How
will the Ukrainian crisis affect the tenge?
The answer depends on how the conflict will
affect world demand for Kazakhstani oil.
This, in turn, depends on Russia. The central bank of Kazakhstan
attributes both of its tenge devaluations since 2009 largely to the weakening
of the Russian ruble, notes a Kazakhstani business weekly, Panorama. Since the National
Bank believes that the ruble influences demand for tenge, currency speculators
will act accordingly.
On one hand, Russian belligerence – perhaps
not entirely a new phenomenon – has convinced Europe to seek alternative
sources of oil, including Kazakhstan. This should strengthen the tenge.
On the other hand, European sanctions have
induced the Kremlin to find other buyers for its oil. This week, Russia
signed a $400 billion pact to pipe natural gas to China for 30 years. Kazakhstan is losing market share,
which should weaken the tenge. (The
president of Kazakhstan,
Nulsultan Nazarbaev, has just signed an agreement in Beijing for an oil and gas pipeline. Isn’t that a coincidence?)
What is the overall impact on Kazakhstan? Well, consider the net change in world demand
for Russian oil. As a matter of logic, it
must be negative. Had it been potentially
positive, Russia would have
reallocated the oil itself, from Europe to China; the goad of a Ukrainian
crisis would not have been necessary. On
net, then, Kazakhstan
is gaining oil buyers, so the tenge should strengthen.
Finally, consider Russian demand for
Kazakhstani oil. Western sanctions have
reduced Russian income and subsequently Russian demand for oil imports.
The size of these three impacts will depend
on how currency speculators perceive the future of Ukraine. Much hinges on Sunday’s presidential
election. If it favors the pro-Russian
element, or if it is marred by violence, then speculators will probably
anticipate civil war, increased sanctions against Russia, and a strengthened
tenge. Otherwise, they will look for a
weakened tenge.
In any case, we won’t have to wait long for
the forex denouement. Every speculator will expect her
colleagues to act immediately on the electoral outcome and will act accordingly
– the textbook case of a self-fulfilling prophecy.
That’s the crystal ball (never mind the
cracks) for 2014. By next year, continued
sanctions may so increase oil prices as to drive up production costs in Europe. Output
prices would rise, output demand would fall, and the continent may return to
recession. This would eviscerate demand
for Kazakhstani oil. But it is hard to
believe that Europe would pursue sanctions
beyond the point of shooting itself in both feet. –Leon Taylor tayloralmaty@gmail.com
References
Delovoy
Kazaxstan [Business
Kazakhstan]. Prorivnoy vyzyt v Podnebecnyu [A breakthrough
visit to the Heavenly
Kingdom]. May 23, 2014.
A good example of a time-honored tradition in Kazakhstani journalism –
regurgitating press releases.
Panorama. Pervi kvartal etovo goda
odnym yz camix profytsytnix dlya tekushevo scheta strani [The first quarter of this year is one of the
best for the country’s current account].
May 16, 2014.
Perlez, Jane. China
and Russia
reach 30-year gas deal. New York Times. May 21, 2014.
