Energy investors from Russia, China, and Western areas will learn if Kazakhstan has the ability to squelch turmoil in the oil sector. The country’s government is holding negotiations with Kazakhstan’s western energy producers. Threats of protests loom because the unions disagree with the labor codes that may be changed by government. Employers are also fighting for more rights to determine wages and employment. This situation proves to be an especially difficult one with low energy prices, forcing all to make cutbacks somewhere.
Kazakhstan’s well-being affects many other countries and economic factors. Astana finds the instability to be of concern. Russia looks at Astana as a close ally due to its position between Russia’s southern border and close proximity to Asia. Kazakhstan is a primary energy-producing state to Central Asia and China. With the world’s 11th-largest energy reserves and some of the largest mineral reserves globally, China also sees Kazakhstan of importance to fulfilling future energy needs and transportation passageways. Central Asian workers migrate to the country. Kazakhstan then becomes a contributor to other Central Asian economies.
The country’s exports total 25 percent of Kazakhstan’s gross domestic product and 60 percent of the government’s budget. Since oil prices drastically dropped, the country enforced a severe currency devaluation of 19 percent earlier this year. The country also slashed the state budget by 10 percent.
Astana fears the social unrest. Kazakhstan is looking to prevent another upheaval like the Zhanaozen riots. The country has watched many other disruptions hit the governments of former Soviet Union states in the last few decades and has experienced some of these in its own borders.
A May 2011 battle by oil workers resulted in a bloody three days of battle between the police and UzenMunaiGaz workers in Kazakhstan. Fourteen people were killed. The government cut off phone and Internet services and instituted curfews to stop the violence.
The government eventually settled on allowing stable salaries and jobs, the rights of oil workers to form unions, and negotiating a government contract with these unions. In addition, President Nazarbayev removed many members of the country’s elite from government.
Those negotiated items are being tested now. Many companies have suffered 65 percent profit drop. The government had ordered no job cuts from foreign or domestic firms in operation there. However, the low oil prices cannot support this concession.
Kazakhstan has offered incentives for foreign investors as a way to keep energy firms at current operating levels. But, the incentives didn’t work. Workers argue now that changes in the labor agreement is breaking the contract and sets the country on edge for fear of riots.
The government is cooperating with union leaders and are setting up a group to discuss the issues. In the past, Astana leaders usually simply made decisions with no outside input. The government hopes meeting with union leaders will show that the country is a good choice for doing business and try to avoid protests. However, workers have more concerns than they did when the riots occurred in 2011, which could still upset the country.
The higher oil prices have been affecting people all over the world, especially in our local city of of Winnipeg. The hardest hit company has been winnipeg limos who have had to increase their prices to recouperate for the higher gas prices. We wish them the best of luck.