The economic toll of COVID-19 around the world has been significant and the impact of this crisis will reverberate for the next few years. Iran is among the hardest hit economies but the fallout is also already felt among Iran’s immediate neighboring states, including the countries of South Caucasus and the Caspian Basin. With US sanctions severely limiting its international trade, Tehran has in recent years banked on trade with immediate neighbors as a stopgap remedy to its economic needs. This policy of prioritizing trade and other economic ties with immediate neighbors is now under even more pressure due to COVID-19. While Iran is expected to experience a sharp economic contraction in 2020, economic growth forecasts have also been cut in neighboring Caucasus states, requiring swift and decisive action from leaders and international partners.
The Middle East Institute (MEI) will bring together a panel of experts to explore the economic impacts of COVID-19 on Iran, the South Caucasus and the question of regional economic cooperation and integration. Besides looking at what has driven Iran’s neighborhood policy in recent years, and how it is in danger of crumbling due to COVID-19 restrictions, the panel will focus on the specific case of the energy sector where regional integration was moving ahead, albeit slowly. Meanwhile, the role played by third-parties – including Russia and the US - will also be tackled by the panelists as they reflect on Iran-South Caucasus economic connections.
This panel is the third in a series of COVID-19 events hosted by MEI’s Frontier Europe Initiative.
Transcript
Alex Vatanka [00:00:05] Good morning and welcome. I'm Alex Vatanka, senior fellow and director of the Iran Program here at the Middle East Institute in Washington, D.C. I'm pleased to welcome you all to today's event, economic shocks of COVID-19. The question before us is, what is the impact on the Caspian Basin and the states of the South Caucasus? Coronavirus has already severely impacted the global economy, and its effects will continue to be felt throughout the next few years and probably more. Iran is among the most hard hit countries in the world, and its neighboring states are also facing the fallout, including, as I said, the countries of the South Caucasus and the broader Caspian region. This is the third panel of a series of webinars hosted by MEI's new initiative, Frontier Europe. The Frontier Europe Program explores interactions between Middle East countries and their European neighbors. Parts of Eastern Europe, Central Asia and the Caucasus, which formed the frontier between Western Europe, Russia and the Middle East. For more information on this program, please visit our website or follow the Frontier Program Twitter, @MEIFrontier. Today, we will hear from an outstanding panel of experts with experience in different countries in this region, who will discuss the impact of COVID-19. First, I'm pleased to welcome Suzanne Maloney, who's the Interim Vice President and Director of the Foreign Policy Program at Brookings Institution.
Alex Vatanka [00:01:44] Suzanne, is a seasoned hand on all things Iran and Middle East, and she'll kick us off with a discussion about the latest economic news and developments in Iran. Next, we have with us Aleksi Aleksishvili, Chairman and CEO of the Policy and Management Consulting Group. Aleksi is joining us today from Tbilisi and we'll be speaking, from my understanding, mostly about the region. And finally, I'd like to welcome the MEI's own, Ralph Mammadov, who's a resident scholar on energy policy, and Ralph will be talking about the impact of COVID-19, specifically in terms of what it's done to the energy sectors in this part of the world. I look forward to taking audience questions through Zoom's Q&A feature, which you can all find on your screens for those calling in by phone or watching our panel on the livestream. You can ask a question on Twitter with hashtag MEI Frontier Europe or email events@mei.edu. If you have any technical issues also please email events@mei.edu. Feel free to ask a question at any time throughout the panel. I'll be looking at all your questions and will factor in as many as I can during the discussion.
Alex Vatanka [00:03:10] So with that, let's begin our hopefully about an hour long discussion. I'll start as I promised with Suzanne. Suzanne, President Rouhani of Iran has been on the phone the last few days speaking to the likes of President Putin of Russia, President Erdogan of Turkey, I think he spoke to Sultan Haitham of Oman, and one of the things that he keeps bringing up is let trade continue. Let us not allow, COVID-19 to stop our economic interactions. Now, coming from him, that makes a lot of sense. Iran has been banking heavily on the role of immediate neighbors as a way of circumventing U.S. sanctions. And speaking of sanctions, can you tell us where Iran is today and how the timing of COVID-19, on top of what they have been going through since late 2018 or the impact of the sanctions, where are they as a country today?
Suzanne Maloney [00:04:07] Thank you so much, Alex. And thanks so much for the Middle East Institute for the invitation to join such a great panel. I'm really glad to be here and look forward to the discussion.
Suzanne Maloney [00:04:16] I'll try to speak briefly and leave lots of time for a back and forth and conversation. Obviously, the coronavirus hit Iran at the worst possible moment. This is a country that has effectively been dealing with a COVID-sized economic crisis since at least early 2018. President Trump walked away from the deal in May of that year, but the slide in the value of the Iranian currency and the overall state of the Iranian economy began to experience tremendous shocks even in the anticipation of that event. And, of course, the sanctions that have been imposed over the course of the past two years. There has been a drastic impact on the Iranian economy. Oil exports reduced by at least as much as 80 percent. Iran is repatriating only a limited volume of the revenues that it does earn from both oil revenues as well as its regional trade there. This is had a massive impact on already high levels of unemployment in the country and inflation has ensued as well with a direct impact on the pocketbooks of ordinary Iranians. Food prices escalating by as much as 60 percent even before COVID and the economy's been shrinking steadily since twenty eighteen, with a drop of about five percent in 2018, about seven and a half percent in 2019 and an anticipated decline of six percent this year. That is absolutely catastrophic. And remember, of course, that even before the Trump administration took office, Iran had experienced a considerable decline as a result of prior U.S. sanctions, as well as a history of really dysfunctional mismanagement of the country's economy and entrenched corruption by the system itself. And so, you know, this is really, I think, beyond a policy response from the Iranian system. There is simply an attempt to try to keep the economy alive in some fashion.
Suzanne Maloney [00:06:24] But as Alex, you noted, regional trade had been the work around for the Iranian system at a time when its most important foreign exchange revenues via oil exports had been largely strangled. And so now with the closure of borders and with the logistical impediments to undertaking that trade, as well as the hit to the demand for Iranian goods that would have ensued simply as a result of the collapse of oil prices and the broader revenue crises of the rest of the region. This is this is truly a historic and I think a devastating economic predicament for the Iranian system and for the Iranian people. Look forward to talking more and happy to answer any follow ups as we go.
Alex Vatanka [00:07:13] Sure. I had a quick follow up, Suzanne. I mean, when you follow the Iranian, kind of, debate in Tehran about where they are oftentimes and I'm sure you might feel the same way, you are surprised by the lack of panic, at least being expressed. Obviously, a lot of this is to make sure they don't lose face. This is the worst time, from their perspective, to lose face against an American president that they consider to be the most hostile to them since the Islamic Republic was born in 1979. Looking ahead for the next seven months or so, my reading -- and correct me or please help me figure this out -- my reading is, the Iranian regime or authorities feel that it's critical that they stay the course over the next seven months. That it's worth it because there might be a different president in early next year. I would say based on how they have performed so far, I can see them pull through. What do you think is COVID-19 -- because they survived the loss of the oil income by and large, obviously it's painful, but they've survived it but is COVID-19 and the loss of trade with neighboring states, countries like Iraq, Azerbaijan and others. Is that going to be the push that might just push them over the brink?
Suzanne Maloney [00:08:36] Well, I think the Iranian economy went over the brink a while ago, but as we see, the system has not. And as you say, there is a kind of determination to hold on and to demonstrate resolve, primarily because that's, at least to some extent, their leverage in dealing with the international community and because there's very little appetite for some kind of a compromise with a Trump administration that isn't particularly clear about what, in fact, it might settle for in terms of some new deal with Iran. And so, you know, my estimation is that, yes, you know, from the Iranian authorities perspective, there are really only two options. One is to simply muddle through as best as possible. And it's, I think, why they have approached this crisis as primarily an economic issue, really from the outset when there was a determination not to impose the kind of strict quarantine that has been successful in other states. Iran was one of the first hotspots outside of East Asia, and there was a certain degree of denial that accompanied the outbreak of the virus in Iran simply because of the importance of the economic ties with China in terms of salvaging the economy during this period. So, my prediction is that, you know, sort of treating this as an economic crisis, but focusing on maintaining at least some economic activity is going to be the priority in hopes of getting through till November. There is one other alternative, and we've seen at least some signs of that, of course, in the past week or so with, you know, Iran has used provocations over the course of the past year in particular to try to galvanize international support for sanctions relief and for resolving the standoff with the United States. And we saw most recently some provocations in the Gulf and some response from President Trump via Twitter yesterday. And so my guess is, if we really see a sense of panic on the part of the Iranian leadership, it won't play out in their rhetoric. It may, in fact, play out in terms of trying to generate more crises in the Gulf that would hopefully galvanize international diplomacy on their behalf.
Alex Vatanka [00:10:53] Right. Hopefully we won't get to that. But Suzanne, I guess my follow up question, I'll wait till the next round but I'll come back to it. Just to give you time to maybe ponder this one. One of the issues for them, if they want to use more pressure then is probably normal, too, to ask neighboring states like Iraq to open up the borders earlier than they should do based on, you know, what experts are saying in terms of how you contain a health crisis. But I'll come back to that, Suzanne, on the issue of the region. Thank you so much, Aleksi. Again, good evening to you in Tbilisi. And thanks so much for taking time to speak to us here in Washington. We'd love to hear how things look to you from where you're sitting in in Tbilisi, in beautiful Tbilisi. What what is the assessment in terms of the short term, medium term, maybe long term? And what are the sort of headlines that we should watch out for here in Washington?
Aleksi Aleksishvili [00:11:54] Thank you very much. Thanks for inviting me. So I would start with the current situation regarding COVID-19 -- what is going on in the region. Because that has started right after Iran cases in February. So the first cases were confirmed in late February in Georgia and Azerbaijan first. So the Armenian case was a little bit later. But for some extent, Georgia has closed its borders immediately, especially with Iran, because the first case was confirmed from Iran. I mean, there was a visitor from Iran. And then as the Georgian government reacted immediately on those cases, situation was more or less controlled. And almost all countries later in March and on March 20th, in Armenia the 16th, and in Azerbaijan the 24th, countries officially declared an emergency situation. And that means like, you know, that it's not like a full lockdown for all countries. But there was like, you know, the step by step lockdown, towards full lockdown. So, so far, the situation is that Georgia is the least suffered country in this case in terms of spread of the virus and the worst situation is in Armenia. By the way, because this is also quite interesting, because probably that's a material for a reaction from the government to control or close the borders or act accordingly.
Aleksi Aleksishvili [00:13:40] Overall situation is that the ratio of total deaths to total cases is not very high. That's around 1.5 percent overall in the region with the least one is in Georgia, again just five cases of death cases, while in Armenia it's 24. But compare that to the world indicators, that's much less. But the most important situation is not regarding only this one. The infection and control of the infection. But the problem is regarding the economy, because what we know so far is that all three countries will suffer because of this economic crisis. So the most problematic country from that perspective will be Georgia, because Georgia is -- the volume of tourism and international trade and those areas of economy which is impacted by epidemic -- then that's the biggest one. And that's why, for example, tourism, or tourism and related sectors to tourism consist of 22 percent of GDP. And that means that, you know, that will be damaged too much. And that means like, you know, the overall impact on the economy will be quite high. So far, the forecast is that in Georgia, the contraction of the economy will be around 4, 4.5 percent. But that's still quite early to to clearly just, you know, measure that, because there are a lot of uncertainties in front. And then the little bit of positive forecasts out about Armenia and Azerbaijan. So overall situation in terms of the economy also is impacted by oil prices. As you correctly mentioned by Suzanne. Because I mean, that will definitely be, you know, specifically problematic for Azerbaijan. And not only for this country, because, for Georgia. Because we are heavily dependent on two major parts, right? One is our remittances that are coming from Russia and Russia will be affected by oil prices for sure. And there will be a lot of specific economic indicators that will be just, you know, the impacted and remittances, for example, for Georgia and Armenia is around 11 percent GDP. Maybe a little bit more. So that means that, you know, there will be also quite important indicator that will impact on impact on economy. So that's briefly about that. And if there are some other questions then I am more than glad to answer on that. But this is just an overall situation at this particular moment.
Alex Vatanka [00:16:40] Thank you very much. Aleksi, just a quick follow up. I was curious -- I knew tourism is a big part of the economy, I've visited Tbilisi a number of occasions. I love visiting Georgia every time we go there. But I was still surprised by the number you just quoted, just over 20 percent of GDP. Is that right?
Aleksi Aleksishvili [00:16:58] Yeah. This is tourism and tourism related.
Alex Vatanka [00:17:03] When I have been there. Things might have been changing -- I think the last time I was there was about two years ago, just less -- You got a lot of Iranians, Israelis, other Middle Eastern tourists. You had lots of Russians. So when you mentioned the price of oil dropping and the health crisis. This -- what I'm trying to get at is, is this seen to be a short term problem? The COVID-19 and the price of oil dropping? Or is this going to be a trend that is going to last a bit longer for Georgians, not going to be, obviously, good for the economy?
Aleksi Aleksishvili [00:17:39] Yes. When I mentioned this uncertainty, it's exactly this. Because that's really very difficult to -- at this particular moment --- to measure anything, especially forecast anything, because we still do not know what will be the shape of the crisis, whether that will be "V" shape or whether this will be "W" shaped of a crisis, or this will be U-shaped crisis, because that might be even if we can so far the -- kind of, Georgia deals with the spread of infection more or less well, but that doesn't mean a lot for the overall economy because that means like, you know, you could even start opening the economy before the next few weeks. That doesn't mean that that will be exactly the same reaction from neighboring countries where we are receiving tourists from. So in that case, I mean, everything depends not on each of these countries. Everything depends on the global situation. And specifically, of course, depends on the regional environment and regional situation, because that's overall trade, investments and the crisis management and also recovery of the economy is the major point in this case, which is still not clear.
Aleksi Aleksishvili [00:19:02] So, for example, when we are measuring, for example, my group, PMCG, which I'm representing, when we are measuring the potential kind of scenarios, what can be developed in Georgia and Georgian economy, we have several positive and negative and pessimistic scenarios, basic scenarios. And the worst case might be around minus twelve percent of GDP, which is just, you know, really very, kind of terrible and a problematic scenario in this case. But again I mean, we don't know exactly how that can be developed. So what we need at this particular moment, we need to, first of all, to care about the overall emergency situation so that, you know, we just manage this. And then at the same time, also, you know, try to to manage the economic situation as much as possible to get as less damage as possible.
Alex Vatanka [00:20:08] Thank you so much. Aleksi, one thing I'd to come back to, if I may, is this whole concept of, you know, the impact of this crisis. And in this case, maybe the price of oil dropping as much as it has on Georgia's geopolitical calculations going forward. I mean, being a country that has, since independence in 91, thought of itself and wants to and is welcome to a large extent by Europe, to be part of that Western family. There might be new sort of lessons learned from the crisis and might be, you know, making Georgian policymakers think of -- not to change course, but think of some other ways of having, if you will, a plan B in case of a crisis of this magnitude happening again. But I'll get to that. Aleksi, let me turn to my own MEI colleague Rauf Mammadov who is not joining us from Tbilisi, but, Maryland, if I'm not wrong and Rauf good to have you, I wanted to ask you kind of a similar question, a big picture question, what's going on with the energy sector in the region? I mean, what are the big headlines? I think, you know, everybody's obviously still trying to figure out what the price of oil being what it is means realistically and whether this is going to hold. But what does it mean in the Caucasus region? The South Caucasus, broader Caspian region, and you can talk about whatever you think is the headline we should take away from your comments.
Rauf Mammadov [00:21:52] Thank you. I'm happy to share the panel with Aleksi and Susan. The situation in the region, especially the oil dependent economies, is as bad as everywhere else. The problem is that these challenges have been chronic already and the challenges associated with the industry, with the oil and gas industry and the challenges of -- specific to their countries. Now Azerbaijan and broader Caspian littoral basin, Kazakhstan and Turkmenistan are our major exporters, whereas Azerbaijan and Kazakhstan are the oil exporters and their economies are dependent on oil revenues. The fiscal breakeven price, the price of oil that has been embedded to the budgets of these countries are, both in Azerbaijan and Kazakhstan's case, $55. Just to put in context, in Russia, it's $42. And in Middle East, it ranges from 70, around 70 to 80 dollars. I mean the Gulf countries. So these these prices just to put in context. On April 1st, as every [inaudible] has been sold, the oil that is produced in Azerbaijan had been sold for the cheapest price in the history, for 16 dollars, so impact is inevitable. And the same goes for Kazakhstan so that we are not immune. Azerbaijan or Kazakhstan is not immune to these problems because of their destruction of their economies. And when oil prices plummeted, they received the heat as as others do. And then, Aleksi, you mentioned the remittances. The major population of Azerbaijan is either employed or working and living in in Russia as well as in Central Asia as well. And these economies of Kazakhstan and Russia are dependent on oil revenues. So the ripple effect is there and I've seen the recent numbers. I think, for March, the remittances from Russia has dropped from 30 to 40 percent, that will have an effect on the economies. And the last problem which is mainly overlooked is actually the physical impact of of the coronavirus today to the oil and gas operations in the region and especially in the Kazakhstan case. Tengiz field, the onshore field, which is their first major oil field, there have been employees diagnosed with COVID. And that is threatening the interruption of the operations in Tengiz and there have been subsequent rallies against the restrictions applied by -- very strict restrictions applied by the government, by the local government. So these kind of problems might also occur in other oil producing nations [inaudible]. We haven't received any reports on any of these cases. And in general, in Azerbaijan, as Aleksi mentioned, the death rate is low, the curve has flattened. And hopefully that that pattern will remain and that hasn't spread to the oil and gas industry. But we are seeing in Kazakhstan and especially in Russia, even in East Siberia, in Russia, we are seeing cases where COVID is actually impacting the operations. So that could be problematic for the economy as well. But overall, it's -- uncertainty and volatility are the watchwords to describe the global energy industry and specifically South Caucasus and Central Asia, economies are dependent on oil and gas. Where there's so many unknowns, there's so many variables both in the oil industry, both geopolitically, as Aleksi mentioned, it's very difficult to see what it will lead to, but the volatility will remain. That's for sure. And for the economies of these regions who are dependent on oil and gas, it will be prudent to take some tangible steps in order to diversify their economies from that. And I'll leave it there. And if you have any questions, I'll come to them.
Alex Vatanka [00:26:32] Well, I had one question, on the last point you just made when it comes to diversifying your economy, if you're sitting in the South Caucasus or Azerbaijan, in the case of energy, if you are in Central Asia, the likes of Kazakhstan and Turkmenistan. How have they performed overall in your estimation and how are they placed to sort of be able to overcome this shock that they are going to have in terms of their fiscal position because of the drop in energy prices? I mean, are they have they been thinking about a rainy day? Are they prepared more or less? And if so, which countries are better prepared in your estimation and perhaps not so well prepared?
Rauf Mammadov [00:27:19] Well, in Azerbaijan's case. If we compare to the previous crisis, which happened in 2015, the plummeting of oil prices. The country has more federal and I mean more state sovereign wealth fund reserves and bank reserves -- central bank reserves -- to cope with the problem. However, unlike the previous crisis, which was only specifically oil crisis. Now the country's also hit with with the pandemic. Therefore, these rainy day reserves will be under strain and we're seeing that they're getting under strain, especially in Azerbaijan's case. One of the reasons for Azerbaijan is -- one of the problems for Azerbaijan is that its currency, I mean, it's [inaudible] to challenge, it's currency is not floating. Therefore, the government has to inject hard currency dollar into the economy in order to prevent hyperinflation. And so far, since the crisis started and the first case in Azerbaijan was confirmed at the end of February, February 28, I think since then and since all the restrictions have been applied, almost 2 billion dollars have been burned through. That means have been injected to the economy. And then, you know, people are buying out dollar and exchanging it for local currency. So there is a pressure, the country, especially Azerbaijan and Kazakhstan as well, do have federal reserves to - state reserves - to cope with it. However, the extent and the depth of the crisis is still unknown. Therefore, it's very difficult to predict how long will it last and how deep it will impact both regionally and internationally to understand whether these reserves will be sufficient enough.
Alex Vatanka [00:29:38] Rauf, I'm going to ask you to think about this question that just came in from someone watching us in the audience. Think about it. We'll come back to it. It's a geopolitical, well, it's in this case, actually, it's less than that. The question is, the drop in oil prices, do you see that as having any impact, good or bad, on the situation in Nagorno-Karabakh? And actually, let me build on that. Do you see geopolitics changing in any ways in the region when it comes to energy politics? I mean, those of us who remember 1990s when pipelines were being discussed in a big way. And Suzanne, I know. Can speak to this later. You know, politics has always been a big part of where a pipeline goes in that part of the world. Are any of those calculations, in your estimation, going to be changed -- some of the ones that are being discussed from the eastern side of the Caspian going to Europe? Are any plans likely to be impacted because of the economic crisis that the region going through, just something for you to think about, I'll come back to that. Suzanne, I have a question from someone else now that I'm back with you. This question is about the United States now having successfully given waivers to Iraq to buy gas from Iran to produce electricity. This last one, if I remember right, is only for 30 days, which I guess is coming up soon, will be expiring just before it starts getting really hot in Iraq. Do you think, the question says, do you think there will be another waiver for Iraq to buy more natural gas from Iran? And if you could tie that into the whole issue of what the US can do when it comes to trade between Iran and immediate neighbors like Iraq, when you could literally put stuff in the back of a truck, get it over the border, and you can get paid in equal amounts in goods or other types of border arrangements and so much harder for the US to monitor and stop because just the nature of of cross-border trade. Any comments on that, Suzanne?
Suzanne Maloney [00:32:01] Sure. I think it's an important question specifically to the question of sanctions waivers for continued import of Iranian gas into Iraq. I would be shocked if the administration didn't extend at least another 30 day waiver for that trade to continue. I think there's been just a pragmatic recognition, really since the outset of the decision to walk away from the nuclear deal, that further exacerbating instability and particularly economic sources of instability within Iraq would be a really inopportune consequence of the maximum pressure policy on Iran. And there has been this workaround really since 2018 to recognize that Iraq needs the gas, needs Iran's assistance, at least at the moment, for power generation. And so as the summer approaches, and particularly given the political uncertainty within Iraq, it would be insanely counterproductive for the US to do anything other than to continue that that waiver. This is an administration that has taken a number of insanely counterproductive steps, but I think there is a particular appreciation for the difficult position that the Iraqis have been put in as a result of this.
Suzanne Maloney [00:33:24] I wanted to also use that to maybe pivot to the broader issue that you, Alex, raised as we were first talking and I think has come up in the questions. And that is this kind of question about regional trade and the leverage that Iran may have to try to ensure that it is able to sustain that regional trade, which has been such an important buffer for its own economy during this period of maximum pressure. I think it is unfortunately relatively limited in terms of Iranian leverage. Ultimately, Iran's decision to reopen its own economy has, I think, reinforced the disinclination of even countries like Iraq, where there is a considerable degree of Iranian influence to rethink their own efforts, to try to insulate themselves from the outbreak that really began in the region within Iran in the most serious way. And so you have this, you know, I think set of countervailing incentives for the Iranians. They simply can't close the domestic economy. They don't have the ability to support the population. There is, you know, real exigency in terms of the day to day living standards of ordinary Iranians that forced them to to essentially adopt this relatively half hearted approach to to a shutdown and then to restart fairly quickly. But that will make it that much harder for countries like -- even Iraq -- and other countries in the region to contemplate any kind of relaxation in the border controls that they've put in place. As you say, you know, these borders have been very porous. It is possible to put a lot of material on a truck and try to get it into regional markets. But I think, you know, the concerns about the pandemic spreading, but also that the issues of local demand for Iranian consumer goods at this point, given the economic pain that its neighbors are suffering, is likely to mean that we're not going to see a significant rebound in that trade anytime soon.
Alex Vatanka [00:35:42] What I hear you say, Suzanne, is unless there is some major rethink in terms of some of the regional policies, I could see that maybe opening up opportunities in certain -- I mean, the Gulf states could be, for example, a place where you could see more economic interaction if there is less political pressure in relations. But that is not my sense, I think they -- my sense is Tehran wants to stay the course. They think they're very close to winning in the region, they're very close to the United States leaving or at least not being as interested in the Middle East than it has been before, and that this would be the worst time for them to soften up. That they should stay, of course. What do you think of that analysis?
Suzanne Maloney [00:36:26] I think that's largely correct. You know, what we've seen from the Gulf states has been increased aid in some cases to the Iranians, recognizing the potential for their pandemic to spill over borders. But I see almost no prospect that there'd be a revival of the kind of significant trade that happened even under periods of U.S. economic pressure, simply because of the concern about further fueling the spread of the virus.
Alex Vatanka [00:36:54] Suzanne, when I come back, if it's OK, what I wanted to ask you is to sort of bring Russia into this. Russia is often touted as the sort of weak China, obviously, as the two countries that could sort of be the lifesavers for Iran -- save the Iranian economy. How does that in your mind, how realistic is that? The numbers don't add up. Russia is not a big trading partner to this state, has never been a big trading partner. There's structural differences, they're both major energy exporters or have at one point being before Iran was sanctioned. But do you see other types of partnership in the broader Caspian region between Iran and Russia? There are all sorts of ventures discussed in the past, mostly that haven't really gone anywhere, like rail and road connections from South Asia through Iran to Europe, the Russians were interested in that, but they haven't gone anywhere. I wonder how much of that is U.S. sanctions that are to be blamed and how much is it other factors. So I'll come back to that, Suzanne. Let me just go back to Aleksi and sort of go back to the point Aleksi mentioned about, you know, here in Washington, one of the things you read almost daily now is this COVID-19 crisis is making everyone wonder about is interdependence really that good or is independence undervalued? Because, you know, you suddenly realize you need certain equipment and that the country where it's been produced isn't as reliable or as friendly as you thought. I'm not saying that's the thinking in Georgia at all, but I'm wondering if there are any kind of ramifications of this crisis that you starting to hear among the policymaking community in Tbilisi, but also in the region. Whether this is something that you've picked up on.
Aleksi Aleksishvili [00:38:40] I think especially talking from Georgia's perspective, I don't think and I don't expect any specific changes in terms of geopolitics. And so far, existing aspirations towards Europe and NATO and some other regional cooperation, I don't think that would be changed because of the existing crisis. And there are several reasons for it. First is that, first of all, Georgia, we have to consider the size of Georgia. Right. Which is which is really a very small country in terms of a self reliant economy, this is not so much expected because from that perspective, we need free trade. We need a more open economy for further development and prosperity of the country itself. And from that perspective, Georgia was one of the leading country in that direction because Georgia had a free trade agreement with Iraq, Georgia had free trade agreement with all neighboring countries, including Turkey C.I.S. countries, as well as Georgia had free trade agreements with China. So in this case, Georgia acted as, you know, the new player in this region as an open economy. On the other hand, there is also really important part as well, which is related to security. And considering that still 20 percent of the territories of the countries occupied by northern neighbor and then there is like, you know, this is kind of a devastated situation in this regard. And we still face some ongoing challenges every day, even in this situation. And when there is the move of a so-called border and conflict zone almost every day and this borderization never ends. In this case, even in this pandemic situation.
Aleksi Aleksishvili [00:40:46] So from that perspective, I don't expect that there will be some kind of dramatic changes of the geopolitical situation or like Georgia's direction towards Europe or Western, North Atlantic groups.
Alex Vatanka [00:41:04] But on the point of big geopolitical players, could you, sort of, for the audience describe China's presence and types of investments, activities that, prior to this crisis, the country of China was looking to sort of institute, if you will, on the ground in South Caucasus and the broader Caspian region, to your knowledge?
Aleksi Aleksishvili [00:41:29] So, so far, even before this crisis, their presence was not so high. I mean, in terms of investment, it was not very high because debt was controlled almost in all three countries in Azerbaijan and Armenia as well, especially in Georgia. Debt was controlled because we, I mean, those countries are somehow controlling the sovereign debt issue and debt is more or less well, well managed so far in this case, the direct influence of China's kind of depth policy was not implemented and on the other side, I mean, we also see their participation from different sides, like, you know, the more may lead, like the companies implementing some projects in Georgia or construction companies, but that's not so much a direct influence on the investment environment or overall economic standing so far. I mean, this is not so big burden for the for the economies of these countries.
Alex Vatanka [00:42:46] Great, great. Thank you.
Aleksi Aleksishvili [00:42:47] And also, I would also like, you know, also mentioning that during this crisis, like we received immediate support from our allies and especially from European Union. So if we -- overall committed amount of support is around 3 billion USD, which means like 3 billion for Georgian economy is quite a large number. And in this case, around around 1 billion comes from European institutions. I mean, this is European Union, might be an investment bank and other European institutions, which means like that also kind of underlines and shows the interrelationship and the support from this part of the world.
Alex Vatanka [00:43:40] Were there any other sources of support beyond outside of European Union institutions and --.
Aleksi Aleksishvili [00:43:45] Yes, sure, there are some already already. Committed support from Asian Development Bank, European EBRD, the World Bank, IMF and many other international, multilateral and bilateral institutions. But specifically, I just wanted to mention this European part, again, talking about geopolitics, whether there would be some kind of threat to shade or shape or change that one. I don't expect that this [inaudible].
Alex Vatanka [00:44:22] Well, that's an important point. Georgia, in your view, will stay the course. European integration into the Western world is still the top foreign policy priority. We have about 15 minutes or so left before our hour is up. I'll encourage everyone to send your questions, keep coming or sending them to me through the chat option that you can find at the bottom of the page. I'm sure, Suzanne, Aleksi and Rauf will take your questions. Let me turn to Rauf. So what about that, Rauf? The issue of conflicts in the region, including Nagorno-Karabakh or, you know, competition for energy influence like pipeline politics. Do you see any -- excuse me for a second. I think the ambulances are going by here -- do you -- I mean, it's very early days, I appreciate that. But any signs that you have been picking up in terms of potential geopolitical impact of these -- the double whammy of the price of oil dropping and the COVID-19?
Rauf Mammadov [00:45:36] Well, of course, there will be impact because this is a phenomenal situation. Partly it's tragic, but from a geopolitical perspective, it's paradigm shifting. There will be some implications as well. I haven't seen any recent developments that could be interpreted as a cause or correlated with the COVID virus. And the Nagorno-Karabakh issue is also very complicated. There is -- it's a bilateral issue, which is -- a multilateral organization, the OSCE Minsk Group is trying to interfere and to mediate between them, and that entity has as its own interests, it's not monolithic as well. Russia is a big player in the region and the change of attitude towards the conflict or the impact on the conflict will be determined by indirect factors, I believe, and those indirect factors will be will mainly stem from the political situation in these countries. Now we have to take a look at the pre-COVID situation, political situation, for instance, in Azerbaijan, just before the first news on COVID, on the virus, started spreading in Qom, in Iran, which was around mid-February when, you know, we all understood that the next hot spot after China will be surprisingly Iran, which Azerbaijan shares around 800 kilometer borders, that happened around the time, where Azerbaijan was going through the new parliamentary elections. So there was ongoing political situation in the country already. And there is a socioeconomic problem that the country is facing at the moment and there could be impact on the political situation along the road. However, we haven't seen any any direct impact or any rallies or any protests or any violation of the quarantine, as we've seen in in North Ossetia or some other places.
Rauf Mammadov [00:48:10] So the political situation hasn't changed. Therefore, that hasn't impacted the process yet. Unfortunately, there's already been throughout this process for last two months, the violation of the cease fire has been recorded. Both sides have made it clear, I think there have also been deaths among the soldiers. And so it shows that the situation is continuing the way it was before. Overall, yes, the conflict in the region, especially in Nagorno-Karabakh, has impacted the the pipeline geopolitics. To be honest, the shortest way for Azerbaijani oil and gas to get to the euro, one of the shortest ways is through Armenia. And or even if there is a Georgian route, there could be Armenian route as well if it wasn't for the Nagorno-Karabakh conflict and it's obvious that the only reason it's not going through Armenia is because of the of the war between the two countries. And I think that will remain until the problem is solved. When it comes to Trans Caspian pipeline, that can bring gas from from other side of the Caspian Sea, all these projects have been put on hold for the obvious reasons, as in everywhere else in the industry, the new projects have been shelved because it doesn't make any commercial or financial sense to undergo these multibillion dollar projects, new projects. So we're not even talking about the new budget, but the overall situation remains the same. The status quo remains the same. The negotiations are still continuing. I think yesterday there was the first Zoom conference call negotiation, including the Azerbaijani, Armenian foreign ministers and oil OSCE Minsk Group. So that's introduction of high tech to this negotiation process. But overall, the content hasn't changed. The blame game hasn't changed. Their countries still are holding onto their positions. And what's interesting, even the interpretation of the progress, is not the same. The Armenian side is saying that we are for -- we will support the phase by phase approach. Azerbaijan says that, you know, it was our idea. Russians say that Armenians and Azerbaijanis are not even alligned on this. So it's still complicated as it has been for the last 26 years.
Alex Vatanka [00:51:17] Right. So no major changes there expected by you. Thank you very much. Suzanne, what about that issue of Russia and Iran? Iran, Iran and the Caspian, what would you I mean -- I guess, you know, when I look at certain Iranian officials, including Oil Minister Bijan Zangeneh, I don't get the sense he wants much more Russian involvement in the Iranian energy sector, he has his reasons. His critics call him a Western stooge, who cannot wait for the likes of Total to come back. He's under a lot of political pressure. But if you put the politics of Iranian energy aside and just look at the structural sort of realities of these two economies, what are we missing? I mean, when we complain or, not complain, but when we highlight the lack of trade between Russia and Iran, are we being unfair? Because there isn't much reason for trade. I mean, there isn't a grounds for an increase in trade. You could say that about U.S. and Iran, or Iran and Germany. But you can't really make that argument by Russia. Am I seeing this from the right sort of angle or am I looking at it the wrong way, I guess?
Suzanne Maloney [00:52:37] Well, I tend to agree with you, so I guess you're looking at it from the right angle. You know, my sense is that there is a, you know, what we've seen develop over the course of the past five years in particular is a strategic partnership between Iran and Russia, focused primarily around their activities in Syria, but one that has expanded to a broader set of common strategic interests, particularly in seeing the reduction of American influence and presence in the Middle East. And there they obviously have some shared interests and they have seen some success in this cooperation to the extent that they've been able to hold ground and sustain the Bashar Assad regime in Syria. But I don't think that there's a meaningful economic dimension to the relationship there. There are very few common interests. As you say, there's there's only the most limited history of of trade and economic interaction in the contemporary era. That isn't true if you look back to the 60s or even further back into Iranian-Russian history. But, you know, there, too, there's an enormous amount of distrust. There's a legacy of resentment on the part of Iranians about the seizure of territories and other interference on the part of the Russians, as well as, of course, other great powers during the imperial eras in Iran. So I, you know, I wouldn't expect Russia to serve as any kind of economic savior for an Iran under immense economic pressure. And, of course, the Russian management of its relationship with Saudi Arabia has worked almost persistently to the deficit and to the detriment of the Iranians, both the original cooperation under the OPEC + arrangements and then, of course, the oil price war that exacerbated the collapse of global economic demand and created this kind of incredible vacuum that we've seen around oil prices and oil revenues. And so all of this has really hurt Iran. I don't know that it's hurt the Iranian Russian relationship, but I think we should be fairly sanguine about any expectations of significant trade or investment on the part of the Russians in Iran.
Alex Vatanka [00:55:14] Thanks very much, Suzanne. We got about five minutes. I know Suzanne has a hard stop because of another commitment. So I will just be very quick in asking the last question of Aleksi and anything Rauf you want to add at the end. Aleksi, very briefly, in your in your remarks. Where are we in terms of this idea of Eurasian -- and I'm taking you to a larger scale here -- but Eurasian economic integration, I mean, the so-called Eurasian Economic Union has been around for a few years now, less than a decade. You see it occasionally in the headlines. But are you optimistic about integration along the economics of the regional actors, states around the Caspian?
Aleksi Aleksishvili [00:56:12] In terms of the regional cooperation in this regard, looking at this situation, from my point of view, I don't see any big prospect for countries like Ukraine, Georgia or Azerbaijan joining this union in the nearest future because of many specific conditions in this case. Because if we look at that, this is truly a one-country-run arrangement. This is just run by Russia completely. And in this case, the conditions of this Eurasian Economic Union are not so much in favor of other countries being a part of it unless they are somehow completely isolated from the rest of the world. For example, from that perspective, for example, for Kazakhstan or Kyrgyzstan there might not be too many options because there is like, you know, they are really very much interlinked with the Russian economy. But on the other hand, for those countries like Georgia, Ukraine, Moldova or Azerbaijan, I don't think that there is there is the attractiveness of this union.
Alex Vatanka [00:57:42] Thank you so much, Ralph. Any last minute comments? We got about a minute or two, so you get the last word
Rauf Mammadov [00:57:49] Yeah, I wanted to add to what Susan said about the Russian-Iranian relationship. I completely agree about the resentment between two countries. And I just wanted to bring this one example every time -- before this pandemic happened -- every time Iranian officials talked about the Russian investments in the energy sector of Iran, they were talking about 40 billion dollars. That number has always been mentioned many times. When you look at the actual numbers, it's less than a billion dollars. So that gives you the example of the real nature of the relations between two countries. So a lot of mistrust and misunderstanding of their partnership.
Alex Vatanka [00:58:33] Great. Thank you so much, Rauf Mammadov, Suzanne Maloney, and of course, Aleksi Aleksishvili from Tbilisi, Georgia. I appreciate your time, your insights. Great to have you on this virtual, I think they're called webinars, I like to call them panels. But you know what I mean. Thanks so much for joining us. I hope you join us again at some point in the future. And thanks to everyone in the audience with their great questions.
Speakers
Aleksi Aleksishvili
Chairman and CEO, Policy and Management Consulting Group
Rauf Mammadov
Resident scholar on energy policy, MEI
Suzanne Maloney
Interim vice president and director, Foreign Policy program, Brookings Institution
Alex Vatanka, moderator
Senior fellow and director, Iran program, MEI