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UZBEKISTAN - The Political Perspective.

With the petroleum sector's decision makers chosen from among President Karimov's most loyal subjects (see who's who in Downstream Trends of next week), Uzbekistan is ruled by a dictatorship. Uzbek energy diplomacy is focused on keeping the country stable, insulated from the violence in neighbouring Afghanistan and Tadjikistan. But Karimov has failed to stem a spill-over of the violence, with guerrilla of the Islamic Movement of Uzbekistan (IMU) having infiltrated the Fergana Valley from Afghanistan and Tadjikistan. The government in early September 2000 said the guerrillas included fighters from other countries and had modern arms and communication equipment and good financing.

On Feb. 16, 1999, Islamic rebels staged a series of car bombings aimed at killing Karimov and causing chaos in the capital Tashkent which killed 16 people. Shortly thereafter government forces rounded up 22 suspects and in June 1999 the Supreme Court sentenced six of them to death, with the others getting varying but tough jail terms. It is still not clear whether or not these are part of the IMU, which is said to be linked to Wahhabi millionaire activist Usama Bin Ladin. The latter has lost his Saudi nationality and is said to be still based somewhere in Afghanistan under the protection of the Pakistan-backed Sunni Taliban regime of Baku.

On Aug. 20, 2000, Karimov and his counterparts from Kazakhstan, Tadjikis-tan and Kyrghyzstan held a conference and issued a joint statement vowing that "terrorist actions will be crushed using the most decisive measures". Officials then said the Islamic rebels wanted to create havoc to keep borders open for their heroin flow, which the local authorities said was increasing. Jerzy Wieclaw, head of the Organisation for Security and Co-operation in Europe's office in Kyrghyzstan, said the rebels were using anti-aircraft guns and possibly helicopters. He said they were demonstrating new stength to a Central Asian population potentially ripe for change in favour of democracy. He added: "These countries can cope with the threat now, but it seems to be a long-term strategy to find military and political weak points".

The first substantial battle in 2000 was reported in early August. Uzbek officials said Islamic guerrillas from Tadjikistan had clashed with government troops, leaving 20 rebels and 12 soldiers dead. Officials in Kyrghyzstan said in August that 100 Islamic militants had entered that country and engaged in a pitched battle with government troops. Unconfir-med reports said 20 soldiers and 50 rebels had been killed. Since then there have been sporadic clashes, including reports that Islamic snipers have used advanced rifles and night-vision equipment for attacks.

As the Uzbek government threatened to chase the rebels wherever they went, an action likely to cause tensions if Uzbek troops cross into Tadjikistan, Kazakhstan joined its neighbours in sending military reinforcements to the borders in the region.

In the long run, however, the outcome of this war may be decided not by military power, but by how much backing the Islamic rebels find in the countryside. Thus the political prospects for Uzbekistan and its Central Asian neighbours are not bright.

Karimov is managing links with the US and Russia in such a way as to enhance Tashkent's role in the region. His regime is positioning itself to be a key US ally in Central Asia, acting as an anchor for Washington's policy towards Iran and Russia. Like other Central Asian countries, however, Uzbekistan cannot alienate Russia because it is landlocked - which means it must rely on old Soviet networks to export its oil and gas for the time being. Most of Uzbekistan's petroleum exports are to the members of the Commonwealth of Independent States (CIS).

There is also a territorial dispute between Uzbekistan and Kazakhstan that makes Tashkent's CIS policies very complicated. The issue is over a 230 km border which has been an irritant in bilateral relations. The subject was discussed in 1999 when the Kazakh prime minister visited Uzbekistan. The Kazakh state TV Khabar said in early 2000: "Uzbekistan has started demarcating the borders dividing our two countries without consulting Kazakhstan. It has already set up border signs in the Saryagach region of South Kazakhstan province". It quoted a Kazakh foreign ministry spokesman as saying that a note of protest had been sent to the Uzbek foreign ministry but details were not disclosed.

Other factors behind Uzbek energy policy include its relations with the neighbours: (a) Tadjikistan, with the shared Ferghana Valley being the scene of ethnic and sectarian violence; (b) Afghanistan, where control by radical Taliban over Uzbek-dominated areas in the north has prompted Tashkent to help its ethnic brethren across the border; and (c) Iran, with which Uzbekistan has had strained relations in view of a secular-oriented policy followed by Karimov and because of Tehran's opposition to his links with Israel, the key ally of the US.

So, like its Central Asian neighbours, Uzbekistan could face social and ethnic upheavals in the years ahead. Karimov's regime does not tolerate dissent and is particularly opposed to Islamic militancy.

Nevertheless Karimov has managed to keep Uzbekistan, a largely arid country of 447,400 sq km in total area, more economically stable than most other CIS states in the years since independence in 1991. In the early 1990s, the Uzbek economy remained close to the old Soviet centralised system. Karimov stresses stability and self-sufficiency as top priorities. His system is being changed very slowly, with a pace which he considers adequate for a "smooth transition to prosperity" and what Karimov calls a "socially oriented market economy".

For the Uzbek government, stability means caution in terms of policy initiatives. There has been no attempt at economic "shock therapy". Nor were there experiments in democracy as in Azerbaijan, Kyrgyzstan and Tadjikistan. Karimov rules with an iron fist. But he is somewhat more pragmatic than other Central Asian rulers.

While he has rejected the Turkish secular model or the Iranian Islamic model, Karimov is borrowing some elements of these and other systems in the region, including the Chinese and South East Asian models of a relatively benevolent autocracy. He says he is in no hurry and stresses that he is confident Uzbekistan's vast natural resources will ensure his country will become wealthy in the long-term.

The key to doing business in Uzbekistan at present is to focus on three factors:

1. Developing good links with the leadership, a common feature with other Central Asian and Middle East countries, is required of every major investor. But keeping one's distance is necessary, because getting too close to the top could prove damaging in the event of a coup or violent upheavals.

2. Having deep pockets is a must, because without sufficient financial reserves it would prove difficult for a venture to survive for the long-term in Uzbekistan's vague legal and regulatory environment.

3. Having a lot of patience is another must, because the bureaucracy in this country is notoriously slow-moving, a factor which - when combined with the slow pace of reforms - tends to discourage many investors.

Uzbek officials often point out that those investors who are patient will reap the rewards in the coming years. In the meantime, they will have to deal with tough foreign exchange controls, red tape, arbitrary state decisions affecting their operations, etc.

Western critics consider the pace of reforms too slow, and the investment climate not attractive enough, for those interested in the country's potential to be a major exporter of oil and gas as well as a big consuming market. Uzbekistan is ranked among the top ten countries in the world in terms of proven hydrocarbon reserves.

Karimov is not moved by criticisms from the West. The criticisms were at a peak in 1996 after Uzbekistan introduced foreign exchange restrictions, a move which led to a freeze in its relations with the IMF. Despite the uncertain environment, however, investors continue to put money into the country, including its petroleum sector.
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Publication:APS Review Oil Market Trends
Date:Sep 25, 2000
Words:1309
Previous Article:UZBEKISTAN - Part 1 - The Prospects.
Next Article:UZBEKISTAN - Links To The US.


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