Huge U.S. Investments at Risk in Kazakhstan Unrest

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Western companies drawn from abundant natural resources are assessing their risk after violent protests

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Before the pandemic, the Central Asian nation attracted more annual US investment than some EU member states. No US company has said it plans to exit Kazakhstan and many have said they are waiting to see how the crisis unfolds before deciding on their investment in the country.

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While political and social risks in the former Soviet state have long been viewed as high, due to its authoritarian system, endemic corruption and low living standards among the population, foreign investors have focused on its plentiful natural resources.

Kazakhstan is a major contributor to the global energy supply, producing about 2% of the world’s oil consumed every day last year, and has large reserves of precious metals and coal. This alone represents 40% of the world’s uranium production.

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The current crisis, which Kazakh officials said was caused by outside forces, who initially hijacked peaceful demonstrations, has not yet caused major economic disruptions. But protests temporarily limited production at the Tengiz oilfield project, which is 50% owned by Chevron, the operator. The operating consortium, Tengizchevroil, is the country’s largest contributor to government revenue.

People familiar with the matter said Chevron officials were surprised by how quickly the situation in Kazakhstan worsened and are evaluating how affected their operations are by the ongoing protests. But people said Chevron has experience working in challenging locations, noting that it has retained its assets in Venezuela despite its political instability, adding that Chevron has the means to wait out the turmoil in Kazakhstan. Is.

A Chevron spokesperson said the company is committed to Kazakhstan and that production has been fully restored and the workplace environment is stable.

Manfred Stammer, a senior economist at insurer Euler Hermes, said performances could continue in the coming weeks and while the Kazakh government seeks to protect the important role of foreign investment in the economy, political instability is now a risk.

“An incident like this reminds investors of the risks of doing business there,” Mr Stammer said. “You should hope it’s not a one-off.”

Kazakh authorities have sought to reassure foreign investors in the wake of the crisis.

“The President of our country categorically stated that all foreign investments, not only from the US, but also from Russian and other countries, will be well protected,” Kazakhstan’s ambassador to Russia, Yermak Kosherbayev, told Russian state news agency TASS on Saturday. told. ,

After the dissolution of the Soviet Union, newly independent Kazakhstan looked west to help develop its oil reserves and other resources. Chevron entered the Kazakh market in 1993, signing a 40-year concession through the Tengizchevroil joint venture, which also includes Exxon, state-owned KazMuneGas and Russia’s Lukoil.

Since then, American engineering companies have built the infrastructure, while American banks and consumer-goods companies have made their presence felt in the country.

According to the Kazakh central bank, in the nine months of data available from 2021, the US was the second largest investor in the country after the Netherlands, with $3.2 billion in direct investments. Trade between the two countries has also increased, amounting to $2 billion in two-way trade in 2019.

William Courtney, former US ambassador to Kazakhstan and assistant senior fellow at the RAND Corporation, said: “Kazakhs have always understood that they need to have good relations with Russia, China and the United States because they have huge amounts of money in the land. ” ,

Successive governments, seeking both their capital and technical expertise, have focused on the US. In September, the Deputy Prime Minister of Kazakhstan met with managers of Tyson Foods Inc., Nebraska-based manufacturer Valmont Industries. Inc.

And some US banks to promote the country as an investment destination said the government would create prerequisites to attract more US funds.

Tyson, which is exploring participation in a beef processing plant project in Kazakhstan, said it was too early to determine any impact on its interest in investing there. Valmont said it is continuing with a multi-year joint venture announced last year to produce irrigation machines and equipment and that the safety of its team on the ground is its top priority.

The focus on US money has also been part of Kazakhstan’s long-standing goal of balancing the major powers on its territory. Despite its close ties with Russia, Kazakhstan, the largest of the former Soviet states in Central Asia, has sought to maintain good relations with China and the West as a retaliation for Moscow’s influence.

Neighboring Russia has sent paratroopers to help restore order at the request of Kazakh President Kassym-Jomart Tokayev, which comes as tensions between Moscow and the West are at their highest point in years over President Vladimir Putin’s claim. It is reached that Russia has a privileged sphere of influence. former Soviet Union.

If the unfolding turmoil results in a regime more oriented toward Russia or China, the relatively open field enjoyed by oil companies and others in Kazakhstan could become more challenging, said a former Chevron official. said executive Ed Chow, who is now a senior associate. Center for Strategic and International Studies

“If you are a Western oil company your risk profile may change now,” Mr Chou said. He said going forward, those companies would prioritize the stability of the country and the security of their oil concessions.

The Tengiz oil concession expires in 2033. A Chevron spokesperson said it is focused on the $45 billion Tengiz expansion project, set for completion in 2023, and that any contract expansion should create value for all stakeholders.

Write Georgi Kantchev at [email protected] and Christopher M. Matthews at [email protected]

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