Uncertainty Surrounds The World's Largest Uranium Supply

In the aftermath of the holiday season, it's the former Soviet Union in the spotlight, with verbal tensions rising-at least on this side of the Atlantic-over Ukraine's border and Kazakhstan imploding with gas price hikes managing to take down an entire government, putting the world's largest uranium supply in a state of dangerous uncertainty. 

While the fuss over Ukraine is only partially contributing to Europe's record-high gas prices (there are many other factors contributing), the violent unrest in Kazakhstan, which has now seen Russian military intervention, is having an immediate impact on uranium prices. Until now, and for the 29 years that Nazarbayev ruled Kazakhstan in an authoritarian style, Western investors have of course viewed the largest uranium producer (and major oil producer) as a very stable place to park their money. Protests, the security force's response, the government's resignation, and now Russian military intervention destroys that stability overnight.

The week started out with mass protests (almost unheard of in this country) over a 100% hike in gas prices that prompted security forces to use stun guns and tear gas, which only served to exacerbate tensions. By Wednesday, protesters had stormed the presidential residence, setting fire to it, and the government was forced to resign. By Friday morning, the president had ordered security forces to "shoot to kill" protesters, branding them "criminals and murderers" with whom there would be no negotiation. This has empowered the opposition in Kazakhstan, which is now calling on countrymen to resist the Russians, who will be seen as attempting to recreate a Soviet Union-style structure. 

Protests rarely happen in countries where a president manages to stay in dictatorial power for 29 years. Until 2019, that was Nursultan Nazarbayev, who finally stepped down and was succeeded by Kassym-Jomart Tokayev. Tokayev is not Nazarbayev, and the fact that on Tuesday he felt it necessary to say the government would not fall as a result of the protests was indicative of what was to come. 

On Thursday, boots started landing on the ground from the Russian-led Collective Security Treaty Organization (CSTO), a situation that opens up more avenues for Russia to subtly challenge Kazakhstan's sovereignty. Realistically, Kazakhstan under Tokayev has been a powder keg just waiting for something like this to happen. It would have happened sooner had the pandemic not distracted protesters from key issues. 

On the uranium scene, Kazakhstan's Kazatomprom (KZAP.KZ), the world's biggest producer, says operations have not been affected, including exports; however, there is concern that operations will be impacted ultimately, driving spot prices up to $46 per pound Thursday, from the $42 mark where it was trading at the first of the New Year. While Kazatomprom claims no impact as of yet, we expect there to be disruptions in uranium operations, with initial disruptions already priced in. 

On the oil scene, Kazakhstan produces about 1.6 billion bpd. As of Thursday, Chevron, a 50% JV owner in the Tengiz oilfield, said it had cut production due to protests at the facility. By Thursday, the unrest in Kazakhstan had helped lift crude oil prices somewhat (in proportion with Kazakhstan's approximately 2% contribution to global oil supply). All of this, of course, diverts some of Russia's (and the world's) attention from the troop buildup on Russia's western border with Ukraine. This is a cat-and-mouse game that is less about Ukraine and more about NATO's eastward expansion as the frozen conflict takes on a Cold War-style deterrent element. 

This time, Ukrainians aren't protesting their government, and Kyiv isn't imploding, leaving a vacuum for Russia to step in and occupy at will. The panic is largely confined to the US media, while Kyiv is far more relaxed, it is business as usual (occasional skirmishes) on the front lines in Ukraine's eastern Donbas region. 

Next week will see a meeting between NATO officials and Russia, and we do not expect any major developments prior to that. Red lines in this situation could be Ukrainian preemptive attacks on the Donbas region to challenge Russian and pro-Russian separatist positions (beyond what is already a bit of a back-and-forth at the front line); and a clear signal from NATO that not only will it not back down in the east, but it will strengthen its position in Europe and continue to fund the Ukrainian military, even if it will not allow Ukraine to become a member.