, includes several of these nations. A silent competition between Moscow and Beijing in Central Asia is evident with an increasing Chinese presence. Central Asian leaders have a strategic interest in balancing the two powers. These countries see their partnership with Russia as an imperative to resist Chinese dominance. Thus, they work conveniently with Russia. However, the Ukrainian crisis will have economic and geopolitical implications for the Central Asian region based on the strategic partnership that Central Asian nations have with Moscow.

Plummeting National Currencies along with Russian Rouble

The sharp drop in the value of the Russian rouble due to Western sanctions has had a huge impact on Central Asia. Their economies are so intertwined with Russia’s that when the rouble falls, so do their national currencies, and they suffer severe consequences. Kazakhstan’s native currency, the tenge, has lost 20 percent of its value, resulting in greater import costs, a larger risk of inflation, and dramatically higher interest rates.^[3] Kazakhstan responded to the currency crisis by hiking its base interest rate from 10.25 percent to 13.5 percent.^[4]

Kazakhstan’s National Bank quickly engaged in the currency market to preserve the tenge, selling US dollars. The Kazakh government also unveiled a new anti-crisis strategy that included more involvement in Forex markets and a new tenge deposit protection scheme.^[5] In order to prevent bank runs, a 10 percent payment will be put tax-free into tenge-denominated bank accounts next February. This equates to another interest rate rise and will harm investment, which is already being moderated by Russia’s economic downturn and market uncertainty following Kazakhstan’s countrywide turmoil in January 2022.^[6]

Challenges for Migrant Labour

The deteriorating condition of Central Asia’s migrant workers is the most serious challenge that the region is now facing. Around 7.8 million Central Asian labourers are currently employed in Russia. The coronavirus outbreak had already reduced the number of migrant workers in Russia by 40 percent; many have lost their employment, while others have fled the country and never returned. Recently imposed Anti-Russian sanctions are expected to lower the number of migrants by a further 50-60 percent.^[7] In the first quarter of 2022, more than sixty thousand Tajik migrants returned to their homes from Russia, which suggests a 2.6-fold increase over the same period in 2021. ^[8]

Given the incapacity of Central Asian labour markets to absorb these employees, a serious downturn in the Russian economy might push this workforce to other labour markets, such as the Gulf nations, Turkey, and Europe. ^[9] The developing Central Asian countries are undergoing tremendous transformations; more than 70 percent of the population in the region is under the age of 40. Therefore, an increase in the number of dissatisfied and jobless young people might destabilise the region as they might get engaged in illegal activities. In both Kyrgyzstan and Kazakhstan, recent political upheaval has sprung from a mounting disparity between their life expectations and current realities. Similarly, in Turkmenistan and Tajikistan, social unrest would be unpleasant news, as Ashgabat witnessed a dynastic power transition while Tajikistan is preparing for a similar dynastic succession.^[10] The vulnerabilities that have arisen as a result of the Ukrainian crisis may pose a threat to the security and stability of these countries.

Decline in Remittances

The remittances account for roughly one-third of Tajikistan’s total GDP and more than a quarter of Kyrgyzstan’s total GDP. Similarly, remittances contribute to around 12 percent of Uzbekistan’s economic output. Following Russia’s takeover of Crimea and the sanctions that followed, remittances to the region fell by 40 percent in 2014. The risks of dependency on Russian remittances was again visible during COVID-19, with Russian border closures leading to a 22 percent drop in aggregate remittances. With negligible resources and a struggling economy, Tajikistan was struck particularly hard.

According to a World Bank report, the latest economic sanctions imposed on Russia will result in a substantial decline in remittances to these countries. For example, in the Kyrgyz Republic, where 83 percent of remittances came only from Russia in 2021, remittances are expected to fall by 33 percent in 2022 instead of rising by 3 percent as originally projected. Remittance flows are also expected to fall significantly in Tajikistan and Uzbekistan in 2022.^[11]

Sanctions on Russia’s financial system, including removal from the SWIFT network for cash transfers, are anticipated to impede remittances through official channels, causing a partial shift to be indirect and informal channels. Sanctions may also indirectly impact remittance flows by reducing employment and income for migrant workers in Russia. ^[12]

Food Security

Kazakhstan’s President Kassym-Jomart Tokayev made his State of the Nation address at Nur-Sultan on March 16, 2022. During his speech, he also addressed the impact of the Russia-Ukraine crisis on Kazakhstan, citing rises in food prices and currency instability as some of the country’s troubling economic implications as a result of this conflict. ^[13] Other Central Asian leaders have also expressed a desire to take concrete measures to strengthen the food production sphere. They cited the COVID-19 lockdown and the current Russia-Ukraine conflict as examples of the enormous vulnerabilities of the global food chain, which the privatisation of food production has exacerbated.^[14]

Food prices in the Eurasian Economic Union (EAEU), which is led by Russia and includes Armenia, Belarus, Kazakhstan, and Kyrgyzstan, are growing faster than global food prices due to the Russia-Ukraine conflict. While these nations are heavily reliant on Russian imports, they face a temporary restriction on Russian wheat and sugar exports due to the crisis.^[15] Kazakhstan and Uzbekistan, the two biggest economies of Central Asia, will be able to manage the food crisis; however, the situation looks grim for economically weaker countries like Kyrgyzstan and Tajikistan. Tajikistan has seen a 30 percent spike in the prices of certain grocery commodities. On March 14, the price of a 50-kilogram bag of flour was 370 somoni (Tajik currency), up from 275 somonis the previous week. Sugar prices increased from 10 somoni per kilo to 14 somoni per kilo. The vegetable oil price has also increased from 20 to 25 somoni per litre.^[16]

Finding Alternatives to Logistics and Transportation Routes

Kazakhstan and Turkmenistan are both energy-rich countries that could gain from increased pricing. However, because the region is landlocked, these countries face logistical challenges in exporting their energy to profitable markets. ^[17] Kazakhstan is dependent on Russian ports for its oil and gas exports. The majority of Kazakh oil, almost 90 percent, passes via Russian territory, and most of Kazakhstan’s exports go to or transited through Russia. ^[18] As a result, the current scenario provides several challenges to various industries in Kazakhstan. As a result, Kazakh authorities are attempting to diversify Kazakh export routes. Kazakhstan intends to divert export and transit goods to Latvian ports via the Trans-Caspian transport route, which it is establishing with Azerbaijan, Georgia, and Turkey to connect to the European Union (EU). ^[19]

Despite the heavy economic sanctions on Russia, Kazakhstan will maintain trade connections with Russia within the Eurasian Economic Union, said Timur Suleimenov, the deputy chairman of the Kazakh presidential office, in an interview with Euractiv news. On being asked about maintaining relations with the EU, he said, “Kazakhstan is not involved in this war. Yes, we are a member of the Eurasian Economic Union, but we are an independent country with our system, and we will follow the restrictions imposed on Russia and Belarus. We do not want and will not put ourselves in the same basket. In addition, we would like to strengthen our collaboration with EU member nations and the EU as a whole.” ^[20] This illustrates that Central Asia maintains its multi-vector foreign policy while dealing with major powers.

Power Competition in Central Asia

Russia’s political and economic isolation allows its economic and political rivals to establish important economic routes in Central Asia. China, Turkey, and NATO, among others, are keen on supplanting Russian authority in the region. For example, China is already emerging as a significant arms supplier and strategic partner, accounting for one-third of the total Central Asian trade.^[21] With China holding 40 percent of Kyrgyzstan and Tajikistan’s national debt, Beijing’s influence would keep up the region but not sufficiently to compensate for Russia’s abrupt withdrawal from the regional market. However, the situation provides Beijing with a perfect opportunity to earn some brownie points. In Eurasian geopolitics, Turkey is another emerging regional force that might gain from the current circumstances.

Conclusion

The conflict between Russia and Ukraine has caused economic and geopolitical concerns in Central Asia. The socio-economic and security settings of these countries have already been greatly impacted by the COVID 19 pandemic and the Taliban takeover of Afghanistan. The current conflict will disrupt Central Asian societies that are already in upheaval. Although it is too early to calculate the future of Russia-Central Asia ties, one can assume that the Russian Federation will do all possible to ensure the security and economic well-being of its Central Asian neighbours. Similarly, as has been widely seen throughout the present crisis, Central Asian countries will continue to embrace Russia.

References

^[1]Niranjan Marjani, “The Fallout of the Russia-Ukraine Conflict on Central Asia: Implications for India”, The Geopolitics, March 15, 2022. https://thegeopolitics.com/the-fallout-of-the-russia-ukraine-conflict-on-central-asia-implications-for-india/
^[2]Aisulu Duishalieva, “Russia’s Military Operations in Ukraine: The Central Asian States’ Decision Was Obvious”, March 9, 2022. https://moderndiplomacy.eu/2022/03/09/russias-military-operations-in-ukraine-the-central-asian-states-decision-was-obvious/
^[3]Stephen Beard, “Central Asia suffers collateral economic damage from Russia’s war in Ukraine” March 22, 2022. https://www.marketplace.org/2022/03/22/central-asia-suffers-collateral-economic-damage-from-russias-war-in-ukraine/
^[4]Maximilian Hess, “Explainer: The ruble’s rubble: Economic fallout on Central Asia Local currencies rise and fall with the ruble”, Eurasianet, Mar 10, 2022. https://eurasianet.org/explainer-the-rubles-rubble-economic-fallout-on-central-asia
^[5]Ibid.
^[6]Ibid.
^[7] “Central Asian Migrants Leave Russia”, CABAR Asia, March 22, 2022. https://cabar.asia/en/central-asian-migrants-leave-russia
^[8]Madhab Jum'a, “How many migrants returned from Russia in the first three months of 2022? Asia-Plus, April 8, 2022. https://asiaplustj.info/ru/news/tajikistan/society/20220408/skolko-migrantov-vernulos-iz-rossii-za-pervie-tri-mesyatsa-2022-goda
^[9]Johan Engvall, “Russia's War in Ukraine: Implications for Central Asia” Analytical Articles, The Central Asia-Caucasus Analyst, March 14, 2022. https://www.cacianalyst.org/publications/analytical-articles/item/13712-russias-war-in-ukraine-implications-for-central-asia.html
^[10]Ibid.
^[11]Dilip Ratha And Eung Ju Kim, “ Russia-Ukraine Conflict: Implications for Remittance flows to Ukraine and Central Asia” World Bank Report, MARCH 04, 2022. https://blogs.worldbank.org/peoplemove/russia-ukraine-conflict-implications-remittance-flows-ukraine-and-central-asia
^[12] Ibid.
^[13] Assel Satubaldina, “Inflation, Currency Volatility Among Key Risks for Kazakh Economy, Tokayev Says”, Astana times, March 18, 2022. https://astanatimes.com/2022/03/inflation-currency-volatility-among-key-risks-for-kazakh-economy-tokayev-says/
^[14]Vijay Prashad, “How Russia-Ukraine war is leading to Central Asian nations going hungry” The Print, 26 March, 2022. https://theprint.in/opinion/how-russia-ukraine-war-is-leading-to-central-asia-nations-going-hungry/889250/
^[15]Ibid.
^[16]Kamila Ibragimova, “ Tidal wave of austerity crashing against Tajikistan as Russian economy nears precipice”, Eursianet, March 14, 2022. https://eurasianet.org/tidal-wave-of-austerity-crashing-against-tajikistan-as-russian-economy-nears-precipice
^[17]Stephen Beard, “Central Asia suffers collateral economic damage from Russia’s war in Ukraine” March 22, 2022. https://www.marketplace.org/2022/03/22/central-asia-suffers-collateral-economic-damage-from-russias-war-in-ukraine/
^[18]Georgi Gotev, “Kazakh official: We will not risk being placed in the same basket as Russia”, EURACTIV.com, March 29, 2022. https://www.euractiv.com/section/central-asia/interview/kazakh-official-we-will-not-risk-being-placed-in-the-same-basket-as-russia/
^[19] “Kazakhstan plans to redirect export and transit cargo to Europe via Latvia and the Trans-Caspian route: The Ba;itc Times, March 29, 2022. https://www.baltictimes.com/kazakhstan_plans_to_redirect_export_and_transit_cargo_to_europe_via_latvia_and_the_trans-caspian_route/#:~:text=Kazakhstan%20plans%20to,2022%2D03%2D29
^[20] Georgi Gotev, “Kazakh official: We will not risk being placed in the same basket as Russia”, EURACTIV.com, March 29, 2022. https://www.euractiv.com/section/central-asia/interview/kazakh-official-we-will-not-risk-being-placed-in-the-same-basket-as-russia/
^[21] Atefa Bahr, “The impact of Russian-Ukraine war on Central Asian economy” Geopolitica Info, April 10, 2022. https://www.geopolitica.info/impact-russian-ukraine-war-on-central-asian-economy/

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