RUSSIA AND GEORGIA: ECONOMY AS A BATTLEFIELD

RIA Novosti
13:30 | 13/ 08/ 2008
Russia

MOSCOW. (RIA Novosti economic commentator Vlad Grinkevich) - In
international conflicts economic levers are sometimes more effective
than military moves.

Blockading supplies of strategic raw materials, freezing money
transfers, and strikes at the businesses of the national Diaspora may
deal as much damage as tank attacks and air strikes. Since coming to
power Georgian President Mikheil Saakashvili has repeatedly complained
about Russian economic pressure, and has done much to separate the
economies of the two countries.

Today, economic relations between Russia and Georgia have been reduced
to the minimum. In conditions of tough confrontation, not to mention
armed conflict, this situation is in many respects favorable to
Georgia because it reduces the threat of economic pressure.

Georgia needs about 1.8 billion cubic meters of gas per year, but
unlike many countries in the region it does not depend on Russia for
it. It receives almost all of its oil and gas from Azerbaijan. However,
a pipeline pumping Russian gas to Armenia passes through Georgian
territory. This year, Armenia is to receive 2.1 billion cubic
meters of gas. Georgia gets 10%, or 210 million cubic meters,
as a transit fee. Despite the recent conflict the supplies have
not been stopped. Georgian Minister of Energy Alexander Khetaguri
said at a news conference that there is no threat to the pipeline at
all. However, on August 11, Georgian gas workers reduced supplies by
30%, later explaining that this was because they needed to conduct
some tests. Armenia, meanwhile, has no grievances against either
side. The reductions do not affect its consumption, and the deficit
can be compensated by gas from its underground depot.

If the conflict escalates, however, Georgia may lose 210 cubic meters
of gas, which amounts to 11.6% of its consumption. The Armenian
economy would lose much more.

There have been no reports of fuel shortages in Georgia. After Georgia
reported a bombing in the vicinity of the Baku-Tbilisi-Ceyhan oil
pipeline, Azerbaijan's state oil company announced it would suspend
oil imports through sea ports, but the pipeline's operator BP did
not confirm this report, and it later transpired that at least one
tanker was ready to go to Georgia.

Until the end of the last year, Russia was the main supplier of
electricity to Georgia, which received 100 megawatts of electricity
per year via the Kavkasioni transmission lines. But after the electric
power station in Inguri reached capacity last November, Deputy Minister
of Energy Archil Nikoleishvili reported that Georgia would not need
supplies from Russia anymore.

Nonetheless, Saakashvili has failed to break all links between
our economies. Like most former Soviet republics, Georgia is
relatively overpopulated, and various estimates say up to one
million Georgians live in Russia. Migration alleviates the burden
borne by the Georgian economy, and earns it considerable money in
remittances. The Russian Central Bank estimated that $142 million
was sent from Russia to Georgia in the first quarter of this year
alone. That is more than three times the official volume of trade
between the two countries. Last year the figure was $558 million,
which is 50% more than Georgia's military budget.

Russia toughened its stance on Georgian immigration during a bilateral
row two years ago. After the Georgian authorities detained Russian army
servicemen in the fall of 2006, Vyacheslav Postavnin, deputy director
of the Federal Migration Service (FMS), said: "The majority of Georgian
migrants stay in Russia illegally. Last year, about 321,000 people from
this area crossed our border for different purposes and a mere 4,500
of them work in Russia legally. We will toughen measures against them,
up to deportation." Representatives of Georgian Diaspora complained
that innocent people suffered due to some misunderstanding between
political leaders. However, after the FMS statement, followed by the
deportation of only a couple hundred, out of hundreds of thousands
of illegal migrants, the conflict was resolved rather quickly.

Today, the Russian authorities have not yet resorted to deportation,
though the Russian Communications Ministry announced discontinuation
of postal service and money transfers from Russia to Georgia for
technical reasons. However, Saakashvili is pushing Russia to tougher
measures with his increasingly hysterical rhetoric.

For instance, his statement about Russia being at war with his
country requires an adequate response. If two countries are at war,
established practice should prompt Russia to immediately deport
all the enemy's citizens with diplomatic immunity, as well as women
and children, and declare all men of military age prisoners of war
and intern them. Needless to say, their property should also be
confiscated. Formally, however, Russia and Georgia are not yet in a
state of war.

The opinions expressed in this article are the author's and do not
necessarily represent those of RIA Novosti.