The result was a high sensitivity of the oil and gas exports of Kazakhstan, Turkmenistan and Uzbekistan to the situation on world markets.
The first indicator of the increased connection of the Central Asian energy market and world economy were the events around the military operations in Iraq, which led to a marked increase in prices for oil and natural gas. In the period from 2003 to 2008, price for a barrel of oil has increased from $ 30 to $ 147. This has been a powerful incentive for more investment in oil and gas projects of Central Asia.
Moreover, Central Asian exporters of oil and gas began to receive increasing profits from the sale of their raw materials, making it possible to start the process of industrial upgrading, to increase funding for social and educational projects.
Meanwhile, CA integration to the global market was not carrying only the positive aspects. The state, which becomes part of the global economy, is not only the beneficiary but also compelled to share all the risks, as the global economy is not a collection of permanent progressive trends, but the structure, which has a cyclical development. Periods of economic recovery are replaced by the phases of recession over time, for instance, the current financial and economic crisis, which replaced a long period of economic growth and high commodity prices.
One of the consequences of this crisis was the sharp drop in prices for hydrocarbons, up to a level below $ 40 per a barrel. Of course, this could not affect the situation with the export of oil and natural gas of Central Asia, as the pressure of the crisis on their economies was not as fierce as in the case of many other states. Accumulated resources over the years due to high prices for energy and the urgent adoption of measures to protect national economies and consumers allowed Central Asian exporters to minimize significantly the impact of fluctuated price environment.
However, it is essential for CA exporters to preserve the prices at a high level for their raw materials at this stage of development of their economies. This will allow to continue financing economic reforms aimed to increase the share of modern industry in GDP, the sector of high technology and innovation, transport communications, speed up the development rate of the research base, etc.
In this regard, all oil and gas exporters should be more careful in monitoring global economic trends, as this will increase the flexibility of national energy and economic policy.
Currently, most major economic centers continue to be in a recession. The United States’ share in this situation is quite high, taking into account that they form up to 25% of world’s GDP and 40% of global demand. In addition, they affect the oil and gas market. For example, while the average daily global oil production in 2009 was at 84.9 million barrels, the U.S. consumed about 20 million barrels. For comparison, China and Japan, accounted for about 8 and 5 million barrels per day.
Nowadays, many producers, particularly from South and South-East Asia, Far East, are highly dependent on the American demand. In recent years, they have significantly increased the usage of energy and other raw materials for production of exports directed mainly to the U.S. market. Moreover, there are many oil and gas exporters from Latin America, Africa and the Middle East, who are also in dependence on U.S. imports.
Taking into account the economic weight of the United States, we can conclude that the near-term global economy and energy market will largely depend on how things go in the United States. Along with this, major U.S. economic parameters do not look encouraging. Hence, U.S. public debt has already exceeded $ 12 trillion, or about 88% of GDP, and continues to maintain upward trend. This can be observed in the decision of the House of Representatives of February 2010 to increase the national debt level to $ 14.3 trillion to avoid default on U.S. obligations. All this comes against the backdrop of the domestic debt growth combined with the external, totaling nearly $ 40 trillion. Besides, the U.S. has a permanent trade balance deficit.
To improve the situation of the U.S. economy, Barack Obama endorsed a special plan in 2009 that has allocated $ 789 billion in addition to $ 350 billion, remained in reserve from the Bush adopted program «Troubled Asset Relief Program». However, taking into consideration the fact that budget deficit in 2009 was $ 1.42 trillion, and prognosticated to increase to $ 1.6 trillion in 2010, it is natural to assume that Washington cannot fund this program from its own resources, and will be forced to rely on the creditors. Currently, the ten largest U.S. lenders are China, Japan, United Kingdom, Caribbean Banking Centers, OPEC, Brazil, Russia, Hong Kong, Luxembourg and Taiwan.
As shown by recent data, the key creditors, especially Japan, continue to purchase American securities, realizing the importance and the necessity to support the American economy. The exception is China, which began selling the U.S. short-term and long-term bills and bonds. In December 2009, China sold Treasury securities for $ 34 billion, and, hence, at the beginning of 2010 the volume of such Chinese assets fell by almost $ 46 billion. As a result, the cost of U.S. debt, accumulated by Beijing, fell from $ 801.5 to $ 755.4 billion. However, most likely, these actions may be temporary tactical maneuvers, which are the cause of friction with the United States on a range of monetary, economic and geopolitical issues.
Adopted actions of Barack Obama administration and trust of the U.S. key creditors are giving positive effect. According to the U.S. Federal Reserve, industrial output increased by 0.9% in January 2010, compared to 0.7% in December 2009. The FRS said that industrial output growth is related to the growth of most of its major components.
Positive statistics from the U.S. immediately gave good impact on prognoses for the global economy and the consumption of oil and gas. According to the World Bank forecast, after a reduction by 2.2% in 2009, world GDP will grow by 2.7% in 2010 and by 3.2% in 2011. The volume of world trade, which declined significantly in 2009 (by 14.4%), is projected to increase by 4.3% this year and 6.2% in 2011.
According to the monthly report of "U.S. Energy Information Administration” (EIA), global oil consumption will grow by 1.5 million barrels a day in 2010 to 85.51 million. Oil production will grow most strongly in the United States, Brazil, Azerbaijan and Kazakhstan. Previously, EIA anticipated growth of consumption at 1.2 million barrels. After outlook revision, EIA estimates world economic growth at 3.4% (previous forecast – 2.7%) in 2010. This is, of course, a positive signal to Central Asian exporters.
Along with the American factor, China is particularly important for producers of oil and natural gas from Central Asia, as well as the global energy market. This is due to several reasons. First, the Chinese market after the implementation of pipeline projects (oil pipeline Atasu-Alashankou and gas pipeline Turkmenistan-Uzbekistan-Kazakhstan-China) is becoming for Central Asian exporters second largest destination after Russia's direction. Secondly, the Chinese economy is the fastest growing in the world, which before the crisis has shown steady annual GDP growth of 10% and above.
According to the analysts, emergency measures of the Chinese government to counteract the impact of the crisis on the national economy managed to contain the further deterioration of the global crisis and achieved a certain stabilization of the situation in the global economy. China had a high rate of GDP growth even during the crisis, amounting to 8.7% in 2009. This, in its turn, has helped China to keep the rising trend of consumption and imports of hydrocarbons, which affected the world oil market where the price of oil rose to $ 70-80 a barrel.
Meanwhile, the majority of reputable experts and international financial organizations is fairly cautious whether the world economy is on a sustainable growth path. The abovementioned World Bank report warns "despite the resumption of positive dynamics of economic growth, the world economy needs several years for reimbursement of incurred losses during the crisis". As for oil, the World Bank predicted the stabilization of prices in 2010 at around $ 76 a barrel, which, of course, is acceptable for most exporters of hydrocarbons, although some OPEC members find the price of $ 100 more satisfactory.
At the moment, there are several factors that might incite the second wave of the crisis, capable of provoking a sharp fall in prices for oil and natural gas. Among them, we can highlight the prospects of effective implementation of Barack Obama’s anti-crisis strategy, the inflation of financial “bubbles” in China and the deteriorating economic situation in the EU.
A number of skeptics believe that the improved economic situation in the U.S. is temporary and in perspective the situation could deteriorate again, as the crisis in the U.S. economy is not cyclical, but structural, the way out of which is a comprehensive reform of the functioning model of the economy.
Moreover, there are concerns about certain processes of the Chinese economy, associated with the appearance of the first signs of financial "bubbles". Russia's economists believe that their probability is generated by the following reasons:
- China's national currency to the dollar is very low, not reflecting Chinese trade environment.
- The excessive money supply, caused by a massive program to stimulate the economy and the necessity to print renminbi to maintain an undervalued currency against the currencies of major trading partners.
- Excessive lending, particularly in the housing and infrastructure construction.
- Mass passion of population for stock market.
- Imbalance of purchases and final consumption of raw materials in the country. In financial markets, there is a long-standing view that the Chinese demand for commodities is the basis for the continuous growth in price for raw materials.
The threat from a “European factor" comes from intra-EU economic problems, exacerbated by a number of countries in Eastern and Southern Europe, the Baltic states, which, in case of failure of the EU financial authorities to solve their problems, can lead to a new wave of crisis and even collapse of the euro zone.
Thus, the Central Asian exporters of oil and natural gas are dealing today with a situation of uncertainty in the global market. Certainly, it is in their interest to preserve the trend of economic recovery of the world’s leading countries, which will automatically lead to increased demand and prices for energy resources. However, while global economic risks persist, their removal will be a key task of a near future. Therefore, the future destiny of the global energy market and prospects for Central Asian oil and gas exports will directly depend on them.

Rustam Makhmudov
Expert of the Center for Political Studies