The Analytical Group of AzVision.az

The Quiet Bay in the midst of the Storm | Longread

// The global economic crisis poses both new risks and new opportunities for the Caspian region

W

ar does not only comprise military operations; the formidable package of sanctions imposed on Russia displays that the real struggle persists on the economic plain. The real combat is unlikely to surpass the local scale, whereas economic warfare has already taken on a global character. This, in turn, raises a number of questions. Can such severe polarization indeed result in a crisis of the entire global economic system?! How will the sanctions affect the countries, located in the regions neighboring with Russia and that maintain extensive economic ties with it?!

Russia ranks first, Azerbaijan and Turkey third, Iran and Turkmenistan fourth and fifth respectively among the foreign trade partners of Kazakhstan, Uzbekistan and Kyrgyzstan. The practical isolation of such an important partner from the world’s financial and economic mechanisms generates both new threats and opportunities for those countries. This is also confirmed by experts representing these states.

Stanislav Pritchin, a senior researcher at the Center for Post-Soviet Studies and expert on the Caspian Region, said in his conversation with AzVision.az that we are now indeed in a state of uncertainty on many issues. Russia, which accounts for about 1.5 percent of GDP globally, has been deprived of normal economic relations and opportunities for operations with the West, with financial channels frozen and sanctions imposed on Russian officials. This, in turn, gravely complicates all contacts. This year, the country’s GDP is expected to decline by 7-20 percent. If we are to peruse the experience of previous sanctions, the situation might develop into a long-term state.

Stanislav Pritchin: ‘We are witnessing a great game’

Trying to fill the void, Russia will certainly first aim at strengthening relations with its southern neighbors . At such time the role of Azerbaijan, quite an independent state in terms of logistics grows especially prominent. In this regard, Kazakhstan, for example, is more dependent on Russia when it comes to transit trade and disruption in logistics chains will affect negatively its own trade operations. It is still difficult to say anything about Iran, where everything will solely depend on the state of the nuclear deal negotiations. The package of sanctions so far imposed on Iran does not allow to fully benefit from trading with this county as an opportunity for development. Turkmenistan, a relatively secluded country, does not also strike very attractive in this context.

A sacred place is never empty

Vugar Bayramov , Member of Parliament and economic scientist said in his interview for AzVision.az’s “Videocast” project, that in this situation strengthening ties with the Caspian littoral states will be Russia’s priority . Russia will strive to increase cooperation with its southern neighbors and use mainly rubles in foreign trade. And it is not only the case for the CIS countries, but also for Iran. Much will undoubtedly depend on the ruble’s ability to convert . However, an important matter needs to be clarified before that. How will the West treat the countries that do not join the sanctions? Might the countries, actively cooperating with Russia, face any punishment?

Vugar Bayramov: ‘Strengthening ties with Caspian littoral states will be Russia’s top priority’

It is difficult to field any predictions on the matter for now. Turkish expert Turgay Turker believes the probability is extremely low . It is more likely that the West, on the contrary, will be interested in the regional countries to maintain economic ties with Russia. First of all, re-export and re-import opportunities, in other words, entrepot trade will remain intact. The same happened back in the day: When large sanctions were imposed on Iraq, many companies were operating in the country via Jordan.

Turgay Turker: ‘This war will introduce new rules’

As for the second reason, The West, which is trying to limit gas and oil imports from Russia, must compensate for such lack from other sources. This, in turn, sharply increases the importance of the Caspian littoral states. It appears that in the context of sanctions, this region is becoming increasingly significant for both Russia and the West.

Maxime Gauin, an expert at the French Center for Eurasian Studies, believes that Azerbaijani gas will grow in demand in the near future. Western countries can only appreciate this. The Caspian region may as well become an alternative hub and resource base under the circumstances of the European blockade of Russian oil and gas.

New Paths Ahead

On 9 March, 2022, The Kazakh delegation met with a number of high-ranking officials representing the government of Azerbaijan in Baku. The main topic of discussion was the establishment of a joint venture for the development of the Trans-Caspian International Transport Route .
Yermuhamet Yertysbayev, a former adviser to Kazakhstan's first president Nursultan Nazarbayev, 
told AzVision.az that he considers this a "historic event”:

‘This project was also called the South Caucasus Transport Corridor. In April 2013, I left for Georgia as the newly appointed Ambassador of the Republic of Kazakhstan in the country. I was an ambassador there for five years and the core of my work as an ambassador was the activation of the South Cauasus Transport Corridor. It was decided in Baku on 9 March that the new Kazakhstani-Azerbaijani joint venture would finally settle to establish tariffs, declare cargo and manage other issues. Over the last five years, our Prime Minister and the administration of the Kazakhstan Railways have visited Georgia and held numerous meetings with Georgians. Azerbaijani representatives also took part in these meetings at times. We always voiced the need for a single tariff, a single policy. We promoted this agenda, as we wished to intensify freight transport. It appears a war had to break out in Ukraine for us to turn the something on mind into something in kind…’

Yermuhamet Yertysbayev: ‘No one will remain unaffected by these processes’

This means that the countries of the region have already begun to assess the situation and take steps to adapt to the new reality We, of course, imply the urgent reconstruction of logistical arrangements.

Aidar Amrabayev , the political analyst and director of Kazakhstan Center for Political Studies, says that in the current situation, diversification of transport corridors is of strategic importance for Kazakhstan and Azerbaijan both in terms of maintaining balance in foreign interests and optimizing trade : ‘This transport route is of extreme significance for Kazakhstan. It has an extensive partnership with the European Union and creates favorable conditions for Western capital. Moreover, the South Caucasus countries, which remain our close partners, are also connected to it. Alliance with Azerbaijan and Turkey within the Organization of Turkic States has an important aspect. This project, in fact, is capable of increasing our joint economic potential and making this vector rather promising and sustainable in Eurasia.’

The expert recalled a famous Chinese proverb, saying that ‘ A crisis is an opportunity to ride a dangerous wind .’ Therefore, our countries must exploit this crisis to their advantage, however tactless it may sound . In particular, we must spare no effort to maintain economic liveliness and the attractive image of the region for international business. This serves the interests of not only our own countries but the region as a whole. We cannot be deprived of the international division of labor. We need a balanced and pragmatic policy. This might mean that we will have to face substantial geopolitical pressure from various foreign forces, but there is always a way out.

It is the Same Old World…

But all of these depend on the answer to the key question: Will Russia's comprehensive isolation change the international economic order? After all, forecasts and assumptions are offered with the existing economic order in mind. If the order itself collapses, we will have to face a completely different reality.

Former Turkish Minister, economist Bulent Akarjali does not believe such a situation may unfold :  ‘America will not allow changing the system it has built after the World War II. The current economic system is based on the IMF and the World Bank. Should this system collapse, the United States will lose its global power. The reason behind this is that these institutions, together with the UN specialized agencies, ensure that America reigns globally.’

Bulent Akarjali: ‘Everybody will feel the aftermath of the sanctions one way or another’

Almost all experts we spoke to, shared the same view that the West is not interested in the collapse of the international economic system in a broader sense. Because in this case, Russia, China and Far East countries might attempt to build alternative systems together. A new economic order has already been shaped in the world, and no one is interested in changing it. It is a matter of changing the balance of economic forces and logistical arrangements within the existing system .

‘For example, we will see a growth in the role of the southern corridor passing through Iran and Azerbaijan and around the Caspian Sea. Transit will intensify one way or another. I believe, trade to the east, meaning China, and vice versa will be heightened through Kazakhstan and the Caucasus. Therefore, the freight flow in the region will also expand. In fact, more new opportunities will present themselves, as Russia will try harder to replace imports’, Aidarkhan Kusainov , former advisor to the chairman of Kazakhstan National Bank shared his views with AzVision.az .

Forecasts

Overall, our experts believe the following changes in the economic and logistical landscape of the region are expected in the near future:

·         Russian companies, including oligarchs, will have heightened investment activities in the Caspian region ;

·         Turkey and Azerbaijan will become key links in economic-logistical relations with Russia;

·         Russian tourists, with their doors closed to the West, will turn to Azerbaijan and Turkey in big numbers;

·         Azerbaijan and Central Asian countries will have larger opportunities to sell their gas and oil to the West. The rapid increase in fuel prices will allow these countries to earn more;

·         Unable to buy from the West, Russia will have to increase imports from neighboring countries, which may lead to a “second wind” for the industry and agriculture of these states.

Much depends on how ready the regional countries are to take advantage of these opportunities

Of course, much depends on how ready the regional countries are to take advantage of these opportunities. The Caspian littoral states will have to pursue an independent policy based on their own interests, foregoing recommendations of outside advisors. There is also the risk that the region might become more secluded. However, if the relations are built becomingly, it is more than possible to turn risks into opportunities.

Talking of the benefits of war sounds unethical. Unfortunately, this has always been the case: In all wars, some have lost, others gained. But there is one value that cannot be compared to any profit, which is human life. Therefore, the priority right now is for the “hot phase” of the war to end soon. The economic phase, it seems, will last much longer.

  05 April 2022    Read: 1126    Can be read: 17 min.

17 min.