CENTRAL EUROPEAN UNIVERSITY

INTERNATIONAL RELATIONS AND EUROPEAN STUDIES

TERM I. (2005/2006)
(IRES 5149) Central Asian Security Studies –
Flemming Hansen

Central Asian Energy Watershed:

Anarchy, power, and cooperation

Andrej Nosko
February 5, 2006

Abstract:
This paper focuses on the problems related to the cooperation within the energy-water complex in the
Central Asian region. Identifying basic binary relations between upstream countries and downstream countries;
whereas downstream countries are dependent on the water from upstream countries for irrigation, upstream
countries are dependent on the fossil fuel imports primarily from the downstream countries.
The explanation for the hardship in the cooperation is found in the fact, that after the collapse of the USSR,
these countries were facing anarchy as well as nation building process. Their relations can be characterized by
multiple “prisoner’s dilemma” games, thus closely resembling “stag hunt” game. Based on this analysis, initial
hardships are attributed to the learning process of each others reliability as well as type of the game parties are
participating at.
The future prospects for cooperation are consequently estimated to be optimistic, with two possible
hindrances being in the different speed of market reforms in the various countries, which affects the speed of
monetization of resource exchange, deemed to be is crucial for understanding of the symmetries in exchange, and in
the equitable allocation of property rights over water in the region.

Word Count: 2, 222

(Excluding appendices and bibliography)
CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

Table of Contents

1. Prologue ..................................................................................................................................... 1

2. Cooperation in the anarchy ....................................................................................................... 3

2.1 “Prisoner’s dilemma” or “Stag hunt”? ............................................................................................ 4

2.2 Way out of the predicament............................................................................................................... 5

3. Conclusion.................................................................................................................................. 6

4. References and information resources...................................................................................... 7

Appendix A: Overview of sector dependencies ............................................................................. 8

A.1.Fossil fuels ........................................................................................................................................ 8

A.2. Water ................................................................................................................................................ 9

List of Tables

Table 1: Primary energy resources in Central Asia ........................................................................ 8

List of Figures

Figure 1: Game theory matrices...................................................................................................... 5

Figure 2: Water usage in the Central Asian part Aral Sea basin .................................................... 9

Figure 3: Significance of Hydrocarbons reserves in Central Asia................................................ 10

Figure 4: Water utilization (agriculture/industry) and resources by country................................ 10

Central Asian Energy Watershed

CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

Central Asian Energy Watershed:

Anarchy, power, and cooperation

1. Prologue
Countries of Central Asia lie half-way between Europe and Asia proper, comprised of the
former Soviet Central Asian countries of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and
Uzbekistan. The richness of the region for fossil fuels as well as other natural resources, has led
to the increase of interest towards the region on the global level, right after these countries
received their international legal sovereignty in 1991, after the collapse of the Soviet Union.
Independence of these countries, has not only brought certain level of freedom for
choosing of their own path and speed of development, but also new constrains for these choices.
Significant interests from Europe (and specifically Russia), Asia, and USA, based on the
presence of natural resources, and strategic location, only added to the already rampant
dependency relations based on the intraregional interests in the absence of higher authority.
Area of approximately 4 million km2 populated by over 55 million people, possesses
recoverable oil resources for approximately 65 years, natural gas for 75 years, coal for over 600
years, as well as significant uranium deposits, and annual economically viable hydropower
potential of 400 billion kWh, from which not more than 10% has been developed. 1 In spite of
this, primary problem of this region that has emerged only after the collapse of the Soviet Union
is the uneven distribution of these resources and the inability to cooperate in their effective
sharing and exchange.
Almost all of the deposits of fossil fuels are concentrated within territories of Kazakhstan,
Turkmenistan, and Uzbekistan while water resources granting 90% of the viable hydropower
potential, as well as source of irrigation water, are located in Kyrgyzstan and Tajikistan. Both
fossil fuels, as well as water are immensely important for the economic well being and further
development of all of the countries in question, the ability to use them is vital for further
development of the economies in the region, while failure to do so will inevitably lead to the

1
UN: Special Programme for the Economies of Central Asia – Project Working Group on Energy and Water
Resources. Strengthening Cooperation for Rational and Efficient Use of Water and Energy Resources in Central
Asia. (United Nations: New York, 2004), p. 12.

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

decrease in the economic performance and consequently to the decrease in the quality of life of
populations living in these regions.
Countries of the former soviet central Asian region are economically underdeveloped,
facing multitude of problems that were not preeminent during the Cold War. The question that
this paper poses is why cooperation in sharing of the water and energy resources has been rather
problematic after the collapse of Soviet Union, forming a major obstacle of economic
development of this region. Consequential question than arises, whether the problems of
cooperation in the energy-water sector are endemic to the particular regional configuration of
Central Asia or can be attributed to systemic variables.
The answer proposed within this paper is, that the primary internal problem of the
economic development within the region remains in the interplay of intraregional energy and
water dependencies within the context of nation-building process, rendered in the anarchical
environment that emerged after the collapse of the USSR.
The further analysis is informed by game theory, following evolution from the classical
“prisoner’s dilemma” scenario into a sequential game, more closely resembling “stag hunt”
scenario.2 The problem manifests itself because of the asymmetric allocation of resources as well
as asymmetries in their monetization. Whereas exchange of fossil fuels was traditionally
monetized, transfer of water was traditionally considered as public good and transfers were not
usually properly monetized.
The development from “prisoner’s dilemma” into “stag hunt” is consequently attributed
to the learning process which occurred concurrently with nation-building, thus causing a number
of defections where cooperation would lead to more desirable outcomes.
Therefore primary cause is identified in the systemic influence of the anarchical context,
which emerged after the collapse of USSR. Whereas during the coexistence of these countries
within the Soviet union, cooperation and resource sharing was managed by the overarching
authority of Moscow, providing for incentives for cooperation and ensuring compliance, after the
collapse of the Union, Central Asian states were facing context of anarchy in which they had to
build their states, economies as well as to learn how to cooperate in the absence of ultimate
authority.

2
Robert Jervis, “Cooperation Under the Security Dilemma”, World Politics, Vol. 30, No. 2 (Jan., 1978), p. 171..

Central Asian Energy Watershed

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The contribution of this paper lies primarily in the application of structural perspective
informed by game theory on the regional cooperation under anarchy, thus providing important
insight into the possible hindrances for the smooth application of institutional solutions to the
problem of energy-water sharing, which have been proposed.
The organization of this paper follows the systemic aspects of the regional relations that
are analyzed through the asymmetries of resource interdependence. The analysis stems from the
most palpitating resource dependencies analyzed through interdependence network, based on the
taxonomy of sector dependency relations included in the Appendix A.
Finally, major power relations are emphasized with their possible implications for
potential solutions and future developments, within the framework of development from
“prisoner’s dilemma” scenario into a sequential game resembling “stag hunt” scenario.
Besides sketching out what this paper aims at, it is also important to mention limits of this
paper. Due to the scope restraints, this paper does not analyze the particularities of the
dependency relations. Rather brief overview that is essential for following the argument of this
paper is provided in the Appendix A. therefore readers not familiar with the sector situation of
the energy-water complex of Central Asia are advised to refer to it prior to proceeding to the
section 2.
As far as the conceptual apparatus being employed is concerned, scenarios that are
proposed for explaining the situation in Central Asia assume that actors are in the context of
anarchical environment. This assumption, however, besides being the basis of the argument, is
taken for granted as providing the core explanation for the problems in cooperation, however
other non-realist nuances are not apriory exluded (possibility to overcome anarchy through
cooperation is a second assumption that this paper elaborates on), however the lack of the further
expansion, proper nuancing, and proof is due to the constraints on the scope of this paper.

2. Cooperation in the anarchy

The need for cooperation in managing resources of Central Asian countries was already
recognized before countries in question gained independence. 3 The situation back than, was
however different, as the final word in the decision was pronounced by Moscow. Two upstream

3
UN, 2004, p. 48.

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

countries’ agriculture based on irrigation was suppressed in order to provide downstream

countries with enough water through reservoir systems built in the upstream countries. Upstream
countries were compensated for not developing their own irrigation-based agricultures by
provision of energy and agricultural products.
With the collapse of USSR, this situation has changed; even though setting up of Inter-
state Commission for Water Coordination (ICWC), by the successor states was aimed at
retaining original principles of water allocation from USSR times, compensation present in the
USSR did not follow as smoothly.
In addition to the ICWC, there were also other inter-governmental agreements set up for
managing water and resources in the area; these however provided only general approach to
solving water problems,4 and their observance was not always consistent, not only because of
natural conditions (draught years), but also because of inability to pay for the resources. 5
The question then remains, why is it so challenging to cooperate for these countries, if
they can all, but loose through cooperating? The proposed solution can be seen in the application
of game theory. Basic assumption is that game theory provides viable explanation, because after
the collapse of the USSR, there was no supreme authority to enforce intergovernmental dealings
within the environment closely resembling anarchy.

2.1 “Prisoner’s dilemma” or “Stag hunt”? 6

Consequently question, whether Central Asian countries were in the inescapable
predicament of “Prisoner’s dilemma” arises. “Prisoner’s dilemma” can be characterized by a
single equilibrium state, in which both actors defect (DD) which is least costly if the other
defects as well (See Figure 2 for matrix representation). However this scenario provides best
explanation only if it is a single occasion game and there is no learning of the other’s
trustworthiness and intentions and the relations can be purely characterized in zero-sum-gain
terms, that is if one gains, other inevitably has to loose.
The situation with the energy-water complex in the Central Asian region, however, is
different. Upstream countries need energy resources every winter, as much as downstream

4
UN, 2004, p. 50.
5
UN, 2004, p. 86.
6
Jervis, 1978, p. 171.

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countries need water for irrigation every summer. Therefore, this game is being repeated,
perpetually, thus more closely resembling “Stag hunt” game scenario, in which optimal outcome
is when both parties cooperate (CC).
STAG HUNT PRISONER’S DILEMMA
Cooperate Defect Cooperate Defect
A A
Cooperate 1 2 Cooperate 2 1
1 4 2 4
B B
Defect 4 3 Defect 4 3
2 3 1 3
Figure 1: Game theory matrices
Note: Number and letter denote a rank of preference, and actor respectively.

Source: Robert Jervis, “Cooperation Under the Security Dilemma”, World Politics, Vol. 30, No. 2 (Jan., 1978), p. 171.

The downstream countries can defect, by not providing fossil fuel resources; this however
causes upstream countries to use reservoir water for (primarily winter) electricity generation,
thus providing less water for downstream countries irrigation in the summer months.
Similar dilemma occurs, when upstream countries are being offered energy resources at
world prices, while downstream countries request USSR-era water concessions. This
consequently leads to upstream countries attempting to increase their electricity generation
(targeted for both domestic and export markets) as well as increase in the irrigation-based
agriculture (thus lowering the demand for foreign currency through import substitution), hence
lowering the water potential for the downstream countries.

2.2 Way out of the predicament

The Pareto-optimal situation is when both upstream as well as downstream countries
cooperate (CC). This, however, can be achieved only if the cooperation is perceived as
symmetric, therefore both resources as well as water relations need to be monetized. If the
exchange in resources corresponds to the exchange in water, which has same production capital
potential for the economy as other resources, cooperation can be more clearly perceived as
balanced.
Besides the need for monetization of exchange of resources, quota allocation needs to be
based on the real availability and formation of resources, therefore if higher portion of water is

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

being formed and stored in the upstream countries, these countries need to have property right to
this water, thus be able to exchange these property rights for other scarce resources (fossil fuels).
The prospects for mutual cooperation are high, because game is repeated, and costs for
long-term non-cooperation (DD) are relatively high, while gains from one-time defection are too
low for the defecting party, while costs of bearing the consequences of the counterparty’s one-
time defection are unlike in the “prisoner’s dilemma” relatively acceptable for the cooperating
party (CD/DC). The costs of one-time defection are relatively high – defector will have to face
possible consequences in the next round, or possibly in the long-term.

3. Conclusion
The prospects of cooperation in the water-energy complex within the Central Asian
region were originally influenced by the perception of the zero-sum-gain game within anarchical
environment. The learning process, which concurred with the nation-building of the states led to
acquiring knowledge, that the game is not one time, and the sum is positive.
The answer to the question, why the cooperation over sharing water and resources in the
region was difficult, is found in the fact that the interplay of intraregional energy and water
dependencies within the context of nation-building process, occurred in the anarchical
environment that emerged after the collapse of the USSR and all parties had to acquire proper
knowledge of functioning within this context, as well as had to build their confidence and trust
towards other parties.
The structural analysis informed by application of game theory, identified evolution of
the regional interdependence relations from the “prisoner’s dilemma” scenario into a sequential
game, more closely resembling “stag hunt” scenario.7 The problem of the region manifests itself
because of the asymmetric allocation of resources as well as asymmetries in their monetization
within the anarchical environment. Whereas exchange of fossil fuels was traditionally monetized,
transfer of water was traditionally considered as public good and transfers were not usually
monetized.

7
Robert Jervis, “Cooperation Under the Security Dilemma”, World Politics, Vol. 30, No. 2 (Jan., 1978), p. 171..

Central Asian Energy Watershed

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

Primary cause is therefore identified in the systemic influence of the anarchical context,
which emerged after the collapse of USSR. The contribution of this analysis is than in the
application of structural perspective informed by game theory as proposed by Robert Jervis.
Whereas Jervis applied this framework on the security dilemma and arms races, his
framework can be as well applied for understanding of the complications in the cooperation in
the Central Asian region. Stemming from the application of this framework, future looks rather
bright for Central Asia. Once all parties learn their stances, and come to be aware of their mutual
interest in cooperation, defecting from cooperation should become rare.
However, until that time, two following endemic problems need to be faced: First,
different speed of the market reforms in various countries, as this will significantly influence
prospective monetization of resource exchange, as well as understanding of the actual symmetry
of the exchange. Second problem that needs to be faced is the allocation of water quotas, which
is closely related to the allocation of property rights significantly related to the geographical
resource allocation and development of economies on the adjoining areas.
Once these problems are overcome, cooperation should proceed more smoothly, thus
providing populations living in the region with higher living standards and economy with more
efficient resource allocation.

4. References and information resources

• Jane’s Sentinel Security Assessment – Russia and the CIS <http://sentinel.janes.com>.
Accessed on 13 January 2006.
• Jervis, Robert “Cooperation Under the Security Dilemma”, World Politics, Vol. 30, No. 2
(Jan., 1978), 167-214.
• UN: Special Programme for the Economies of Central Asia – Project Working Group on
Energy and Water Resources. Strengthening Cooperation for Rational and Efficient
Use of Water and Energy Resources in Central Asia. United Nations: New York,
2004.
• Wegerich, Kai: “Water – the difficult Path to a Sustainable Future for Central Asia” in Tom
Everett-Heath, ed., Central Asia – Aspects of Transition, London: Routlege 2003, pp.
244-263.

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

Appendix A: Overview of sector dependencies

The relations in the Central Asian region can be bluntly characterized by binary
dependences, forming a seamless web of regional interdependence relations. For the clarity of
analysis, these relations can be further analyzed in the sense of the two most prominent
dimensions: fossil fuels, and water. These two dimensions will be analyzed through their impact
on the well being and future prospects of the economy.

A.1.Fossil fuels
Fossil fuels are important primarily because of two reasons: their utility for generating
electric energy and their convertibility into foreign assets if transferred to, and sold at world
markets. As is noticeable from the Table 1: Reserves of hydrocarbons in Central Asia,
significant reserves of hydrocarbons are located only in three countries: Kazakhstan, Uzbekistan,
and Turkmenistan. Kyrgyzstan and Tajikistan have only insignificant so far undeveloped
quantities and are therefore relying on the imports of their energy resources.
Oil Natural Gas Coal Uranium* Hydropower
trillion barrels trillion m3 bln tons thousand tons bln kWh/yr
(econo. viable)
Kazakhstan 39.62 3.00 34.1 601 27
Kyrgyzstan 0.04 0.0056 1.27 Insig. 99
Tajikistan 0.012 0.0056 1 Insig. 317
Turkmenistan 0.546 2.90 Insig. Insig. 2
Uzbekistan 0.594 1.86 2 83.7 15
Table 1: Primary energy resources in Central Asia
*World Energy council estimates, with mining costs under USD 130/kg
Source of data: Jane’s Sentinel Security Assessment, BP Statistical review of World Energy, June 2005 and UN:
Special Programme for the Economies of Central Asia – Project Working Group on Energy and Water Resources.
Strengthening Cooperation for Rational and Efficient Use of Water and Energy Resources in Central Asia. United
Nations: New York, 2004, p 81.

Even though Kyrgyzstan is dependent on oil, gas, as well as coal imports, from Russia,
Kazakhstan, Turkmenistan, and Uzbekistan, it is net exporter of electricity. Tajikistan imports its
oil and gas from Uzbekistan in return for providing Uzbekistan with rail access. Both Kyrgyzstan
and Tajikistan generate most of their electricity in hydro-electric power stations, as both are
mountainous upstream countries in the Aral Sea Basin.

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

A.2. Water
Water within Central Asian region is important because of its two major utilizations:
generation of electricity and irrigation of crops. As one can blatantly observe from the Figure 1:
Water usage in the Aral Sea basin, supply vs. usage of water is extremely skewed.

Usage vs. run-off

100%
2,554 1,631
90% 11,815
80%
70%
60% 30,750 53,251 Run-off
50%
24,494 17,300 Usage
40% 42,230
30%
20%
10% 7,340 8,635
0%
n
an
an

n
an

ta

ta
st

is
st

ist

is
yz

en
kh

ek
jik
rg
za

zb
Ta
Ky

rk
Ka

U
Tu

Figure 2: Water usage in the Central Asian part Aral Sea basin
Source: Author’s calculation based on data from SIC ICWC, 2000 as cited in UN (2004), p. 28. and World Bank Paper,
Fundamental Provision of Water Management Strategy in the Aral Sea Basin, 1996, p. 13. as cited in Wegerich, Kai: “Water –
the difficult Path to a Sustainable Future for Central Asia” in Tom Everett-Heath, ed., Central Asia – Aspects of Transition
(London: Routlege 2003) p. 255.
Kyrgyzstan and Tajikistan, two countries, that provide the region with the most water, use
the least amount of it, while Kazakhstan, Turkmenistan and Uzbekistan, three downstream
countries use the most of the Aral Sea watershed water resources.

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CENTRAL ASIAN SECURITY STUDIES – Flemming Hansen Andrej Nosko, IRES

Reserves of Hydrocarbons in Central Asia

Natural Gas; Uzbekistan

Oil; Uzbekistan

Oil; Turkmenistan

Kazakhstan
Kyrgyzstan
Tajikistan
Turkmenistan
Uzbekistan

Oil; Kazakhstan
Natural Gas; Kazakhstan

Natural Gas; Turkmenistan

Figure 3: Significance of Hydrocarbons reserves in Central Asia

Source: Author’s calculation based on data from SIC ICWC, 2000 as cited in UN (2004), p. 28. and World Bank Paper,
Fundamental Provision of Water Management Strategy in the Aral Sea Basin, 1996, p. 13. as cited in Wegerich, Kai: “Water –
the difficult Path to a Sustainable Future for Central Asia” in Tom Everett-Heath, ed., Central Asia – Aspects of Transition
(London: Routlege 2003) p. 255.

Water system in Central Asia

100%
11,223

3,68
54,37
1,549
80%

0,49
Uzbekistan
60% 0,91 50,583 Turkmenistan

23,29 0,59 Tajikistan

km3

Kyrgyzstan
40% Kazakhstan
10,96

6,26
9,5 29,209
20%

27,41

0% 2,426
Agriculture Industry Run-off Aral Sea basin

Figure 4: Water utilization (agriculture/industry) and resources by country

Source: Author’s calculation based on data from SIC ICWC, 2000 as cited in UN (2004), p. 28. and World Bank Paper,
Fundamental Provision of Water Management Strategy in the Aral Sea Basin, 1996, p. 13. as cited in Wegerich, Kai: “Water –
the difficult Path to a Sustainable Future for Central Asia” in Tom Everett-Heath, ed., Central Asia – Aspects of Transition
(London: Routlege 2003) p. 255.

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