The UAE’s northern strategy in Central Asia
By Dr. Theodore Karasik
Central Asia lies due north of the Arabian Peninsula, not far by modern means. Located between Russia and the Gulf, the Central Asian republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan have all looked to the Gulf States as models in their effort to break free from a Soviet past.
Following the collapse of the Soviet Union in 1991, the former communist party bosses identified the Gulf States as a guide for the future. Back then, the Gulf States were competing against Turkey and Iran for influence in Central Asia. The region has since seen a significant amount of rivalry in various spheres, including energy projects, educational outreach, and religious programs.
Looking southward, the new Central Asian leaders (several of whom are still in power today) saw how the Gulf sheikdoms were using their energy wealth to build themselves into regional actors. These leaders, members of clans themselves, saw how Gulf tribes ruled the region.
As the Soviet era slipped away, a connection developed between the governance systems of post-Soviet authoritarianism and that of the Gulf sheikdoms. Cultural similarities – especially in areas of hunting, gaming, and equestrian activities – nurtured deep connections rooted in a unique family-based brand of trans-regionalism.
These Central Asian leaders saw an answer to their emergence on the international stage by adapting models of governance and development similar to their southern Arab neighbors.
The importance of competitive tribes and dominant clans throughout Central Asia and among the Gulf States is a fact. Every political fight in Central Asia today has a clan base to it. It is a deeply ingrained, centuries-old tradition that Imperial Russia, the Soviet Union, and Russia today have not been able to erase.
The Kremlin now contends with a Central Asia that looks to the Arabian Gulf for transformation strategies; it nonetheless maintains a say in those unfolding relationships, especially in the financial and investment sectors. Russia is closely watching the development of Gulf-Central Asian financial ties and is encouraging the Gulf States to invest in key countries.
The UAE, especially, sees an opportunity to firmly place itself in Central Asia’s future, based on strategies to achieve key geopolitical and geo-economic goals that fit Abu Dhabi’s vision. These goals include investment in Kazakhstan and Turkmenistan, two key states with ports on the Caspian Sea that provide supply chain output along the emerging BRI (Belt and Road Initiative) and current regional transportation and infrastructure corridors.
In addition, both Riyadh and Abu Dhabi are seeking a political return on their investment in Central Asia, where key Central Asian states line up behind the Gulf against Iran while maintaining good ties with Russia.
UAE and Kazakhstan
The UAE sees Kazakhstan as a major destination for the country’s investment strategy. With more than 200 Emirati companies operating in Kazakhstan, commercial linkages also accompany excellent political relations between the two countries. Last year, UAE’s Mubadala Development Company agreed to construct a multi-billion-dollar chemical complex in Kazakhstan’s Atyrau region.
This follows news from the start of 2018 that bilateral investments would indeed extend to the energy and mining sectors, as well as to other fields including infrastructure, logistics, agriculture, and food security.
In fact, energy investments between Kazakh-UAE actors are a noteworthy theme, given each country’s natural resources. Ten years ago Mubadala signed an agreement with KazMunaiGas for a 24.5 percent stake in an offshore field in the Caspian Sea. In November 2008, the Al Falah Fund was launched in Kazakhstan, whereby the UAE committed to funding projects in priority sectors such as energy, power, food production, infrastructure, natural resources, and real estate.
Today, the UAE’s activity in Kazakhstan has grown considerably and Kazakh officials visit Abu Dhabi and Dubai on a monthly basis. UAE leaders travel quietly to Kazakhstan to hunt in the country’s southern oblasty (states), hunting grounds that replaced Emirati lands in Pakistan. Al-Falah Fund, a subsidiary of Mubadala, has undergone a recent heightening of activity to boost the UAE’s presence in Kazakhstan by providing additional funding for Kazakh commercial, residential and infrastructure projects.
More important, the UAE’s vision of accessing ports as part of a global hub and spoke system can be seen in Dubai’s DP World acquisition of two special economic zones in Kazakhstan on the Caspian Sea. DP World bought a 51 percent stake in the Khorgos special economic zone and a 49 percent shareholding in the Aktau zone that gives DP World management and governance rights.
Kazakhstan is an important link in the New Silk Route and in the development of China’s BRI. Here again we see the Emirati concept of port and hub at play in the nexus that is Central Asia.
To be sure, DP World is focusing on soft and hard infrastructure development that supports multi-modal transport links that will be key in the BRI. Separately, Austria’s Borealis, a unit of Mubadala, and Kazakhstan’s United Chemical Company (UCC) plan to build a major petrochemicals facility integrated with an ethane cracker.
Importantly, a separate agreement was signed between Mubadala and the Kazakh Sovereign Wealth Fund Samruk-Kazyna for this particular project, which is planned for operation by 2025. In addition, Mubadala owns a 64 percent stake in Austria’s polyolefins maker Borealis.
This mix of funds between the UAE and Kazakhstan illustrates how proximity and mutual goals in expansion of energy cooperation is beneficial for both parties. In addition, plans for a joint Kazakh-Emirates investment fund between JSC NUKH Baiterik with a total of $500 million are to move forward.
Dubai’s experience in international banking and fiduciary responsibilities related to Free Zone activity is part of the UAE-Kazakh equation. The Astana International Financial Center (AIFC) is located on the site of the Expo 2017 and may turn Astana into a major financial hub for Central Asian countries and the RBI. AIFC is a special zone with a separate judicial system based on English common law.
The zone focuses on servicing capital markets and Islamic finance with a goal of becoming one of the 20 leading financial centers in the world. Modeled on the Dubai International Financial Centre, the AIFC intends to service international corporations with high quality ethics and legal standards.
Here we see the Dubai financial model, involving free-zone activity coupled with off-shore and on-shore investment strategies, being applied to Astana’s goal of providing advanced financial services along the BRI. However, it remains to be seen how fast these types of services will emerge.
UAE and Turkmenistan
The UAE’s approach toward Turkmenistan is similar to that of Kazakhstan: investment in infrastructure projects with an eye toward Ashgabat’s future role as a true natural gas exporter by means of the ever-delayed TAPI pipeline. In addition, Abu Dhabi is beginning to inject a vision of defense and security for Turkmenistan similar to that seen in its foreign policy in Yemen and the Horn of Africa. It doesn’t hurt that Emirati notables also hunt in Turkmenistan, just as they do in Kazakhstan.
Bilateral ties focus on the role of Dragon Oil in Turkmenistan and the relationship between the Irish-owned Dubai-based company and Ashgabat. Last year, Dubai-based Topaz Energy and Marine is supplying vessels to Dragon Oil, the upstream unit of Emirates National Oil Company (ENOC), for the development of Turkmenistan’s offshore hydrocarbon resources. The $100 million five-year contract is for six vessels, including an emergency recovery and response boat, with a two-year option.
Topaz is to operate the vessels in the Cheleken Contract Area which consists of two offshore oil and gas fields, namely Dzheitune (Lam) and Dzhygalybeg (Zhdanov). Dragon Oil and Malaysia’s Petronas dominate Turkmenistan’s offshore drilling with the extracted oil and gas heading to Azerbaijan and Russia. Petronas workers live in Turkmenbashi on the Caspian shore and are kept within the confines of their labor camp. Turkmen officials like the fact that these laborers are Muslim and keep strictly to their faith within the confines of the facility.
In the past few months, the UAE has accelerated its investment policy toward Turkmenistan in a strategic manner. Turkmen President Gurbanguly Berdymuhamedov visited Abu Dhabi and signed significant deals for continued investment by Abu Dhabi related particularly to how Mubadala can invest in Ashgabat’s infrastructure. Importantly, Mubadala signed confidentiality agreements with Turkmengaz to cooperate on Turkmenistan’s gas production.
From the Emirati point of view, Turkmenistan is in play because of its vast natural gas reserves and its sensitive geopolitical location north of Iran. The shared border between Turkmenistan and Afghanistan is also on Abu Dhabi’s radar because of the ungovernable territory found in this violence-prone space between Mashad, Iran, and Mary, Turkmenistan.
Berdymuhamedov met with Crown Prince Mohammed bin Zayed, and the Turkmen Minister of Defense Yaylym Berdiev met with Mohammed bin Ahmed Al Bowardi, to discuss the continuing supply of UAE military equipment to Ashgabat. This includes the Nimr APC to the Turkmen Armed Forces, as well as the possible development of a Presidential Guard for the Turkmenistan Presidency similar to the UAE’s Presidential Guard.
This multi-purpose force—either for special operations or guarding of elites—is a perfect solution for Berdymuhamedov, whose country is undergoing economic and security challenges. Given Turkmenistan’s strategic importance in the future of energy markets, the UAE recognizes the necessity to help Turkmenistan through its current troubled times by supporting continuity in Ashgabat. Iran is taking notice of UAE activity in Turkmenistan with Tehran beginning to see Ashgabat losing its “positive neutrality”.
Abu Dhabi’s push northward with a focus on Kazakhstan and Turkmenistan makes geopolitical sense. The UAE is actively involved in these two key Central Asian countries that represent the nexus of geopolitical and geo-economic activity of the world’s most powerful countries. Russia, China, India, the US, and Europe are all competing in Central Asia.
The UAE, not to be left out of the action, is methodologically entering the geo-economic mix to boost Emirati interests in a new dynamic. Blocking off Iran from Central Asia is becoming a paramount geopolitical concern, mixed with the future of natural gas markets. Tajikistan is also in play between the UAE, Saudi Arabia, and Iran.
But there are other factors to consider with the UAE’s focus on Kazakhstan and Turkmenistan. Naturally Saudi Arabia is following the UAE’s footsteps by weighing in Central Asia, in keeping with Riyadh’s strengths under Vision 2030 to make strategic investments. Saudi Arabia is among the largest investors in the Kazakh economy and has funded numerous projects including social facilities.
Saudi Arabia funded the construction of the building of the Senate, an upper chamber of the Kazakh Parliament, part of the Osokarovka-Vishnevka highway, the Children’s Tuberculosis Hospital in Semey, the Cardiology Centre in Astana, and a mosque in Petropavlovsk.
The kingdom also supplied equipment to the Scientific Centre of Pediatrics and Pediatric Surgery and the Maternity and Childhood National Science Centre in Astana in the past few years.
This soft power approach works with Kazakhstan’s leadership, who see the necessity of engaging Saudi Arabia at a time when both countries are undergoing important transformations of their respective economics and societies. Both are reshaping their respective cultures and building concepts of nationalism.
The Kingdom recognizes Kazakhstan’s role in energy markets, especially with regard to Russian requirements to adhere to OPEC/Non-OPEC agreements. Saudi Arabia sees the utility of working with Kazakhstan on the future of energy. Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), is examining ways to invest in Kazakhstan’s energy industry as part of a broader investment strategy across Central Asia that takes into account the Russian point of view.
Simultaneously, Turkey is focusing on land-locked Uzbekistan, located between Kazakhstan and Turkmenistan. Turkish President Recep Tayyip Erdoğan’s visit to Tashkent this week meant to take advantage of the Uzbekistan’s leadership and to promote the Turkic and Islamic unity between Ankara, Tashkent, and most importantly, Bukhara.
Importantly, the efforts of Uzbek President Shavkat Mirziyoyev to remove former President Islam Karimov-era officials and restructure the way the Uzbek government conducts its business relations is an on-going effort. Uzbek-UAE relations are currently in a lull because of these shifts in the Uzbek government as well as changes in cliques, as related to corruption and illicit grey-area activity in the banking sector.
Gulnara Karimova, the disgraced daughter of the former president, whose illicit behavior is well known, is part (along with other Uzbek notables) of the complications between Tashkent and the Emirates. Erdogan’s trip to Uzbekistan can now be seen through the optics of the Turkish-Emirati competition that recently saw the Emiratis ending their military mission in Somalia because of Ankara’s more forward-leaning hearts and minds campaign.
The UAE’s ability to invest in the both Kazakhstan and Turkmenistan illustrates Abu Dhabi’s view of Central Asia as a geopolitical nexus. Emirati interests in this neighboring and strategic region go beyond mere investment, as the ties between the Emirates, Astana and Ashgabat bring into focus two key Caspian Sea states.
The UAE, whose relationship with Azerbaijan and Russia is also excellent, is not only eyeing the Caspian Sea and the support of infrastructure and industry along China’s BRI, but also considering how best to further expand ties by maintaining the status quo. In this sense, the UAE policy ties in nicely with the Central Asian states, who are doing their best to mimic the Gulf States.