• ABOUT US
    • History
    • Our Team
    • Advertising
    • Subscription
  • CONTACT US
Georgia Today
No Result
View All Result
  • News
  • Politics
  • Business & Economy
  • Social & Society
  • Sports
  • Culture
  • News
  • Politics
  • Business & Economy
  • Social & Society
  • Sports
  • Culture
No Result
View All Result
Georgia Today
No Result
View All Result

Top 5 Economic Consequences of Russia’s War on Ukraine: a View from Georgia

by Georgia Today
March 3, 2022
in Business & Economy, Editor's Pick, Newspaper
Reading Time: 5 mins read
Dollarization of Bank Deposits in Georgia: What Everyone Should Know

As I am writing these lines, Russian tanks are moving deeper into the territory of my country, Ukraine, and emotions are threatening to overwhelm me. But emotions cannot shake what we, as economics scholars, value most: devotion to truth, and careful, impartial use of facts and logic to arrive at conclusions.

In this spirit, what can we say about the top 5 economic threats arising from the war that Russia is waging in Ukraine, especially from the standpoint of a small but strategically and historically important regional player – Georgia?

An apartment complex in the eastern Ukraine town of Chuguiv was hit in an airstrike on Feb. 24. Photo by Aris Messinis/AFP/Getty Images
An apartment complex in the eastern Ukraine town of Chuguiv was hit in an airstrike on Feb. 24.
Photo by Aris Messinis/AFP/Getty Images

PRICES – FUEL, GRAIN AND FOOD STAPLES, COMMODITIES
The first economic casualty will be prices, in particular prices of fuel and food staples: wheat, corn, cooking oil.

Oil and gas
Since the start of the war on February 24th, the Brent Crude oil prices have jumped to their highest level since 2014. In recent days, the price went over $100 per barrel. Just to compare, at the beginning of 2022, the price hovered around $80 per barrel. This spike is driven, on the one hand, by a large gap between global demand and supply caused by the pandemic, and, on the other, by the geopolitical threat, given that Russia is the third-largest oil producer in the world. Russia currently supplies one-tenth of world oil consumption, and close to half of Europe’s gas.

Food staples
Both Russia and Ukraine are important global exporters of basic agricultural commodities. According to data from 2020, Russia and Ukraine combined accounted for 26% of global wheat exports, with Ukraine responsible for 8% (not surprisingly, Chicago wheat futures rose sharply as the invasion of Ukraine began). Both countries account for 24% of global barley exports; 57% of the world’s exports of sunflower seed, safflower, and cottonseed oil. Ukraine alone accounts for 13% of the world’s corn exports. Most of Ukraine’s wheat goes to Asia or Africa, putting food security in these regions immediately at risk, but also implying steep price rises in the rest of the world.

Russia-Ukraine war: As the Brent crude oil price climbing to record high, oil marketing companies are likely to revise the fuel prices soon. Source: india.com
Russia-Ukraine war: As the Brent crude oil price climbing to record high, oil marketing companies are likely to revise the fuel prices soon. Source: india.com

Implications for Georgia
One has to keep in mind that even before the war started, global food prices were rising rapidly due to the Covid-19 pandemic and the strain it put on global production and supply chains (FAO reported a 28% food price increase in 2021). But the situation will be exacerbated by the war. Since Georgia depends on imports of wheat for more than 90% of its consumption (much of the import comes from Russia), the global price increase will have an immediate effect on the country, in particular on the livelihoods of the poor. The rise in the price of fuel is already being felt in Georgia. For the government, it means that they must start planning on how to soften the blow for its poor and most vulnerable groups. Very likely these measures would imply more foreign borrowing, which brings us to the second set of risks.

FINANCIAL MARKETS FACE UNCERTAINTY. ECONOMIC RECOVERY FROM COVID UNDER THREAT
Financial markets are not yet prepared to price in the risks that may be coming from this war. Morgan-Stanley investment chief warned that any short-term trading on the conflict is likely to “get it wrong”. This means that financial markets could still experience wild swings going forward, which will increase the cost of borrowing and slow global growth. Bloomberg analytics also warns that growth will be slowed down as households spend an increasing share of their income on food and fuel, thus leaving fewer resources for other purchases.

For Georgia, increased uncertainty on the global financial markets could also imply higher borrowing costs. However, one has to keep in mind that Georgia’s sovereign debt is mostly a low-interest multilateral debt to international organizations. This means Georgia may not be immediately and severely hit by the rising cost of borrowing on the international markets. However, Georgia’s investment and FDI may be impacted, as uncertainty about the geopolitical situation in the region grows. However, if the value of the Georgian Lari deteriorates, as a result, one may expect the country’s debt to GDP ratio to rise even further.

IMPORTS OF RUSSIAN AND UKRAINIAN GOODS. GEORGIAN EXPORTS TO BOTH COUNTRIES
Both Russia and Ukraine are among the top five export destinations for Georgia. Ukraine accounted for 9.5% of Georgia’s exports in January 2022, while Russia for 12.9%. The biggest linkages, however, come not from the export of goods but from services, such as tourism. If the situation deteriorates, tourism from both countries will suffer significantly or might even stop.

As far as imports into Georgia, Russia accounts for about 11% of total imports (the second-largest share after Turkey), while Ukraine is in 7th place with 4.3%.

REFUGEE CRISIS
A refugee flow from Ukraine is likely to reach an unprecedented magnitude. EU countries already estimate that more than 7 million people will be displaced. In Georgia, there is tremendous public support and readiness to take in refugees from Ukraine. However, as the fighting rages in the North, East, and South of Ukraine, there is currently almost no physical possibility to get to Georgia by air, land, or sea. Most of the refugees are now on the western borders, taken in by Poland, Slovakia, Romania, Hungary.

ANTICIPATION OF WHAT MIGHT BE NEXT – GEORGIA’S PERSPECTIVE
Perhaps the most frightening consequence of this war is the anticipation of what (or who) might be next, especially if the most pessimistic scenarios are allowed to unfold. It is very doubtful that Georgia will be spared in the imperialistic game, even if behaves “cautiously” – i.e., does not join global sanctions against Russia, avoids inflammatory rhetoric, etc. Other countries realize Georgia’s predicament, and if worse comes to worst, international investments and FDI are likely to dry up.

“Russia attack on Ukraine set to hit global food supply chains,” by Emiko Terazono, Judith Evans and Hudson Lockett. The Financial Times (February 24, 2022).
“Russia attack on Ukraine set to hit global food supply chains,” by Emiko Terazono, Judith Evans and Hudson Lockett. The Financial Times (February 24, 2022).

Finally, there is the question which economics alone cannot answer: is the world (including Georgia) prepared to pay the price that this war will impose? Will the world continue supporting Ukraine’s struggle for independence, or is it more likely to favor peace at any cost with Russia? The phrase I often hear from Georgians and Ukrainians alike is that if you surrender your freedom for bread today, tomorrow you will have no bread and no freedom.

Based on the events of the recent days, it seems to me that the Georgian and Ukrainian people are choosing their current and future freedom. I only hope that the rest of the world will have the strength to follow their example.

A Note from ISET Director Tamar Sulukhia: Ukraine Inspires a Better World
As an economic policy think-tank, ISET writes about economics. But today we also want to express how much we admire Ukraine’s heroism and how it inspires a better world. Ukraine has become a shining beacon. Its fight against Russian aggression has transformed into a noble, heroic fight for the highest values of Mankind, and the most inspiring phenomenon, one which the entire civilized world now admires through a veil of tears.

No matter how contradictory this may seem, Ukraine, in the middle of tragic reality, has given the world a unique chance to become better. First, it inspired absolutely unprecedented solidarity around the globe – big and small countries and global institutions are confronting and isolating the aggressor together, while equally providing military, humanitarian, and financial support to Ukraine. Second, it reminds the global community that there is never a ‘too early’ to confront aggression and violence, and the world can’t afford to repeat mistakes of the recent past – with the world’s apt and timely reaction against aggression, Ukraine’s current tragedy could have been avoided.

Every night, Rustaveli Avenue in Tbilisi stands full of people protesting Russian aggression, expressing solidarity and admiration for our Ukrainian allies, and showing Georgia’s solid commitment to membership of the EU and European values. We are happy to see Europe’s door now open for Ukraine, and believe our country will also join its European family soon.

BY YASYA BABYCH FOR ISET

Tags: economyISETUkraineYasya Babych
ShareShareTweet

Related Posts

President Zelensky. Source: UKRAINIAN PRESIDENTIAL PRESS SERVICE
Highlights

Ukraine Latest: Zelensky Reveals ‘Significant’ Russian Losses in Kursk, Trump Tells European Leaders Putin Won’t End Ukraine War

May 22, 2025
Memorandum signed between EFES Georgia and the National Forestry Agency
Business & Economy

Efes Special Continues to Support the Restoration of Georgia’s Forests

May 22, 2025
The Georgian flag at a peaceful protest. Image source: Reuters
Newspaper

Role of Cultural Values in the Peace Process

May 22, 2025

Recommended

Putin, Xi, and allied leaders mark Russia’s Victory Day at Moscow parade

Putin, Xi, and allied leaders mark Russia’s Victory Day at Moscow parade

2 weeks ago
Experience Seamless Connectivity with Silknet eSIM in Georgia

Experience Seamless Connectivity with Silknet eSIM in Georgia

11 months ago
Champion Karateka Luka Khvedeliani on the Benefits of Georgian Karate for Georgia’s Youth

Georgia to Celebrate First Europe Day with European Union Candidate Status

1 year ago
Georgian Foreign Minister Holds Farewell Meeting with French Ambassador to Georgia

Georgian Foreign Minister Holds Farewell Meeting with French Ambassador to Georgia

3 years ago
Natia Mezvrishvili on Dealing with 2 Political Giants

Natia Mezvrishvili on Dealing with 2 Political Giants

3 years ago
Giorgi Gakharia: We were Told We Were Capable of Nothing – It’s All a Lie and Ukraine is a Great Example of This

Giorgi Gakharia: We were Told We Were Capable of Nothing – It’s All a Lie and Ukraine is a Great Example of This

3 years ago
GT Interview with Giorgi Badridze

GT Interview with Giorgi Badridze

3 years ago
Russo-Ukrainian War and Georgia – Analysis from security expert Kakha Kemoklidze

Russo-Ukrainian War and Georgia – Analysis from security expert Kakha Kemoklidze

3 years ago

Navigation

  • News
  • Politics
  • Business & Economy
  • Social & Society
  • Sports
  • Culture
  • International
  • Where.ge
  • Newspaper
  • Magazine
  • GEO
  • OP-ED
  • About Us
    • History
    • Our Team
    • Advertising
    • Subscription
  • Contact

Highlights

Papuashvili: Lithuania’s move violates 2010 EU-Georgia visa deal

Lithuania revokes visa-free travel for Georgian diplomatic and official passport holders

Marco Rubio: US reviewing measures against Georgia’s ruling party over anti-American allegations

Salome Zurabishvili congratulates Romania’s new president on election victory

Trump says Russia, Ukraine have agreed to immediate ceasefire talks, Kremlin offers no timeframe

Putin simplifies the granting of Russian citizenship to residents of occupied Georgian regions

Trending

Experience Seamless Connectivity with Silknet eSIM in Georgia
Business & Economy

Experience Seamless Connectivity with Silknet eSIM in Georgia

by Georgia Today
June 26, 2024

Why Silknet's eSIM could be your top choice in Georgia  Since its introduction, eSIM technology has become...

Photo by the author

Virtuosity and Versatility: Marc-André Hamelin Opens Tbilisi Piano Festival 2024

May 30, 2024
  • Where.ge
  • Newspaper
  • GEO
  • Magazine
  • Old Website

2000-2024 © Georgia Today

No Result
View All Result
  • News
  • Politics
  • Business & Economy
  • Social & Society
  • Sports
  • Culture
  • International
  • Where.ge
  • Newspaper
  • Magazine
  • GEO
  • OP-ED
  • About Us
    • History
    • Our Team
    • Advertising
    • Subscription
  • Contact

2000-2024 © Georgia Today