The Impact of the Russian Crisis on the Economy of Georgia and the Financial and Economic Mechanism for Regulating these Processes

Abstract

Georgia’s economy is primarily dependent on Russia through tourism, foreign trade, and remittances, which poses a significant challenge to the country’s economic security. Particularly high and problematic dependence on Russia can be observed in the export of Georgian wine, Russian tourism to Georgia, and the import of Russian wheat and petroleum products. In addition, Georgia’s reliance on Russian energy resources has increased considerably in recent years. Up to 70% of Georgia’s domestic wheat consumption is supplied by Russia, while more than 90% of the country’s wheat imports originate from Russia. In terms of foreign-source income, Georgia is most heavily dependent on Russia through the tourism sector. Since 2022, following the outbreak of the Russia–Ukraine war, remittances transferred from Russia to Georgia have shown a marked upward trend. At present, Russia continues to face an energy crisis, as Ukraine has reportedly disabled approximately half of Russia’s oil-refining capacity. The crisis is particularly severe during the harvest season, when demand for fuel rises significantly. In recent days, drought conditions have apparently exacerbated the situation, and Russian media outlets have begun reporting expectations of near-total shortages of certain products. These developments raise important questions as to whether they signal a broader economic crisis in Russia, what consequences they may have for the Russian economy, and how they are likely to affect Georgia. The direct economic cost of the conflict with Ukraine alone has exceeded one trillion U.S. dollars—resources that could otherwise have been invested in the development of Russia’s infrastructure, logistics, and education sectors. Such negative policies inflict damage not only on the direct target of aggression but also on countries that are not directly involved in the conflict, including Georgia. Since no country is entirely isolated or economically self-sufficient, adverse developments in one part of the world inevitably generate negative spillover effects for others.