In the wake of the coloured revolutions in Ukraine and Kyrgyzstan, and, to a greater degree, the Uzbek authorities' violent suppression of a popular uprising in the town of Andizhan in May 2005 that is believed to have left over 750 dead, Russia, backed by the Chinese government, launched a dramatic multi-pronged offensive on U.S. targets and influence in the region. Although the Russian government has viewed the coloured revolutions in Georgia, Ukraine and Kyrgyzstan squarely through a geopolitical prism, believing that the U.S. government funded and roused certain groups with the aim of increasing political instability, the Tajik and Uzbek governments have moved firmly back into the Russian orbit, determined to prevent any Kyrgyz scenario in their backyards. At the same time, the combination of the Tulip Revolution in Kyrgyzstan and the events of Andizhan have triggered alarm bells in the Chinese government, which knows that the region has once again become a major geo-strategic battleground. 

During the course of 2005, Russia employed a number of mechanisms in an attempt to assert its authority over the region and this multi-vectored policy will deepen in 2006. On the one hand, the Russian government will champion the expansion of the Shanghai Cooperation Organization (SCO), the Central Asian security body - incorporating the Central Asian states and China - to include an economic dimension, while utilising existing regional bodies such as the Collective Security Treaty Organisation (CSTO) and the Eurasian Economic Community (EEC) to pledge support for the incumbent regimes in Central Asia. 

On the other hand, coinciding with increased Russian state control over the domestic energy sector, 2006 will see a growing synthesis between Russian foreign policy and oil and gas exports, primarily through the state-controlled gas behemoth, Gazprom. Russia is the sole gas supplier to Ukraine, Moldova and Georgia - those countries that have signalled an intent to pursue closer political and economic integration with the United States and the EU - and Gazprom has sought to hike the price of natural gas exports to these countries. The governments of these importing states have argued that the Russian decision to increase prices to 'market prices' is purely a political decision, and will seek the support of the United States and the EU during 2006 for their cause. Given the market realities, Gazprom is justified to some degree in arguing that the looming price hikes are in line with 'market principles', as the company seeks to end the practice of giving preferential terms for gas prices to former Soviet states. Nevertheless, with European demand expected to continue growing in 2006, tough negotiations between Russia on the one hand and Ukraine, Moldova and Georgia on the other look likely to flare up again in the second half of the year, when the various sides begin talks over the export price for 2007.

Domestically, having effectively established state control over the energy sector, the Russian government will continue the process of consolidating state control over certain 'strategic sectors'. In theory, this involves the state establishing direct control via a controlling stake in the biggest enterprise operating in that industry. In an effort to facilitate growth, the government then encourages directed private investment through the creation of strategic partnerships with major foreign industrial companies. Nevertheless, the state itself does not appear to have a clear definition of what is a strategic asset or industry, and although parliament is scheduled to clarify which sectors will be classified as strategic in early 2006, uncertainly is sure to prevail throughout the rest of the year as it struggles to put a clearly identifiable holding company in place in various sectors. In addition to the energy sector, there are a number of industries that are certain to be regarded as 'strategic'. These include the defence industry, where 2006 should see the consolidation of the main companies into one state-controlled holding group and in all probability the metals sector, although, unlike the oil and defence sector, the state at the moment does not possess a clear vehicle through which it could exercise control. With regards to the energy sector, although many questions still have to be resolved, the year ahead will see the dismantling of Gazprom's so-called 'ring-fence', currently limiting foreign investors to some 20% of Gazprom stock as American Depositary Shares (ADS). 

In addition to parliamentary elections scheduled for 2007, the all-important question of Russia's presidential succession in 2008 will become more relevant during 2006. The administration began to mobilise the state apparatus in late 2005 in an effort to secure a smooth political transition ahead of the 2007 and 2008 elections. The 2006 budget notably loosened fiscal policy, including significant spending increases in the health and education sectors, in addition to substantial pay hikes for those public-sector workers. This populist agenda will continue throughout the year as the government seeks to create a 'feel-good factor' in time for the elections. Coinciding with the loosening of fiscal policy will be a concerted media offensive by the Kremlin as it pushes Deputy Prime Minister Dmitry Medvedev (and to a lesser degree Deputy Prime Minister Sergei Ivanov) into the public eye. Having been promoted to the position in November 2005, Medvedev is regarded as the ideal continuity candidate to replace President Putin in 2008. Although there remains a host of possible scenarios leading up to 2008, 2006 will give clearer indications as to the government's 'grand strategy' and, under serious constraints, the liberal opposition will have to consolidate and unify to remain a force at national level, while the leftist-nationalist opposition will seek to capture votes from the ruling United Russia party by capitalising on growing, overt nationalism in Russia's cities and appealing to those sections of society which believe that they have lost out in the transition from the Socialist system, as well as the emerging urban lower-middle classes who fear sliding back into that very socio-economic section of society.

Despite Ukraine's best efforts to accede to the World Trade Organization (WTO) before the end of 2005, its original target date, both Ukraine and Russia will have to settle for a mid-2006 entry date at the earliest. Russia faces tough negotiations with Australia and, above all, the United States in early 2006 as the United States demands greater Russian concessions over foreign access to the financial services market, as well as more stringent controls to curb the infringements of intellectual property (IP) rights. Having removed his fractious cabinet in September 2005, Ukrainian president Viktor Yushchenko has passed a series of measures designed to ease WTO entry. Despite the best efforts of both governments to join the WTO before one another in an effort to maximise their own bilateral trade negotiating positions, it is increasingly likely that the WTO will coordinate the two countries' accession. 

Although the Ukrainian government has scored a number of successes during the course of 2005, such as the symbolic reprivatisation of the Kryvorizhstal steel plant which gave a much-needed boost to the government's coffers, the euphoria of the Orange Revolution has totally dissipated. A series of constitutional changes are scheduled to come into effect at the beginning of 2006 that will in effect transform Ukraine from a presidential republic to a parliamentary democracy, giving parliament the right to nominate a prime ministerial candidate and appoint the Cabinet. As a result the upcoming parliamentary elections in March 2006 are all-important for the continuation of Ukraine's reform programme. Nevertheless, the dismissal of Prime Minister Yulia Tymoshenko in September 2005 all but extinguished the coalition that swept the government to power. Tymoshenko has declared her intention to lead her party into the election and to refrain from any electoral pact with the pro-presidential Our Ukraine bloc. The most likely outcome, however, will be a three-way split between Our Ukraine, Tymoshenko's bloc and Viktor Yanukovych's Party of the Regions. Although there is a danger that Yanukovych will be able to form a 'blue-red-green coalition' comprising the Party of the Regions, the Communist Party and the Socialist bloc, leaving both Our Ukraine and Tymoshenko out of government, the most likely outcome will be a messy and fractious coalition between the two former allies, although given the lingering ideological and personal differences between the two sides, it does not bode well for Ukraine's short-term political stability. 

Having won contentious elections in 2005, both Kazakh president Nursultan Nazarbayev and Azerbaijan's President Ilham Aliyev will regard 2006 as a year of consolidation. Kazakhstan has recently joined the elite club of being a 1-million-barrel/day oil producer and exporter, supplying the United States and Europe via the recently opened Baku-Tbilisi-Ceyhan (BTC) pipeline on the one hand, while continuing to expand its energy ties with China on the other, and President Nazarbayev has presided over and will continue to preside over an economic boom. Nazarbayev has continually stressed that he is willing to allow gradual political reforms and accelerate the pace of cadre change when economic conditions dictate, and 2006 will be a litmus test to determine whether the Kazakh leader is willing to change his team around and promote some younger, more reform-minded individuals from the government. Similarly, over the past two years President Aliyev has been satisfied with a gradual pace of cadre change in Azerbaijan, but this could change in 2006 as he will be tempted to move against a number of the remaining old conservatives from his father's (President Heydar Aliyev) administration. 

Belarus holds presidential elections in March 2006 and although the opposition has at least made an attempt to rally behind one candidate to challenge authoritarian president Alexander Lukashenka, there is very little hope that it will even make an impact on the vote. The opposition still believes that it can foment a revolution in Belarus, but during the election campaign the administration will seek to close any possible avenues for the opposition to disseminate information and, although a number of anti-government protests are not ruled out, it will be difficult for the opposition to galvanise enough support to pressurise the government. 

Tajikistan's President Imomali Rakhmonov will also attempt to consolidate his position in 2006 and tighten his grip on the state apparatus ahead of 2007 presidential elections, but neighbouring Kyrgyzstan faces a year of political uncertainty as politicians-cum-criminals scramble for the vast assets controlled by former president Askar Akayev and his allies. The government will devote much of 2006 to an attempt to empower the law enforcement agencies and regain state control in a number of areas. Nevertheless, there is a danger that, as has occurred in Ukraine, disillusionment from the lack of reforms following the overthrow of the previous government will breed further instability. A number of outstanding questions such as land reform, ownership disputes, and overdue constitutional changes still have to be resolved, but there is a possibility that the already shaky alliance between President Kurmanbek Bakiyev and Prime Minister Felix Kulov will be further weakened. 

After rejecting a UN demand for an international probe of the security operation in the city of Andizhan in eastern Uzbekistan in May 2005, the Uzbek government will entrench itself further in 2006. Although relations between Uzbekistan and the United States will naturally deteriorate further, Russia will restore its geo-strategic position in Uzbekistan and, having concluded a bilateral mutual security pact, the Russian government will seek to expand economic ties, aiming to secure a prominent role for Gazprom and other Russian oil and gas companies. In return, the Russian and Chinese governments will continue to support Uzbek president Islam Karimov and the repressive narrow ruling elite that secure immense profits from the country's lucrative mining and cotton industries. The government will continue to devote significant resources during 2006 to turning the country from simply a raw cotton producer into one that can process that raw material into the higher value-added cotton fibre. Nevertheless, any reform is likely to be state-controlled and any structural changes implemented in 2006 that benefit small rural farmers will be resisted by the economic and political elites who continue to control the sector.

Contact: Raul Dary

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