Black Sea and Caspian Geo-Politics

By pjain      Published July 15, 2021, 5:08 p.m. in blog Geo-Politics   

BLACK and Caspian SEA

Geography

Economy

Caucasus stands for the mountain range between the Black Sea and the Caspian Sea, encompassing areas in Turkey, Armenia, Azerbaijan, Georgia, and Russia.

In 2019, the GDP of all Caucasus countries amounted to approximately 1,781.96 billion U.S. dollars.

Country | GDP | GPP | GPP/capita -------------|-------|-------|-------------| Azerbaijan BC| 50 | 152 | Armenia BC| 12.2 | 41| Georgia B | 16 | 58| 9.2 Russia | 1710 | 4328 | 25 Turkey B | 795 | 2750|19.6 Ukraine B | 165 | 576|8.7 Bulgaria B | | | 17 Romania B | | | 20.8 * GPP/capita in thousands of USD as of 2014 * -B near black sea, -C near Caspian Sea * SRC Wikipedia, GDP in $b 2021 estimates as per IMF, Rest data CIA factbook.

Key Industries

The sea and adjusted coastal regions are the area of various economic activities. During 2009 2014, similarly to the previous years, the economic activities directly connected to the Black Sea in all riparian countries comprised following key sectors: Shipping and ports; Fishery; Tourism; Oil and gas.

Trade

Environment

Black Sea, Aegean Trade, Economies

The Bosphorus Strait, which bisects the 15-million population city of Istanbul between Europe and Asia, has been a vital commercial and military traverse since the 5th century BC when it was used to transport Scythian grain to the city-state of Athens. Today, it remains one of the world’s busiest shipping lanes. Over 41,000 vessels used the strait in 2019, far more than the combined maritime traffic of the Suez and Panama canals.

The Black Sea has some thriving cities all around it, but the only exit is via Bosphorus there.

Azerbaijan

Is poised to participate in the oil bonanza, and as such will face the challenges of managing this wealth. Foreign direct investment flows will be large, and a high percentage of GDP as in Azerbaijan. Assuming a modicum of political stability is retained after the Aliyev succession and the resumption of the Karabakh conflict is avoided, Azerbaijan is poised to enjoy the region's highest growth rates in the coming years, as foreign investment pours in and oil exports begin to take off. Baku's major economic policy challenge will be managing this sudden oil wealth and investing it in a constructive manner. It will also be challenged to avoid the institutional distortions often associated with petro-wealth.

1998 after USSR Collapse

Armenia and Azerbaijan both posted accelerating growth in 1998

Azerbaijan remained the fastest growing economy in the CIS in the first half of 1999, although growth was well below 1998''s torrid 10 percent. While oil and gas production continue to expand significantly, oil companies in early 1999 appear to have decided to cut costs and scale back investments, when international energy prices were weak. This in turn undermined growth in sectors such as construction and services. In addition, the aftermath of the Russian financial crisis and the other devaluations in the region put pressure on the non-oil sector via import competition.

Deflation has also been a problem: average inflation was -0.8 percent in 1998, and year-on-year inflation rates had fallen to -10 percent by June 1999. Falling prices have caused real interest rates to rise substantially and further aggravated a lack of liquidity and credit in the economy.

In light of these deflationary pressures, the IMF suggested loosening monetary and fiscal policy, as well as floating the manat. Following this advice, the central bank (ANB) in July 1999 allowed the currency to float. The exchange rate dropped from $1 = 3,976 manat in July to $1 = 4,310 manat in late September. Whether it is possible to keep the manat down over the medium-term is another issue, as large inflows of foreign investment will continue to enter the energy sector and put upward pressure on the currency.

Non-Oil Core Economy

The non-oil economy is likely to continue to experience "Dutch disease" due to the effects of noncompetitive exports and cheap imports - unless they are outpaced by productivity gains. In light of the slow pace of privatization and structural reform, this is not likely.

Higher energy prices in the last few months should help boost investment in Azerbaijan and lead to higher GDP and export growth. Large current account deficits, which will continue until oil exports begin to boom in the next few years, should be covered by strong foreign investment inflows of about $1.5-2.0 billion per year. The non-oil sector is likely to suffer, however, as the currency appreciates (due to these inflows) and because reform and restructuring remain slow. The government has been a laggard in pushing privatization and structural reforms, which would boost the non-oil sector''s prospects.

Oil Economy

2019+

Israel has gained an edge by helping it win the latest war with Armenia-Russia.

The non-oil sectors of its economy will hard be pressed to restructure to maintain their competitiveness. The early signs are that Azerbaijan still has a long way to go in recognizing and meeting these challenges.

Armenia

The economic challenges facing Armenia and Georgia are largely of a different nature. Both can only flourish as small open economies and must devote considerable effort to structural reforms and creating a favorable investment climate and trade regime.

1998 after USSR Collapse

  • Armenia and Azerbaijan both posted accelerating growth in 1998 after USSR Collapse

Geopolitics

Armenia also faces the geopolitical problem of the Turkish-Azerbaijani blockade that cuts off many of its export routes. It has had to rely mainly on Georgia for contact with the outside world (contacts with Iran being strongly discouraged by the US).

A resolution of the Karabakh issue and a removal of this blockade could open significant trade and other opportunities for Armenia. Over the medium-term it will be difficult for Armenia to develop if it is unable to trade with two of its most important neighbors.

Georgia

The economic challenges facing Armenia and Georgia are largely of a different nature. Both can only flourish as small open economies and must devote considerable effort to structural reforms and creating a favorable investment climate and trade regime.

  • Growth in Georgia slowed dramatically August 1998 Russian crisis

Geopolitics

Georgia on the other hand enjoys a more favorable geopolitical situation. It has access to the Black Sea and enjoys good relations with Turkey. Georgia also straddles one of the main non-Russian export routes for Caspian oil, and has already begun to benefit from investment and transit fee windfalls in that regard. Tbilisi''s main challenge is creating a single national economy and consolidating control over its borders. This is crucial in collecting taxes and overcoming the budget crisis that threatens to hold Georgian growth in check.

Armenia also faces the geopolitical problem of the Turkish-Azerbaijani blockade that cuts off many of its export routes. It has had to rely mainly on Georgia for contact with the outside world (contacts with Iran being strongly discouraged by the US).

Russia

Aftereffects of the August 1998 Russian crisis continue to be felt in Central Asia but the Russian contagion has proved less damaging than originally feared. The Russian crisis has accelerated the decoupling of these economies, reducing the Russian share of their total trade CIS and making them less vulnerable to future economic crises in Russia.

Three of the five countries' exchange rates crashed spectacularly in the aftermath of Russia''s crisis, but inflation has not spun out of control, and currencies are once again stabilizing.

Turkey

Kazakhstan

Is poised to participate in the oil bonanza, and as such will face the challenges of managing this wealth. Foreign direct investment flows will be large but not as high percentage of GDP as in Azerbaijan.

To generate higher growth rates going forward, policy will have to focus on developing Kazakhstan''s significant non-oil sectors, such as agriculture, food processing, and metallurgy.

This will require continuing difficult structural reforms.

Key problem is, due to its landlocked geography, Kazakhstan will remain more tied to Russia than any other economy in the region. Managing relations with Moscow could be a significant challenge in the years ahead.

  • Kazakhstan slipped into recession after August 1998 Russian crisis for years.

Turkmenistan

Likely to have the most volatile growth in the region as production continues to be based on natural gas.

Problems of geography and regional politics, in order to find stable, solvent export markets. Turkmenistan will also have to contend with the rather erratic economic policies of its supreme leader - and with a possible succession crisis - which make developing non-oil sectors of the economy more difficult.

-Turkmenistan''s economic problems remain tied to the problem of finding paying customers for its gas exports.


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