Along with increased global economic uncertainty, a upswing in oil prices, and fears of increased food insecurity in many countries around the world, Russia’s invasion of Ukraine has meant what the World Bank terms “the largest coordinated economic sanctions ever imposed on a country.” While Russia’s ruble has mostly recovered from its collapse in the wake of these sanctions in late February, largely due to Russian government actions, including new regulations so that is no longer a freely convertible currnecy, Russia’s economy still faces major headwinds that suggest a deep, prolonged recession ahead. Economists now talk about a drop in Russian GDP by around 8% in 2022, with inflation there rising to 20%.

Countries in the Caucasus and Central Asia have long-standing and deep business, financial, trading, and other ecnomic ties with Russia, but according to a recent report of the World Bank, the exposure of Caspian states to the economic consequences of Russia’s war in Ukraine varies considerably. The most vulnerable include Armenia, Kyrgyzstan, and Tajikistan, while Azerbaijan, Kazakhstan, and Uzbekistan are best insulated against the effects of the Russian economic crisis, but by no means unaffected. One immediate impact of the war, the harsh crackdown on dissent in Russia, and the already stringent and tightening international sactions is the migration of thousands of Russians to Tbilisi, Yerevan, and other cities in the Central Asia and the South Caucasus. The emigration of Russians to the region combined with migrant workers returning to their home countries has also produced a rent crisis in parts of the Caspian region.

Armenia’s largest trading partner is Russia and as a member of the Eurasian Economic Union, it is more exposed to Russian economic difficulties than Azerbaijan or Georgia. The re-location of Russian business and human capital to Armenia could offer new dynamism to Armenia’s economy further down the road. Azerbaijan’s oil and gas exports makes the country far less vulnerable to Russian economic risk than its two Caucasian neighbors. At the same, the country’s non-energy sectors remain significantly exposed to the Russian economy. The agriculture sector, which accounts for 37 percent of employment and 7 percent of the country’s GDP, faces risks of disruption. After growing 10.4 percent in 2021, Georgia’s GDP growth will slow to 2.5 percent the Russian economic crisis. A reduction in foreign direct investment and remittances flows will increase poverty and threaten Georgia’s economic prospects for the coming year.

In Central Asia, the World Bank forecasts that Kazakhstan’s GDP growth will slow to 1.5 percent this year from a robust 4 percent last year. While the tenge dropped 17 percent against the dollar in the wake of the unrest in the country in January, the potential impacts of reform initiatives and higher oil prices offer a cushion. Kyrgyzstan is not so lucky. The World Bank estimates Russia’s economic contraction will shrink the Kyrgyzstani economy by 5 percent, push inflation to 15 percent, and threaten more Kyrgyzstanis with poverty. Tajikistan is not much better off. The country is highly-dependent on remittance payments from migrants in Russia, and the World Bank estimates that remittance payments to Tajikistan will fall by 40 precent, cutting GDP by 2 percent. Uzbekistan, on the contrary, will likely emerge among the least scathed, maintaining 3.6 percent GDP growth. Its success lies in the ambitious slate of economic reforms enacted in recent years paired with significant trade partnerships with China and Turkey that together will largely offset cuts in remittance payments and higher oil prices. Turkmenistan’s economy is not assessed in this World Bank report.

With the spring meetings of the International Monetary Fund and the World Bank getting underway, as Treasury Secrertary Janet Yelln told an Atlantic Council event on April 13, “at the top of everyone’s minds will be the direct impact and broader spillover of Russia’s invasion of Ukraine.” In that context, there needs to be particular attention given the countries of the greater Caspian Region. Stepping in to advise and assist the region’s states in the face of the coming economic difficulties will be important for stability as well as a chance to take steps that could foster growth and prosperity over the medium and lonfger term.