Central Asia’s Growing Economic Relationship With the EU

In recent years, Central Asia has found itself in a unique and precarious position, having to balance its strong historical ties to Russia’s sphere of influence, with recent efforts to deepen its diplomatic and economic relations with the West. Nowhere is this truer than Kazakhstan, the largest and most prosperous country in the region, which has found itself in the middle of a new geopolitical standoff, with both East and West vying for its favor. Within this context, Kazakhstan has risen to become a middle power through careful and proactive use of diplomacy in the pursuit of its interests.

Since the outbreak of violence in Ukraine, and the sustained conflict that has followed Europe has paid renewed interest in the strategic importance of Central Asia. Facing the loss of key imports from Russia and the disruption of global supply lines, many European states have come to see Central Asia as an indispensable economic and trade partner, particularly due to its access to East Asian markets and its wealth of key mineral energy resources. Of the 34 main critical materials that fuel European industries, 18 are supplied to the bloc by Kazakhstan.

Despite Europe’s recent reliance on Kazakhstan, ties between the two regions have historically been quite bleak, as the EU has traditionally seen Central Asian as “out of bounds” – too geographically distant from its borders and within the Russian sphere of influence. Because of this, since gaining independence in 1991, countries in the region have had little engagement with European business and political stakeholders. However, significant progress was made in 2015 when Kazakhstan became the first Central Asian country to ratify the Enhanced Partnership and Cooperation Agreements (EPCA) with the EU—a strong basis for further development of economic and political ties.

More recently, on 17 January, the European Parliament (EP) made another effort at deepening its relationship with the now critically important region, approving a resolution on the assessment of the European Union’s (EU’s) strategy for Central Asia, in which it acknowledged Kazakhstan’s leadership role.

Similar strides have been made on the side of Central Asian countries, as they seek to diversify and adjust their economies to the needs of contemporary markets. This has been made especially difficult since the conflict in Ukraine, as heightened scrutiny around sanction evasion has threatened to undermine the reputation of innocent Kazakhstani businesses in key markets.  However, business leaders across the country have generally taken these developments in stride and are learning to navigate this newly created business landscape to ensure they rightfully retain access to Western markets. 

One such business leader is Yerkin Tatishev, the Founder and Chairman of the diversified conglomerate Kusto Group, who had this to say about the complexities and opportunities emerging from the European market:

“Since the start of the war in Ukraine, Kazakh businesses had to adjust to the new political realities, including complying with all relevant sanctions regimes. The European Union was not previously seen as a potential market for Kazakhstani goods, as most trade was done regionally and with Russia and China. Today, the EU is Kazakhstan’s biggest economic partner, accounting for 30% of total trade and 40% of foreign investments. Additionally, potential for doing business and joint ventures with European entities is on the rise, especially in the energy, manufacturing and raw materials space, but also growing in the tech sector”.

With such economic gains at stake, Kazakhstan’s private sector has adopted a strategy of flexibility and adaptability to remain attractive to European partners in the long term. This has especially been the case for the country’s energy sector. As of 2023, much of the 38 billion dollars trade turnover between the Kazakhstan and the EU was tied to oil and gas exports. While such a portfolio may be profitable today, overreliance on extractive industries could threaten to undermine the longevity of the EU-Kazakhstan relationship, especially as the energy transition become a top priority for many Western states. 

Within Kazakhstan, the need for energy diversification has been clearly recognized.  The country’s climate change agenda is aligned with the European Green Deal, a set of policy initiatives by the European Commission aimed at making the EU climate-neutral by 2050. Kazakhstan, in turn, aims to achieve carbon neutrality by 2060 through developing clean energy projects and reducing greenhouse gas emissions. 

With dozens of countries hosting elections in 2024, including the US, it is not yet clear what the outcome of current global conflicts might be or in which direction the global economy will go. However, considering the growing importance of Central Asia as a region, it is very likely that the EU will look to become a more dominant political and economic player in the region.

[Photo by Glentamara, via Wikimedia Commons]

Fuad Shahbazov is a policy analyst with a particular focus on regional security, energy diplomacy, and interregional partnership issues. He regularly appears with expert commentaries on various international outlets and think tanks covering the Caucasus, Middle East and Central Asian regions. He tweets at: @fuadshahbazov. The views and opinions expressed in this article are those of the author.

Competing Global Economic Initiatives: A Tale of Two Routes

In recent years, two major economic initiatives have emerged in Asia, particularly in West Asia: China's Belt and Road Initiative (BRI) and the India-Middle...

Obstacle to Peace: Why Armenia Needs to Change Its Constitution

Speaking at a meeting with parliament speakers of the Parliamentary Assembly of Turkic States in Baku on June 6, Azerbaijani President Ilham Aliyev reiterated...

The Generative AI Rush and China’s Fear of Missing Out

The struggle over who controls the course of key technology, and how much, is as old as the tech sector itself. The ongoing geopolitical...