Kazakhstan and Azerbaijan: Bridging the water gap Article by Eurasianet

Eurasianet, a respected independent news organization specializing in coverage of the South Caucasus and Central Asia, has released an article spotlighting the deepening of ties between Kazakhstan and Azerbaijan across the Caspian Sea. Caliber.Az reprints the piece.

Kazakhstan and Azerbaijan are strengthening their trans-Caspian relationship. Closer bilateral ties can provide a big boost to the development of the Middle Corridor trade route.

Azerbaijan’s president, Ilham Aliyev, has sought to reinforce relations with Central Asia’s Turkic states, likely as part of an overall strategy to minimize Baku’s susceptibility to pressure from the United States and European Union over its poor rights record. In a speech shortly after he secured another presidential term in February, Aliyev announced: “Our family is the Turkic world … Can there be a stronger union than this? Of course not!”

Within the family of Turkic states, Aliyev clearly considers Kazakhstan like a favourite cousin. The Azerbaijani leader welcomed his Kazakh counterpart, Kassym-Jomart Tokayev, for a state visit in mid-March, showcasing the growth in bilateral ties.

During their two-day summit, the leaders attended a virtual ceremony marking the arrival of a Europe-bound freight train at Baku’s Absheron station. The train’s cargo originated at a new Kazakh-Chinese-built facility in Xi’an, China, and transited Kazakhstan before crossing the Caspian. They also presided over the signing of an agreement to increase Kazakh oil flowing through Azerbaijan’s Baku-Tbilisi-Ceyhan pipeline. Tokayev additionally made a stop in newly reconquered Nagorno-Karabakh to help Aliyev drum up interest in international investment in the territory.

Perhaps the most important development, though, was the creation of a joint $300-million investment fund, plans for which were finalized March 11. “This will strengthen Kazakhstan’s partnership with Azerbaijan and bring income [because] this will be solely a commercially based investment fund,” said Nurlan Zhakupov, chairman of Kazakhstan’s Samruk Kazyna Sovereign Wealth Fund, a key player in the initiative.

A development fund is not a particularly new concept. Azerbaijan already has similar arrangements with a number of Turkic states, including Turkey, Kyrgyzstan, and Uzbekistan. But the Kazakh fund has the potential to be far more consequential because it gives Baku and Astana more bandwidth to develop trans-Caspian trade infrastructure, Mahammad Mammadov, a research fellow at the Baku-based Topchubashov Center, told Eurasianet.

The fund can also be used to finance projects in other Central Asian and European countries – including Bulgaria, Hungary, Romania, and Turkey – presumably to develop energy transit and trade. These countries all stand to gain economically from a route known as the Middle Corridor, which is designed to facilitate Chinese-EU trade via the Caspian Basin.

“Feasibility of these projects [is] quite questionable, yet it provides Baku and Astana some platform to leverage their pivotal position in CaspianSea-Black Sea energy and connectivity geopolitics,” Mammadov said.

At a joint news conference with Aliyev on March 11, Tokayev stressed that trans-Caspian cooperation is the fundamental building block of the bilateral relationship. “The struggle for access to transport and logistical opportunities is intensifying all over the world. This is a strategic sphere,” Tokayev said. “It is gratifying that both Kazakhstan and Azerbaijan closely cooperate here as natural partners.”

The Azerbaijani-Kazakh fund could help catalyze a US-facilitated economic framework unveiled in March at a meeting of Central Asian government and business leaders. Dubbed the B5+1 process, the framework strives to eliminate trade barriers and foster a common economic space in Central Asia. Doing so could make it easier to attract Western investment and make the Middle Corridor the most profitable and efficient route for East-West trade. At the inaugural B5+1 meeting in Almaty, multiple speakers emphasized a need for Central Asian states to bring Azerbaijan into the process to ensure the smooth operation of trans-Caspian routes that bypass sanctions-bound Russia.

Aliyev, for his part, seems eager to enhance the trans-Caspian route to bolster Azerbaijan’s regional relevance. The sea “is not an obstacle today,” Aliyev said at the joint news conference with Tokayev. “The Caspian Sea is a bridge not only between our countries, but also between many other states.”

While optimism abounds at present, the trans-Caspian trade route faces challenges ahead, mainly for Kazakhstan, which must balance the Middle Corridor’s lucrative possibilities with economic considerations involving its two largest neighbors, Russia and China.

Kazakhstan would like to diminish its dependence on Russia for the export of its most precious commodity – oil. The question is, how tolerant will Moscow be of Astana’s efforts to diversify export routes? If history is any guide, not very.

Likewise, an East-West tug of war could be brewing over another precious commodity that Kazakhstan possesses in abundance – lithium, a key component for batteries in electric cars and other green energy sources. Demand for lithium in both China and the West is set to rise dramatically for industrial production purposes, potentially forcing Kazakhstan to make delicate trade decisions.

According to Mammadov, those choices will undoubtedly have important ramifications for trans-Caspian trade. “The Trans-Caspian route gains new meaning in this context,” he said. “Azerbaijan will need to go a long way to keep its cool.”