Western countries have imposed numerous sanctions on Russia for its war against Ukraine. Russia was precluded from all economic and financial mechanisms of the West. At present, it is unknown how long the situation will last. However, serious changes are inevitable both in trends and structure of Russia's foreign economic affairs under the newly imposed sanctions.
In his interview to AzVision.az, senior researcher at the Center for Post-Soviet studies at IMEMO RAS, an expert in the Caspian region, Stanislav Pritchin said that we were in a stage of uncertainty in many directions.
- What are the new risks for Russia's major regional partners, especially the Caspian states in this situation?
- It is true that we are in a stage of uncertainty in many directions. Firstly, the massive package of sanctions that has already been imposed is significantly changing the economic situation both in Russia and in its relations with the world community and partners.
First of all, we can say that cooperation in major areas with Western states is being halted. The companies remain in Russia for now but some have suspended their activities without any clear plans and prospects for resuming their activities. Accordingly, we see an absolutely new reality when Western countries exclude Russia, where GDP is about 1.5% of global GDP, from normal economic relations with a lack of transaction opportunities, freezing of financial assets and individual sanctions against Russian officials, which seriously impedes any contacts in the West and air travel. In its turn, it is like a full package creating a new reality.
What about opportunities or any risks? Certainly, various financial international structures differently assess the possible damage that will be inflicted on the Russian economy. There are assumptions such as 7 to 20 percent of the fall in GDP this year. We see steps that are being taken to stabilise the situation. Here, the main difficulty lies in the fact that the possibilities for paying off external debts are frozen due to restrictions on the transaction of foreign currency. Western countries themselves restrict Russian companies to pay out previously taken investments and bonds by limiting foreign exchange transactions. Against this background, we see that major rating agencies accordingly lower Russia's status to pre-default. It can be seen that the game is played to the fullest.
Russian companies and the Russian government are taking steps towards stabilisation. President Putin has signed a law which contemplates the payment of external debts in rubles under the conditions of sanctions and the possibility of nationalisation and restriction of trade with companies of those countries that have imposed these sanctions on Russia. We see that, if we take the experience of the Crimean set of sanctions as an example, it is a long-term story. Considering the fact the operation is still underway, early decrease in pressure of sanctions or cancellation cannot be expected. Hence, it is our new reality with which we have to live.
- How may Russia interact with its partners under the new sanctions and further develop its economy?
Urgent steps are being taken to create conditions for localization, support manufacturers with the potential of filling the niche of companies that have left the Russian market. It is not easy but the experience of the Crimean case again shows that the set of counter sanctions enabled the Russian economy to create conditions for self-sustainment, for instance, in agriculture. Here, on the one hand, prospects for cooperation with neighbouring countries that have not imposed sanctions on Russia emerge. Under the current circumstances we observe that due to restrictions on cross-border payments and the suspension of a number of Russian banks from the SWIFT bank messaging system, difficulties arise for any export-import operations of partners. Here, the task is to provide stable operation of the banking system, the exchange of both payments and information about payments.
We have already witnessed a number of negative signals. Thus, the Azerbaijani bank ‘Kapital’ left agreements with Sberbank on payments in the banking system. On the one hand, this step of reinsurance of the Azerbaijani bank intends to avoid secondary sanctions from the West. However, if this step is only the beginning of restrictions on the operation of Azerbaijani banks with Russian partners, it could become a serious factor that could negatively affect trade between Azerbaijan and Russia. Although it can be seen that we have a fairly balanced and stable package in terms of commodity groups. If economic and financial restrictions are resolved, there can be an opportunity to increase our trade. In any case, Russia will need to buy Azerbaijani fruits and vegetables since the country halted trade with other partners due to sanctions.
If we speak about other countries ....Azerbaijan is a fairly independent state in terms of logistics, while Kazakhstan, for example, is more dependent on Russia in terms of transit. The disruption of logistics chains will negatively affect Kazakh trade which transports its goods through Russia. It is difficult to give an opinion about Iran. Everything widely depends on the situation at the negotiations in Vienna on the nuclear deal. So far, the set of sanctions imposed on Iran does not allow the full use of trade with this country as an opportunity for growth. Over the past decades, we have seen a certain stagnation in mutual trade. It is at the same level, not sufficient for the potential of trade with Azerbaijan and Russia.
- What about Turkmenistan?
It is difficult to say something concretely. The country is closed and presidential elections are being held now. Generally, in the context of a very strict, isolating foreign economic policy, it is hard to assume that Turkmenistan can take advantage of this situation to grow economic relations with Russia.
- What other opportunities does this situation create for the Caspian states?
- It's more a question about to what extent Azerbaijani banks are not afraid to work with Russia. For example, Azerbaijan Airlines halted flights to Russia instead of increasing the number of flights in the face of the impossibility of flights by Russian companies. At present, Russia does not have any air communication with Azerbaijan. We do not have the opportunity to visit each other since the land border with Azerbaijan in Dagestan is closed. In my view, it can negatively affect both trade and mutual relations. It may also affect tourism potential, which could now become a new growth factor, including for Azerbaijan, especially in the face of reduced covid restrictions and travel restrictions. For Russian tourists, Azerbaijan could become more attractive. However, in the absence of air traffic, one cannot rely on it. Therefore, both Azerbaijan and Russia are interested in the soonest resumption of air traffic between the countries.
- What fundamental changes may occur in the geopolitical and geo-economic structures of the modern world following the war between Russia and Ukraine? What new economic regularity will the existing conflict lead to?
- I don’t think that the Ukrainian crisis will seriously affect the geopolitical situation in the Caspian Sea region. Here, the prospects for the settlement of the Iranian nuclear program will have a greater influence. The second point is Iran's readiness to ratify the Caspian Convention. These two processes are actually parallel in many respects, but not related to each other. Still, the issue of the convention is a matter of relations with regional players. Iran’s confirmation of its obligations within the framework of cooperation of the Caspian Five on security issues and the environmental safety of economic projects is more significant. A nuclear deal with Iran may open prospects for cooperation between Azerbaijan and Iran. In 2018 on the eve of the signing of the convention on the international legal status of the Caspian Sea, we observed significant progress in relations between Iran and Azerbaijan on the joint development of fields located on the border of the two sides. There was a study of the economic practicability of these projects, but withdrawal of the US from the deal with Iran significantly complicated these projects. Now let's hope that this is an important support for the normalisation of relations between Iran and Azerbaijan and the possibility of economic activity in the south of the Caspian Sea.
More about:
