Kazakhstan is built on oil and foreign investment. In the chaos that followed the collapse of the Soviet Union, former president Nursultan Nazarbayev put the country on the map in 1993 when he outsmarted the Kremlin, securing a multi-billion contract with Chevron for the development of Tengiz, a major oil field in the Caspian basin. To a large extent, that contract contributed to securing the country’s sovereignty and gained Mr Nazarbayev enough capital and momentum to cement his leadership – he would go on and lead the country until 2019, when he handpicked his successor, Kassym-Jomart Tokayev. 

Foreign investors naturally value Kazakhstan’s rich endowment of oil and gas, as well other sought-after resources like uranium. They also cherish the perception of stability and openness that Kazakhstan gained over the years, thus becoming a success story in a region otherwise known for its volatility. Or at least they used to, because things took an unexpected turn with the new year. 

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On January 2, protestors took to the streets in Zhanaozen, an oil town not far from the same Tengiz oil field where police opened fire on demonstrators asking for better workers’ rights in December 2011, to protest against a hike in liquified petroleum gas (LPG). The protest quickly spread to major cities across the country. It soon became clear that LPG prices were the last straw in the mounting frustration against a ruling elite generally perceived as corrupt and kleptocratic, that is largely unable to redistribute the billions of dollars in revenue generated by the oil industry. Events spiralled out of control, and the protests climaxed on January 5, when an angry mob in Almaty, the country’s main business hub, torched the city hall. In the aftermath, president Kassym-Jomart Tokayev requested the intervention of the Russian-led Collective Security Treaty Organization (CSTO) and he gradually regained control in the next few days.

While these are the main facts so far, what happened on the ground is shrouded in confusion. At the height of the protest, the government shut down full internet access,  and just a few, fragmented testimonies emerged. Now that the internet is being restored and foreign journalists allowed in, most of the protesters are in jail — about 10,000 of them, the UN estimates. 

As the protesters lacked a clear voice, the government controlled the narrative, with Mr Tokayev arguing that the country fell under the attack of foreign-trained ‘terrorists’, a claim that created the legal ground for the brutal crackdown that ensued. A palace intrigue angle also emerged when Mr Tokayev rushed to purge the old elite, beginning with Mr Nazarbayev, who was dropped from leading the Security Council on January 5 and is now rumoured to have left the country. 

The indisputable reality is that parts of Kazakhstan spiralled out of control for days. This is a major blow for a country that has long leveraged its stability and peacefulness to gain international status and foreign investment. So what happens next? 

Oil firms with major interests in the country will stand strong, for now. The likes of, among others, Chevron, Exxon, Shell, Total, Eni, CNPC and Lukoil have sunk billions in the country’s three main oil fields, Tengiz, Karachaganak and Kashagan and won’t pack and go, unless push really comes to shove. Beyond existing interests, the prospect of foreign investment into the country’s oil and gas sector is uncertain. The recent unrest adds to an already challenging market environment. With the International Energy Agency (IEA) expecting oil demand to peak in 2025, oil firms are repositioning. Exploring Kazakh oil potential doesn’t seem to be among their priorities any longer. The government carried out two auctions for oil and gas blocks since 2020, collecting only one bid from a foreign company – a mysterious Dutch newco. Meanwhile, British BP gave up early plans to explore three offshore blocks in the Caspian sea as the firm pivots to renewable energy. 

Beyond natural resources, the country’s prospects are grimmer. Stability and petrodollars created a platform for Mr Nazarbayev to sell his visions at home and abroad. Despite his excesses and alarming cult of personality, many bought into impromptu projects, such as turning the capital Astana (now Nur-Sultan) into an offshore financial centre, or Kazakhstan into a key logistics hub.

Scores of well-paid international advisors — Tony Blair among others — legitimised his visions. Multilateral institutions, from the EBRD to the IFC, boosted their local portfolios to become financial ambassadors of the country. Although rampant inequalities have grown over the years, feeding discontent and corruption, Mr Nazarbayev had a seemingly peaceful, open and developing country to show for, which is rare in the region. Testament to the level of trust he gained in the international community, the country’s stock of foreign direct investment stood at more than $151bn at the end of 2020, according to Unctad data — way above any other country in the Commonwealth of Independent States other than Russia. He also handpicked Mr Tokayev, who was thus hailed as the right man for a stable transition of power. 

That illusion has been shattered. Mr Tokayev lost control and crossed a line his predecessor had never crossed — at least publicly — when he told law enforcement to “open fire with lethal force” against the “bandits and terrorists” in a televised speech.

His move did not impress the international community. “Such wholesale barriers to freedom of expression and assembly premised on terrorism are absolutely contrary to the strict provisions under international human rights law on the right to life,” a panel of UN independent human rights experts wrote on January 11.

With doubts over its stability and human rights track record, investors will have to reassess the country’s risk profile, as well as ESG profile now that their shareholders have recent reasons to question the government’s modus operandi and Mr Tokayev’s leadership style.

True, he has pledged reforms to address inequalities, but anyone familiar with Kazakhstan knows that such promises are cheap currency. Also, does he even have the political capital to push through sweeping reforms? It’s a legit question since LPG prices spiked up because of a 2019 reform introducing electronic trading for LPG – and gradually phasing out subsidies for domestic fuel consumers. Clearly, locals didn't buy into it.  

Besides, there is little prospect of more civil and political freedoms, a long-standing, thorny issue for the country’s authoritarian governance. 

“From a market perspective, the question will be — if the worst case happens and we see a brutal crackdown — will the West respond with sanctions and how does this impact Kazakhstan’s ESG score?”, Timothy Ash, an economist at Bluebay Asset Management wrote on January 6. “Will Kazakhstan follow the Belarus course therein, where it has become difficult for Western portfolio investors to hold Belarus’s assets?” 

These events mark a watershed moment in the history of an independent Kazakhstan. What appeared to be a stable, modernising country has suddenly regressed, if only for a few days, to a chaotic one under Moscow’s sphere of influence. In a way, it’s 1991 all over again, when Mr Nazarbayev had to convince the international community the country had a stable future and opportunities for investors. 

It might prove harder for Mr Tokayev to fare as well, unless he applies the same resolution he used to repress the protestors to reform the country and eradicate corruption. Even then, it will take time to forget the rattling sound of the machine-gun fire echoing in the darkness of Almaty’s freezing winter nights.

Jacopo Dettoni is the editor of fDi Intelligence.