Crisis on the China Rim: An Economic, Crude Oil, and Military Analysis

"There is a crisis rising on the China Rim, a crisis made of economic imbalances, energy insecurities, ancient hatreds, and unsettled scores. The catalyst for this crisis is success itself, the success of the People’s Republic of China in its de facto rejection of a failed experiment in communism and its rapid transformation into a thriving market economy. The inseparable companion of this success, though, is an insatiable hunger and thirst for precious resources... most important among these, crude oil."

2005.04.14 | 85 pages | download

If your skill set is "dictator" and your work address ends with the words "Astana, Kazakhstan," it might be time to freshen your resumé and join Monster.com.  That's the fear of US oil companies that have enjoyed a cozy relationship with Kazakh president Nursultan Nazarbayev and made huge infrastructure investments in Kazakhstan's energy industry during 12 years of "Pax Nazarbayev."  This according to one of the most respected corporate risk management firms in the world, London-based Control Risks Group.

There are two key factors that make a possible democratic revolution in Kazakhstan meaningfully different from the Central Asia Republic (CAR) revolutions that have taken place in Georgia, the Ukraine, and Kyrgyzstan before it.  First, Kazakhstan, unlike the other three, is home to huge energy reserves.  Second, as described in CCR, Kazakhstan provides China with invaluable direct "land bridge" access to the huge energy deposits in the northeast Caspian Sea region (please see our China and the China Rim map.)  In fact, China and Kazakhstan are currently collaborating on the construction of a 3,040-kilometer pipeline linking China's far west Xinjiang-Uygur Autonomous Region with Kazakh energy reserves in the Caspian Basin.

Any disruption of energy industry activities in Kazakhstan would, in our view, represent a significant bullish development for world oil prices.  It would also, in our view, create significant uncertainties for major US and Chinese energy industry entities operating in Kazakhstan.

Posted by:
Kevin B. Skislock
Partner and CEO
Laguna Research Partners
[bio] [disclaimer]

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