Sugar From a Neighbor: Is the EAEU Goods Ban Reversal Enough?

Sugar From a Neighbor: Is the EAEU Goods Ban Reversal Enough?

An initial (but since reversed) ban on exports of Russian sugar and grain to the EAEU sparked negative sentiment in Central Asia that is unlikely to disappear in the near term.

WHAT’S HAPPENING?

On March 31, Russia walked back its weeks-long ban on exporting grain to Eurasian Economic Union (EAEU) members. The initial ban had sparked price spikes, panic buying, and shortage fears in Kazakhstan and Kyrgyzstan.

KEY INSIGHTS

– In addition to the initial ban, the war in Ukraine has prompted major rumblings in the countries’ societies and lower levels of government
– The nebulous circumstances and potential revenue losses surrounding crude oil disruptions via a Kazakhstan-Russia pipeline exacerbate this dynamic in Kazakhstan
– The reversal of the ban on staple goods is unlikely to reverse the trend among Central Asia’s EAEU members of distancing themselves from Russia while maintaining high-level ties

EAEU, EXPORTS AND EXPRESSIONS OF DOUBT

Although the recent announcement rescinds Russia’s initial prohibition on grain and sugar exports to the EAEU through August, the new system does impose bans and quotas on various sunflower and rapeseed products and makes grain exports contingent on Agricultural Ministry authorization. According to authorities, these measures are meant to protect Russian food stores and prices. Sanctions and other financial measures in response to the war in Ukraine dealt a major blow to Russia’s domestic economy, but currency controls and oil and gas revenues have led to recent financial recovery. The recent economic uptick is likely a contributing factor in Russia’s decision to overturn the ban, as the initial restrictions were prompted by a projected long-term financial struggle. Both Kyrgyzstan and Kazakhstan have relied heavily on Russian imports for grain and sugar in recent years due to drought-fueled water shortages and more lucrative exports of domestic grain production in Kazakhstan. As a result of the ban, Kazakhstan introduced its own restrictions on domestic exports on April 14.

The ban’s reversal comes amid increasingly negative sentiment in Central Asia toward Russia — and by extension, regional organizations such as the EAEU and Collective Security Treaty Organization (CSTO), which Russia leads. Kyrgyzstani citizens signed a petition to the government asking them to reassess the country’s obligations under the EAEU and CSTO to prevent Kyrgyzstan from being drawn into the war in Ukraine and/or being impacted by related sanctions against Russia. Meanwhile, Kazakhstani media has undertaken a similar discussion of continued EAEU and CSTO membership – unimpeded by attempts at censorship or censure from the government, which had only recently called in unprecedented CSTO support to quell domestic unrest

Kazakhstan was an original signatory of the Common Economic Space customs union concept, which was later rebranded as the EAEU. The treaty establishing the EAEU was signed in 2014, and Kyrgyzstan joined the union in 2015. Initial intentions for economic integration under the union have been stymied by selective implementation, recessions, customs bureaucracy, and hesitancy from many member states, and Russia soon began to primarily view it as a tool for political influence. For example, the establishment of a single energy market and financial service liberalization were both delayed to 2025 without a clear roadmap for achieving these goals. Both Kazakhstan and Kyrgyzstan are also members of the Collective Security Treaty Organization (CSTO), a Russia-led military alliance that also includes Tajikistan, Armenia, and Belarus.

KAZAKHSTAN, THE OIL EQUATION

Observers contend that the goods ban is not the only instance in which Russia’s attempts to bolster its economic prospects while under sanctions have impacted those of Kazakhstan. Kazakhstan also exports approximately two-thirds of its oil to Russia via the Caspian Pipeline Consortium (CPC) pipeline, and several key CPC loading facilities in Novorossiysk were recently rendered inoperable, limiting oil deliveries for up to two months for repairs. This was ostensibly due to a storm, but some analysts expressed skepticism about this explanation for the supply disruption since Western CPC partners were unable to conduct proprietary inspections. These analysts linked the move to Russia’s difficulty selling its oil under current and potential future Western bans

As crude oil is Kazakhstan’s largest export by far and brought the country 25 billion USD in 2020, the projected shortfall of 1 million barrels per day while the CPC facilities are repaired will have a major impact on Kazakhstan’s revenues and is prompting Kazakhstani authorities to explore alternative routes for oil exports. Whatever goodwill and recovery the resumption of grain and sugar exports may have prompted in Kazakhstan, the CPC disruption may come to undermine and even counteract.

UKRAINE AND UNEASE

The ban on grains and sugar was not the only factor contributing to unease in these countries. Since Russia invaded Ukraine on February 24, Kazakhstan has been distancing itself from its larger ally to the East while maintaining and balancing high-level ties. One early protest against the war in Ukraine gathered thousands of participants and received rare government approval, although permission for a later one was denied. Lower-level officials expressed similar sentiments in interviews with the foreign press. Kazakhstan’s deputy chief of staff has expressed Kazakhstan’s desire not to be put “in the same basket as Russia” and hold firm to sanctions despite EAEU membership. The Kazakhstani foreign minister also expressed his country’s determination to not end up behind a “new iron curtain” and avoid collateral damage from politically focused economic measures against Russia. At the same time, however, higher-level authorities have been careful to reiterate Kazakhstan’s neutrality on the war and its support for the Russian stance calling for a neutral Ukraine

Meanwhile, although officials have denied reports that Kazakhstan refused an early Russian request for Kazakhstani forces to fight in Ukraine, a recently-announced increase in outlays toward bolstering domestic defense and the military indicates that the country is likely concerned about its vulnerability to external and internal threats and, by extension, hedging its bets in relation to membership in and reliance on the CSTO.

Kyrgyzstan’s response to the war has been similarly nuanced. A small anti-war demonstration in front of the Russian Embassy in Kyrgyzstan occurred soon after the invasion, with another small gathering in the city of Osh. By mid-March, Kyrgyzstani authorities had banned anti-war protests in the capital and fined several activists, reportedly under pressure from Moscow. Meanwhile, the cabinet of ministers’ deputy chair and the foreign minister publicly affirmed their support for a sovereign country’s right to determine its domestic foreign policy, secure humanitarian corridors and an end to the war in Ukraine, and territorial integrity. These statements more closely align with Ukrainian positions on these issues. The deputy chair of the cabinet of ministers also emphasized having urged both parties to the conflict toward peace, while reiterating Kyrgyzstan’s neutral stance.

In this broader context, the walking back of the ban on some staple goods is unlikely to alter the balancing act in which Kazakhstan and Kyrgyzstan appease Russia to the extent possible by maintaining relations within the EAEU and CSTO while avoiding further steps toward financial and market integration and mitigating military dependence. Meanwhile, they will likely continue to allow debate on and opposition to these ties at a lower level. 

Any views and opinions expressed in this article are those of the author and do not necessarily reflect the position of Internews.