Jurisdictional frictions behind the UK’s Central Asian strategy

The recently signed UK-Kazakhstan Strategic Partnership Agreement signals further expansion of Western capital into Central Asia’s critical minerals sector and Kazakhstan’s increased engagement with Western capital. However, international investors from both sides face a structural paradox: while there is a presence of legal bodies that operate on international law, the wider legal mechanisms are built on substantially different legal bases. Ignoring these tensions between different legal systems creates a false sense of security for both the UK and Kazakhstan. To achieve financial resilience, legal policymakers and investors must adopt a strategy that bridges capital protection with local regulatory realities. 

The primary challenge in structuring investments in Kazakhstan lies in a foundational mismatch between doctrines of British and post-Soviet jurisprudence. English common law— the governing standard for the AIFC and most international commercial dispute resolution— operates on a broad assumption of a strict division between commercial rights and public administrative powers. Within this framework, the State acts as a regulator that can compensate for private losses, rather than an absolutist Sovereign. Kazakhstan, oppositely to the UK, operates as a hybrid legal system, blending the Romano-Germanic tradition of the USSR, Islamic law, and customary practices known as adat. The fundamental source of legal tension between these two legal traditions is the relationship between the State and its role in engaging with public and private property. Property rights in Kazakhstan’s jurisprudence remain fundamentally conditional on sovereign administrative power, rather than an individual’s commercial rights. 

This underlying legal friction is most vividly illustrated by the high-level arbitration cases involving the Astana International Financial Centre. The Centre is an ambitious initiative designed to operate entirely under a mixture of English law and international standards within Kazakhstan. In creating the AIFC, the government of Kazakhstan attempted to import the prestige and predictability of the English common law to attract Western capital, while strictly surrounding it with the broader administrative structure. The latter was done to ensure that its structure never challenges the core administrative structure of the State. Disputes such as the Naftogaz-Gazprom case have triggered tit-for-tat overrulings between the ICC, the AIFC and Kazakhstan’s Justice Ministry. Kazakhstan’s Justice Ministry has attempted to override an international arbitration decision made by the ICC and upheld by the AIFC. The ICC ordered Gazprom (a Russian gas company) to pay Naftogaz (a Ukrainian gas company) $1.4 billion over the energy transit dispute since the start of Russia’s war on Ukraine. The matter is complicated further given that Russia remains Kazakhstan’s indispensable trading and industrial partner, therefore leaving the actors within Kazakhstan’s legal system under significant pressure to override international arbitration rulings. As a result, when rulings of international arbitration clash with Astana’s geopolitical balancing acts, the State’s bureaucratic apparatus will reassert itself into its Soviet-era legal core. 

The existing legal contradictions cascade into substantial regulatory bottlenecks on the ground, particularly within the crux of Kazakhstan's Subsoil Code and how it pertains to investments in contracts relating to land use. Kazakhstan's current legal system prioritises large, state-aligned industrial conglomerates, without a transparent process of land distribution and, consequently, of the details of the ownership processes. While there is a highly detailed application process for mining licenses, there is little clarity on the underlying mechanisms that validate these licenses, creating immense uncertainty for both foreign and domestic capital. Cases such as the Karachaganak and Kashagan between Kazakhstan and Italian contractors illustrate the tension around the nature of ownership and decision-making processes around what should be disclosed for the State to ensure certainty over the flow of capital. As a result, a higher level of transparency in land allocation and ownership, more broadly, would yield the highest mutual benefits for both Western investors and Kazakhstan. For Kazakhstan, this means more incoming capital, better oversight of State resources and less social friction. For international investors, it alleviates the headache regarding compliance with international ESG standards. 

Another area where tensions in land use arise is the relationship between large commercial entities and local communities. Kazakhstan’s legal system presently does not have any formalised mechanisms to regulate disputes between large commercial entities and local communities. This legal blind spot is especially evident during regular protests by local miners over poor labour conditions and unfair wages. If international investors and the State seek a sustainable partnership, they must establish functional, localised negotiation mechanisms that respect on-the-ground realities. This requires integrating wider cultural understandings of what constitutes a binding agreement, accounting for Islamic approaches to financing, and acknowledging local expectations of the State's obligations in ethnically diverse regions. Without a formalised and localised legal mechanism to bridge the gap between international interests and on-the-ground realities, both the State’s and international capital remain vulnerable.

If the legal architecture of this critical minerals corridor is to function well for both the UK and Kazakhstan, several fundamental aspects should be addressed. These have been argued to be: higher levels of transparency and localised negotiation mechanisms that account for local ethnic and religious differences. Only by acknowledging and integrating these realities can both actors secure the future of the critical minerals trade, resolving conflicts organically on the ground before they escalate into local or international deadlocks.

Image: Wikimedia Commons/Асылхан Абдрахманов

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