Via Stratfor (subscription required), interesting analysis of the shifting dynamics in Central Asia as the global financial crisis and declining energy prices have shifted Central Asian regional leader Kazakhstan to an inward focus, and offered Uzbekistan an opportunity to reassert its historic role as regional leader.  As the article notes:

“…Central Asia had remained stagnant since the fall of the Soviet Union until fairly recently. Though Western and Chinese money poured in to develop the energy wealth of some of the Central Asian countries, the balance of power between the West, China and Russia remained largely unchanged, as did the relative influence of the Central Asian states themselves.

But now, shifts affecting the larger foreign powers are beginning to spawn regional shifts within Central Asia — signaling possible clashes ahead between the Central Asian countries.

Kazakhstan, the Current Regional Leader

Since the fall of the Soviet Union, Kazakhstan has been the most important of the Central Asian states. It is the largest, most resource-rich of the region’s five countries and tends to serve as a bellwether for the region’s politics. Kazakhstan is strategically and geographically the middleman between Russia, China and its fellow Central Asian states (all of which it borders except Tajikistan).

With an estimated 100 trillion cubic feet of natural gas and 27 billion barrels of oil, Kazakhstan boasts more energy reserves than all the other four Central Asian countries combined. Kazakhstan was the first Central Asian country where Westerners seriously began developing oil and natural gas wealth after the Soviet collapse. Because of this, Kazakhstan has received more foreign direct investment than any other former Soviet state (including Russia). And most other Central Asian states with energy resources — Turkmenistan and Uzbekistan, for example — must traverse Kazakhstan to reach customers, whether that be Russia, China or Europe, making Kazakhstan essential to any outsiders with designs on the region.

But its geographic location and size have proven a mixed blessing. Kazakhstan is roughly one-third the size of the lower 48 U.S. states, but only has 5 percent of the U.S. population. It also lacks natural barriers separating it from any of its neighbors. So even if the country is run perfectly (which it is not), it is impossible to rule without consulting one of its two larger neighbors.

Whereas Western and Chinese money flows into the region have modernized the country’s infrastructure, Russia has continued to play a dominant role in Kazakh political matters. Moscow made Kazakhstan the center of the Central Asian universe, in that it made Astana the political go-between for Russia and the other four Central Asian countries. In Russia’s point of view, most of the Central Asian states are not important enough to be dealt with on a daily basis. Russia holds quite a few critical meetings a year with the Central Asian states collectively and bilaterally, but the region does not hold Moscow’s attention compared to the former Soviet states to its west or the Caucasus region. Instead, Russia has looked to Kazakhstan to help Moscow deal with those other Central Asian states, and to keep them in line.

At the same time, the other Central Asian states have kept in close contact with Astana as a part of this Russian scheme — as much as they loathe the idea of supervision.

The Shifts

In the past year, however, three shifts among the greater powers of the world have occurred. Though none directly involves the Central Asian states, the ripples from these events are driving the first regional shift since the fall of the Soviet Union.

The Russo-Georgian War

The August 2008 war between Russia and Georgia was a message from Moscow not just to the small Caucasian state, but to the other former Soviet states. The Russians made it clear that, at least for now, they can operate on their periphery effectively — meaning Russia’s neighbors should not be indifferent to its wishes. This new reality rang true in Central Asia, which had been flirting with deeper relationships with the West, China and even Iran.

In the wake of the Russo-Georgian war, states like Kazakhstan, Uzbekistan and Turkmenistan quickly sought to fortify their relationship with Moscow and also started rebuffing visits and energy deals presented by the other powers. For example, in the month following the war, Kazakhstan decided to not resume its oil shipments — which had been suspended because of the conflict— across the Caspian Sea to Azerbaijan and then toward the West. Overall, the Central Asian states moved back toward Russian control, and their flirtation with other powers (especially the West) was seriously decreased.

Global Financial Crisis

As the war between Russia and Georgia drew to a close, it started to become obvious that the world was heading into a deep financial crisis that would hit most regions, but that would strike emerging markets particularly.

As the crisis hit, oil prices began to tumble from their July 2008 high of $147 a barrel. Kazakhstan has been the only Central Asian economy really to feel fallout from these two problems; the economies of the other Central Asian countries simply are not developed enough be affected. Kazakhstan depends on oil for more than 70 percent of its export revenue and for more than 76 percent of all foreign direct investment in the country. Thus, their economy was hit from multiple angles when most foreign investment froze due to the crisis, Western money began seeking to exit emerging markets and oil fell to under $50 per barrel. Kazakh banks — which borrowed freely from the West while Kazakhstan’s economy was fueled by high energy prices — buckled under pressure. Meanwhile, the government bought up shares to keep them afloat, and the country’s currency, the tenge, started to crash.

Astana has begun looking inward as a result of the crisis. Longtime President Nursultan Nazarbayev has been forced to use his country’s rainy-day fund of approximately $20 billion to keep the system going; but even so, all the cracks in Kazakhstan’s slapdash banking and financial system are starting to show. In response, Nazarbayev has begun altering course from his plans to modernize and Westernize the country, instead nationalizing banks and keeping as much cash in his hands as possible. In the process, he has crushed the many foreign banks (which are the country’s most functional banks).

The economic tumult in Kazakhstan has disrupted Nazarbayev’s plans for succession. The Kazakh president has long wanted to create a dynasty. To this end, he has entrenched his daughters and their husbands into every aspect of Kazakhstan’s politics, economy, financial sector, security services and media. But his family members have seized assets as the crisis unfolded, causing Nazarbayev to reconsider his succession plan. (Recent questions regarding the president’s health have brought the question of succession into the forefront.)

This has forced Nazarbayev to pay much more attention to his own country than the rest of Central Asia, and has left Central Asia without its regional leader at a time of heightened great power interest in the region.

Russian-U.S. Negotiations

Effects from the Russo-Georgia war and the financial crisis became even more obvious when Russia and the United States became entrenched in serious negotiations (which began in late 2008) over Washington’s desire for a supplementary route for military supplies for its mission in Afghanistan. An increased belief that the current supply route through Pakistan was becoming unreliable prompted this desire.

Washington first sought to enter bilateral negotiations with the Central Asian states to this end via a tour by U.S. Central Command Chief Gen. David Petraeus that encompassed nearly every Central Asian state. But Russia’s increased sway over the region became apparent during this trip, and Moscow ensured that these deals were worthless without Kremlin consent. It became obvious to Washington that it would have to talk to Moscow to get Russian permission before it could obtain Central Asian permission for any military transit deal. The Russian-influenced decision to have Kyrgyzstan threaten to close Manas Air Base, the sole American base operating in the region, underscored this reality

When it reasserted its power in the region, Russia did not use Kazakhstan as its interlocutor with all of Central Asia, but instead reverted back to bilateral talks with each Central Asian state over this issue of critical importance to Moscow. Such an intense bilateral dialogue between Russia and the Central Asian countries without Kazakh mediation has not been seen in decades.

Uzbekistan and the Power Vacuum

With Kazakhstan internally focused for the time being and with Russia cutting it out as its mediator during such intense negotiations with the West, a regional power vacuum has emerged. Historically, the Central Asian countries have had one leader, to which weaker states like Kyrgyzstan, Tajikistan and sometimes Turkmenistan have turned for protection.

Uzbekistan, the long-running regional leader prior to Kazakhstan, looks to be vying to fill that role. Uzbekistan’s bizarrely shaped borders touch every other Central Asian state, and is actually one of the few Central Asian countries that can function as a country relatively independently. Uzbekistan also does not border any of the outside powers like China, Russia or Iran — making it a touch more insulated than the others from the outsiders’ geopolitical designs. With a population of nearly 28 million, close to double that of Kazakhstan, it is the most populous of the former Soviet Central Asian republics. Unlike its fellow Central Asian states, it has no appreciable minority populations within its borders, though all its neighbors have large Uzbek minority populations, which regularly look to Tashkent for leadership. Uzbekistan is also one of only two Central Asian countries self-sufficient in energy and foodstuffs. Uzbekistan thus has both the size and opportunity to deeply impact all of its less powerful neighbors.

Before Josef Stalin drew its current borders in 1924, Uzbekistan was the keystone and ruler of the region. Stalin feared the power that Uzbekistan could wield, so he sliced the region up to keep Uzbekistan from ever challenging Russian rule. Even so, this does not mean that Uzbekistan cannot lead the other Central Asian countries. During the recent Russian-U.S. negotiations, Moscow has paid more visits to Uzbekistan than any other Central Asian state. And countries like Kyrgyzstan and Tajikistan facing deep energy and economic issues have turned to Uzbekistan for aid instead of to Kazakhstan. Tashkent is reveling in this small window of opportunity to become regional leader — though it is unclear if it can keep itself in the position.

Turkmenistan, the Wild Card

The country most fearful of this shift from Kazakhstan to Uzbekistan is Turkmenistan, which historically has been close to Kazakhstan and has fears that Uzbekistan will one day invade Turkmen territory. Turkmenistan fears invasion from many quarters, whether it be from the United States, China or Russia. But regionally, Ashgabat most fears Uzbekistan. A good number of Uzbeks live within Turkmenistan’s borders. And in its abundant paranoia, Ashgabat assumes landlocked Uzbekistan might try to seize Turkmen territory for access to the Caspian Sea.

In the past few months, Turkmenistan has increased its security deals with Russia, and rumors of missile deals and an increase in Russian troops on Turkmen soil have emerged. Turkmenistan, still a closed country even after Turkmenbashi’s death, has been loath to permit increased Russian involvement — but this is one of the few ways Ashgabat feels it can protect itself in the short term. In late February, the Uzbek and Turkmen leaders held a meeting, during which Uzbekistan agreed never to invade its neighbor. The deal represents Turkmenistan’s olive branch to the rising regional power to start off this new era on the right foot.

The Next Round

The question remaining is how long this vacuum will last, and what will happen when Kazakhstan returns to the scene. Kazakhstan is not out of the game for good, just focused internally for the short term. While Uzbekistan is taking advantage of this new dynamic, it would need a much longer window to solidify its position. But when Kazakhstan does return to regional politics with wishes to take that leadership role once again, Uzbekistan will most likely not step aside. This could lead to a nasty standoff — or worse — between two very different powers in Central Asia. One power has the might of the global powers and cash behind it, while the other can stand on the solid foundations of population and geography. Of course, which Central Asian power leads the region also depends greatly on how the rest of the world, and especially Russia, wants to see the region move forward.”