ISET Economist Blog

Top 5 economic consequences of Russia’s war on Ukraine: a view from Georgia
Monday, 28 February, 2022

As I am writing these lines, Russian tanks are moving deeper into the territory of my country, Ukraine, and emotions are threatening to overwhelm me. But emotions cannot shake what we, as economics scholars, value the most: devotion to truth and careful, impartial use of facts and logic to arrive at conclusions.

In this spirit, what can we say about the top 5 economic threats arising from the war that Russia is waging in Ukraine, especially from the standpoint of a small, but strategically and historically important regional player – Georgia?


The first economic casualty will be prices, in particular prices of fuel and food staples: wheat, corn, cooking oil.

Oil and gas: since the start of the war on February 24th, the Brent Crude oil prices jumped to their highest level since 2014. In recent days the price went over 100 USD per barrel. Just to compare, at the beginning of 2022, the price hovered around 80 USD per barrel. This spike is driven, on the one hand, by a large gap between global demand and supply caused by the pandemic, and, on the other, by the geopolitical threat, given that Russia is the third-largest oil producer in the world. Russia currently supplies one-tenth of world oil consumption, and close to half of Europe’s gas.

Food staples: Both Russia and Ukraine are important global exporters of basic agricultural commodities. According to data from 2020, Russia and Ukraine combined accounted for 26% of global wheat exports, with Ukraine responsible for 8% (not surprisingly, Chicago wheat futures rose sharply as the invasion of Ukraine began). Both countries account for 24% of global barley exports; 57% of the world’s exports of sunflower seed, safflower, and cottonseed oil. Ukraine alone accounts for 13% of the world’s corn exports. Most of Ukraine’s wheat goes to Asia or Africa, putting food security in these regions immediately at risk, but also implying steep price rises in the rest of the world.

Implications for Georgia: One has to keep in mind that even before the war started, global food prices were rising rapidly due to the COVID-19 pandemic, and the strain it put on global production and supply chains (FAO reported a 28% food price increase in 2021). But the situation will be exacerbated by the war. Since Georgia depends on imports of wheat for more than 90% of its consumption (much of the import comes from Russia), the global price increase will have an immediate effect on the country, in particular on the livelihoods of the poor. The rise in the price of fuel is already being felt in Georgia. For the government, it means that they must start planning on how to soften the blow for its poor and most vulnerable groups. Very likely these measures would imply more foreign borrowing, which brings us to the second set of risks.


Financial markets are not yet prepared to price in the risks that may be coming from this war. Morgan-Stanley investment chief warned that any short-term trading on the conflict is likely to “get it wrong”. This means that financial markets could still experience wild swings going forward, which will increase the cost of borrowing and will slow global growth. Bloomberg analytics also warns that growth will be slowed down as households spend an increasing share of their income on food and fuel, thus leaving fewer resources for other purchases.

For Georgia increased uncertainty on the global financial markets could also imply higher borrowing costs. However, one has to keep in mind that Georgia’s sovereign debt is mostly a low-interest multilateral debt to international organizations. This means Georgia may not be immediately and severely hit by the rising cost of borrowing on the international markets. However, Georgia’s investment and FDI may be impacted, as uncertainty about the geopolitical situation in the region grows. However, if the value of Georgian lari deteriorates, as a result, one may expect the country’s debt to GDP ratio to rise even further.


Both Russia and Ukraine are among the top five export destinations for Georgia. Ukraine accounted for 9.5% of Georgia’s exports in January 2022, while Russia for 12.9%. The biggest linkages, however, come not from the export of goods but from services, such as tourism. If the situation deteriorates, tourism from both countries will suffer significantly or might even stop.

As far as imports into Georgia, Russia accounts for about 11% of total imports (second-largest share after Turkey), while Ukraine is in 7th place with 4.3%.


A refugee flow from Ukraine is likely to reach an unprecedented magnitude. EU countries already estimate that more than 7 million people will be displaced. In Georgia, there is tremendous public support and readiness to take in refugees from Ukraine. However, as the fighting rages in the North, East, and South of Ukraine, there is currently almost no physical possibility to get to Georgia by air, land, or sea. Most of the refugees are now on the western borders, taken in by Poland, Slovakia, Romania, Hungary.


Perhaps the most frightening consequence of this war is the anticipation of what (or who) might be next, especially if the most pessimistic scenarios are allowed to unfold. It is very doubtful that Georgia will be spared in the imperialistic game, even if behaves “cautiously” – i.e., does not join global sanctions against Russia, avoids inflammatory rhetoric, etc. Other countries realize Georgia’s predicament, and if worse comes to worst, international investments and FDI are likely to dry up.

Finally, there is a question, which economics alone cannot answer: is the world (including Georgia) prepared to pay the price that this war will impose? Will the world continue supporting Ukraine’s struggle for independence, or is it more likely to favor peace at any cost with Russia? The phrase I often hear from Georgians and Ukrainians alike is that if you surrender your freedom for bread today, tomorrow you will have no bread and no freedom.

Based on the events of the recent days, it seems to me that the Georgian and Ukrainian people are choosing their current and future freedom. I only hope that the rest of the world will have the strength to follow their example.

The views and analysis in this article belong solely to the author(s) and do not necessarily reflect the views of the international School of Economics at TSU (ISET) or ISET Policty Institute.