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reflections

Aug 13, 2015 | 01:29 GMT

6 mins read

Staving Off Unrest in Kazakhstan

(Stratfor)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

Russia, China and Western energy investors will find out this week whether Kazakhstan will be able to contain looming unrest in the oil sector. The Kazakh government is launching a series of negotiations with oil unions in the country's western energy-producing regions amid the threat of protests. The unions are upset that the government could change labor codes and give energy employers more rights in setting wages and employment. The government is in a tough spot because with energy prices so low, energy firms all need to cut back somewhere.

Kazakhstan's stability isn't only a concern in Astana. Kazakhstan is critical to many other countries and economic sectors. The country sits in the middle of Russia's southern border, acting as a buffer between Russia and Asia. Moscow considers Astana one of its closest allies, and right now Moscow needs all the allies it can keep. Kazakhstan holds the world's 11th-largest energy reserves, and its mineral reserves are some of the largest in the world. The country is one of the primary Central Asian energy-producing states exporting to China as well. China views Kazakhstan as pivotal to its future energy and transportation corridors in the region. The country is also one of the primary destinations for migrant Central Asian workers and thus contributes to other Central Asian states' economies. Instability that spreads beyond one particular area of Kazakhstan could reach weaker Central Asian states.

Like many other energy-producing countries, Kazakhstan is feeling the pinch of low oil prices. Energy exports make up 25 percent of the country's gross domestic product and 60 percent of the government budget. The Kazakh government already enforced sharp currency devaluation — 19 percent — in early 2015 and cut the state budget by 10 percent.

Despite these rough economic conditions, Astana's biggest fear is social unrest. Kazakhstan has watched protests — caused by either outside intervention or internal issues — overturn governments repeatedly across the former Soviet Union during the past few decades. Kazakhstan has experienced sporadic protests and terrorist attacks, but what the government most wants to prevent is a repeat of the so-called Zhanaozen riots (also referred to as a massacre).

In May 2011, oil workers from UzenMunaiGaz, a subsidiary of the state energy firm KazMunaiGaz, went on strike over wages, prompting the firm to fire 100 of the workers. In the following months, some of the fired workers would protest in the western city of Zhanaozen. On Kazakhstan's Independence Day (Dec. 16), police attempted to break up the protest, causing the demonstrators to destroy stages set up for celebrations of the holiday. Clashes between the police and protesters escalated during the next three days, leading to the torching of cars, a hotel, state offices and the UzenMunaiGaz offices. At least 14 people died in the violence. Unrest spread to other cities in the western regions, as did peaceful protests supporting the oil workers. The government ordered a partial media blackout in the country and cut phone and Internet access to the rioting cities. Security personnel and the military enacted curfews, and eventually the violence died down.

The Zhanaozen riots and subsequent crackdowns caused aftershocks across the country and the region. Kazakh President Nursultan Nazarbayev purged many members of the elite from the government. Human rights organizations, the United Nations and the Organization for Security and Co-operation in Europe criticized the government's crackdowns. Eventually, the government gave in to a list of demands from the oil workers: stable salaries and jobs, the right to form oil worker unions and a government contract to negotiate with those unions.

These concessions are now being tested. Low oil prices are forcing most energy firms to re-examine their positions in Kazakhstan. Stratfor sources have indicated that in January, the Kazakh government ordered foreign and domestic firms not to cut jobs or salaries for fear of unrest. This is becoming untenable for most of these firms. KazMunaiGaz's profits have fallen by 65 percent over the past year. Western firms in Kazakhstan, such as Royal Dutch/Shell, BP, Eni, Total and Chevron, want to lower their overall capital expenditures around the world, and Kazakhstan — where they have several major projects in the works — is an option for spending cuts.

The Kazakh government thus is looking for a way to keep the energy firms operating at their current levels. The government launched incentives to attract foreign investment, though so far no one has shown interest. To keep the current firms operating in Kazakhstan, Astana is considering revising the labor codes and giving energy employers more say on salaries and employment. However, the leaders of the 16 Kazakh oil worker unions say the drafted changes in the labor codes will break the government's contract with the oil workers set up after the Zhanaozen riots.

The union leaders have traveled to Astana to submit a letter to the president and prime minister's offices. Those offices have said they will address the union leaders' concerns by Aug. 15. The leaders also published a letter that said if labor code changes are adopted without their consultation, they will have "no choice but to decide to go to extreme measures" that could cause regional instability in order to get the changes repealed. The union leaders asked for permission to hold a protest Aug. 14, but regional officials denied approval.

According to a Stratfor source in the region, Astana is setting up a working group to talk with the union leaders. This is a relatively new strategy for the government; typically Astana clamps down on potential threats. However, the government is trying to show foreign firms that Kazakhstan is a good place to do business while avoiding the impression that it is another oppressive energy-producing country.

The government will try to find a compromise and prevent any protests from even starting. But, as seen in 2011, riots can erupt quickly and do not always immediately follow the initial events. Moreover, the situation in Kazakhstan is different now; the 2011 riots began during a time of economic strength and few regional issues for Astana to handle. The workers who could go on strike have more concerns now than they did then.

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