Turmoil in Kazakhstan and Russia

The current events in Kazakhstan materialized quickly at the beginning of 2022 and continue to evolve each day. It is considered to be the country’s “worst unrest in 30 years of independence,” with more than 200 people killed thus far.

We reached out to our regional expert Rostyslav Vergeles, who currently serves as the head of security at British American Tobacco in Ukraine. He answers meaningful questions regarding the current situation, including how it affects current events between Russia and Ukraine, cryptocurrency, gasoline and diesel prices, and the use of uranium, as Kazakhstan owns over 40% of uranium ore deposits.

See below for his professional analysis and a point-by-point breakdown on the situation.

What is the background on the situation in Kazakhstan and will it get better over the next few months?

A fuel price increase prompted countrywide protests and unrest in early January 2022. Price caps were introduced shortly after the unrest began, with mechanisms being worked out to limit the sharp rise in prices for liquified gas. o This is only a short-term solution, as this establishes state regulation of prices for gasoline and diesel fuel for 180 days. In this direction, the government adopted the relevant orders to establish maximum prices for retail sales of petroleum products.
A state of emergency (SOE) was put in place on January 5, 2022. Currently there are no reports showing that authorities plan to extend the SOE beyond 19 January.
S. Secretary of State Anthony Blinken told Kazakh Foreign Minister Mukhtar Tleuberdi during their January 6 conversation that the U.S. fully supports Kazakhstan’s constitutional institutions – a good indicator that the public peace and order restoration will be a smooth process from now on.
Another solid sign of the situation normalizing is the removal of security checkpoints that are in place in many locations, more specifically around Almaty, the largest city in Kazakhstan: this will remain closely monitored.
On January 12, intercity bus connection around Almaty was put into effect again.
120 (approximately 80.5%) out of 149 malls and big department stores in Almaty renewed their work by January 12; all 52 food markets are open. 1.5k of restaurants and other eateries out of 3.2k are open; 39 of them were damaged during the turmoil.
82 factories out of 120, located in Almaty, renewed their business as usual (BAU); by the end of January, 38 more plants will do so, too. 877 pharmacies out of 970 are open, 127 fuel stations out of 220 are open. All heat, electricity, water and gas supply facilities in Almaty are operating normally.
On January 6, the Almaty International Airport was seized and held by anti-government activists for a few days. Many boutiques and offices were plundered and destroyed but administrative facilities did not sustain serious damages.
- - As of January 13, Almaty International Airport renewed its BAU, for both domestic and international flights.
Throughout the country, 53 government offices and facilities were damaged; all of them will be subjected to renovation by the end of February, per open sources related with the government state.
Interruptions with internet and problems with mobile communications massively hit the population throughout the country initially and will fade away, albeit slowly.
Many people have been unable to buy groceries or and gas, as cash could not be withdrawn from ATMs, which is still a current issue. Currency exchange bureaus are also seeing issues and interruptions, however all banking applications on mobile phones are working.
Many advertisements are appearing on multiple websites for the sale of branded items at reduced prices, as well as various equipment. The state widely warns people that the acquisition or sale of property, knowingly obtained by criminal means, entails criminal liability foreseen in the Article 196 of the Penal Code in Kazakhstan.

Will there be complications with neighboring countries, including China and Uzbekistan?

Analysts say China’s response to a rapidly evolving crisis in a neighboring country, where China has backed the widely criticized President Tokayev, points to a balanced state approach to Central Asia as a whole.
In light of the unrest that took on new dimensions – from popular protests provoked by rising fuel prices and social discontent, to the violent unrest and strife within the political elite of Kazakhstan, as well as the introduction of foreign military forces – Beijing acted cautiously and adhered to a supportive, but at the same time distanced, position regarding President Tokayev and the Kremlin.
China understands that it is not able to influence the situation in the same way as Russia, and also does not want to get too involved. Beijing has a pragmatic approach to this crisis, and the most important thing for them is to see Kazakhstan stable again. It is noteworthy to say China has never supported any separatist movements anywhere in the world, given its inner problems in East provinces. This may be important given the massive stance among Russia’s population toward pro-Russian groups in north Kazakhstan. There, the separatist movement is active, in spite of oppressions done by Kazakhstan authorities after the collapse of the USSR in 199.
Beijing does not want to participate in the inter-elite struggle in Kazakhstan and only clarified its position after the Kremlin-backed President Tokayev made it clear that he intends to stay in power. China was, and still is, able to wait and be convinced. Beijing knows whomever is in power will have to keep working with China, because it is too strong economically to be ignored.
A queue of 130 trucks formed at the Ak-Tilek checkpoint on the border of Kyrgyzstan and Kazakhstan on January 12. Of these, approximately 10 were trucks with agricultural products, 20 vehicles with containers and 100 empty trucks. Their accumulation, as the Kyrgyz Border Service explains, is cyclical in nature and is associated with an increase in cargo traffic post-holiday, as well as with the passage of inspection and inspection complexes on the territory of Kazakhstan. There are no restrictions on the Kyrgyz side for freight carriers.
An influx of Kyrgyz citizens and foreigners from Kyrgyzstan to Kazakhstan is temporarily suspended by Kazakhstan’s authorities; entry ban does not relate to Kazakhstan citizens returning from Kyrgyzstan.
No crowds of people or vehicles were recorded at other checkpoints on the border with Kazakhstan – good sign of the rapid normalization of the situation in this country.
Uzbekistan Airways will soon organize export flights from Kazakhstan. This was announced by the official representative of the Ministry of Foreign Affairs of Uzbekistan. Special flights will be able to take off the Uzbeks who have declared their desire to the employees of the operational headquarters at the diplomatic missions of Uzbekistan in Kazakhstan – at the embassy in Nur-Sultan, consulates general in Almaty and Aktau. They were included in the corresponding lists.
Checkpoints at the Kazakhstan and Uzbekistan borders are open.
No ethnic pogroms were reported in Kazakhstan in the turmoil period.

Are there any potential continuity of business issues in Kazakhstan?

Banks report no problem with borrowers who are scheduled to return loaned money.
The Agency of the Republic of Kazakhstan for the Regulation and Development of the Financial Market, by order of January 10, 2022, approved measures to support individuals and legal entities affected by the introduction of the state of emergency. The procedure applies to second-tier banks, organizations engaged in certain types of banking operations, as well as pawnshops and credit partnerships. It also applies to bank loans and microcredits issued by credit institutions until January 5, 2022, to individuals and legal entities, including individual entrepreneurs. The procedure is to enable those in need so they can obtain deferred loan payments.
World Bank forecasts that in 2022, Kazakhstan economy will increase by 3.7%, and by 4% in 2023. The same estimate was given by analysts of the Eurasian bank for Development (EABR) who also say that the January slow-down of economic development will be closed out very shortly.
On January 12, trade on the Kazakhstan Stock Exchange (KASE) was renewed. The weighted average dollar rate on the KASE on January 12 at 11:00 was 433.58 tenge. This is compared to the data on the morning of January 5 (431.61 tenge per dollar). The national currency has weakened by 1.76 tenge against the dollar only. By far, a thorough analysis of mass media reports found no indicators or red flags saying that the local currency will keep weakening.
No Kazakhstan business entities are currently (nor were they previously) under Western sanctions, unlike Russia and Belarus. Theirs were applied via sporadic “judicial” sanctions against concrete entities that participated in court proceedings. By far, no mass media reports speak of the inclinations of international, U.S., U.K, E.U. or other bodies, to introduce sanctions for the harsh methods that local authorities applied towards activists.
S. and European officials are said to have only “express worriedness” about the massive violation of human rights and principles of democracy, but no sanctions seem to be embedded at all. The U.K. is said to prepare to “freeze” actives of Kazakhstan’s government (600 million pounds); British Parliament was said to adopt a resolution enhancing the Western countries to expropriate such actives. It is expedient to monitor this, but analysts say it will not happen. Kazakhstan is a “milky cow” for foreign companies given an unusually massive (as to a post-Soviet country) presence of foreign investments. However, analysts do not rule out sanctions aimed at specific individuals.
President Tokayev said measures must be taken to ensure certain people and business entities that became very rich during the tenure of the former President Nazarbayev, will be defined by the government; then, they will calculate the volume of annual fees these companies will have to pay to a special fund that will help the poor. It is not clear at the moment which companies and what individuals exactly will be subjected to this; the activities of the government relating to this theme are to be monitored closely.
Local and Russian mass media started to guess what companies will be targeted by this move; according to certain sources, all biggest domestic entities, including banks, power suppliers, mineral ores explorers, TV giants and so on will become donators of the fund. Some 22.1k foreign companies are also believed to not avoid this theme. However, biggest players with the foreign capital, such as Royal Dutch Shell, Chevron, Glencore, British American Tobacco, Philip Morris, etc., that provide for more than 30% of the state budget revenues, will remain not touched. In general, Kazakhstan authorities will not touch companies that bring investments from outside – a clear message of this character is distributed in local mass media.
Opposition activists (such as the Democratic Choice of Kazakhstan (DVK) that declares itself to be a coordinator body of latest protests; its headquarters are located in Ukraine’s capital city of Kyiv) say that protests may be in place again in late 2022, if Russia and other Commonwealth of Independent States (CIS) member countries do not withdraw their troops. There are no other reasons for the potential uprising being voiced by anti-government circles in open sources. However, no one is able to approximately assess the number of opposition followers who will allegedly protest again.
As Kazakhstan is a serious player on the virtual (crypto) money producing and trade markets, many reports reflect what is happening currently.
- - - Thus far in January, Bitcoin’s value dropped by 12.5%, with some attributing it to the current events in Kazakhstan. Alternate units, such as Ethereum, dropped even more.
    - Kazakhstan has been mining some 18% of Bitcoin due to cheap electricity and it holds the second place in doing so, after the U.S., with 35%. Since power shortages and internet failures are still frequent in the country, mining is experiencing troubles; mining “farms” still are not operating, while their owners and beneficiaries abstain from BAU, due to a relatively high uncertainty regarding the government’s activities in the future.
    - It is noteworthy to say that some reports tie power blackouts that had place in Kazakhstan with the anti-government stance allegedly taken by crypto-miners – a long shot which, however, may be a worrying sign of the state potentially planning to crack on this group of people. Sources do not rule out that miners may be coerced to leave Kazakhstan, which is what happened in China after 2019, when many left to look for “greener pastures” elsewhere (Mongolia, Russian region of Siberia, et al).

Will unrest in Kazakhstan take pressure off the current situation in Ukraine or increase tensions with other countries and organizations?

A thorough analysis of open mass media says the unrest in Kazakhstan did not and will not impact tensions between Ukraine and Russia. No troops were removed by Russians from their location next to Ukraine’s borders in the direction of Kazakhstan thus far; fresh reports speak of the relocation of helicopter squads from Siberia to certain spots in a vicinity of Ukraine, instead.
No reports show that the latest developments in Kazakhstan will increase tensions between Europe and NATO or Russia and China. The anti-government unrest triggered by the gas price increase resulted in massive looting and pogroms, and does not provide solid reasons for foreign and international entities to get involved in Kazakhstan’s affairs too deeply.
Troops from Russia, Tajikistan, Belarus and Armenia were called upon by President Tokayev on January 5 and are said to leave Kazakhstan soon. President Tokayev also said, on January 12, that the withdrawal of these armed forces would begin on January 14 and it should only take 10 days. If so, the presence of these troops, considered to be a worrying factor to China, according to many analysts, will not complicate any security arrangements in Kazakhstan, Russia or China.

What are the potential commodity impacts?

Prices for gas and for uranium used to produce electricity at Kazakhstan’s nuclear power stations and are said to be on the rise. Therefore, liquid gas, which is due to be sold outside Kazakhstan (for instance to Ukraine), seemingly will cost even more very soon. As Kazakhstan owns more than 40% of uranium ore deposits, the increase of a price for power produced at nuclear stations is said to be in place for a relatively long time.
We will continue to monitor price changes in both USD and Kazakhstan Tenge. The price of gasoline is expected to be 0.45 USD per liter by the end of this first quarter of 2022, according to trading economics global macro models and analyst expectations. In the long-term, the Kazakhstan gasoline price is projected to trend around 0.36 USD per liter in 2022 and 0.35 USD per liter in 2023.
The price of diesel is 249.6 Kazakhstan Tenge per liter. For comparison, the average price of diesel in the world for this period is 488.27 Kazakhstan Tenge.

About Rostyslav Vergeles

Rostyslav Vergeles currently serves as the Head of Security at British American Tobacco (BAT) in Ukraine, where his focus is on the safety and security of BAT employees, along with continuity of business functions.

He has nearly 30 years of experience in security and previously served as the Head of National Census Bureaus (NCB) Interpol in Ukraine. Prior to that, he worked as a supervising prosecutor at the Vinnytsia Regional Prosecutor’s Office and as an investigator and senior detective at the Vinnytsia Regional Police Directorate. There, he was responsible for investigating theft, armed robbery, extortion and embezzlement.

In addition, Mr. Vergeles has international police experience, serving on deployments to Croatia and East Timor on United Nations Civilian Police missions.

Mr. Vergeles is from Kalynivka, Ukraine in the Vinnytsia region and holds degrees in geomorphology and law from Kyiv Shevchenko University. He is fluent in Ukrainian, English, Polish and Russian.

Sources:

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