Russian capital and Russian connections in Georgian business

News | Research | Memory and Disinformation Studies | Economics and Social Policy | Pressing Issues | Analysis 28 November 2022

The Kremlin's harmful influence at the international level encompasses various aspects, including not only military and political, but also economic and informational realms. Against the backdrop of the Russian Federation's aggressive invasion of Ukraine in February 2022 and the subsequent imposition of unprecedented sanctions, the economic dimension has taken on particular significance. Within the broader relationship between Russia and Europe, energy issues have emerged with particular intensity.


Amidst the ongoing war and accompanying sanctions, one of the European Union's critical challenges is to reduce its dependence on Russian energy carriers. This dynamic not only hinders the effectiveness of imposed sanctions but also provides a stable source of income for Russia to sustain its aggressive war efforts. Additionally, energy dependence is of increasing social importance, and the results can affect the population as well.


Given these factors, it is clear that the energy sector holds significant strategic importance for a nation's security, sovereignty, and stability. Thus, it is necessary to assess the level of the country's dependence on Russian business by analyzing the representation of Russian capital in strategic areas. The influx of Russian capital into Georgia has significant socio-economic consequences, and its normalization as an important investor affects the society's attitude towards Russia and its actions. Furthermore, the economic aspect is accompanied by intensive disinformation campaigns.


The exploitation of energy dependence has been a common practice for Russia since 2006. Russia has actively used dependence on energy resources, especially gas, to advance its own political agenda in the international arena. Even in 2022, a few months before the war in Ukraine, amid an energy crisis, Russia continued to abuse its leverage over European states. Therefore, dependence on Russian capital has the potential to be subject to political manipulation.


On June 3, 2022, the European Union adopted its sixth package of sanctions, which includes a partial embargo on Russian oil. The sanctions prohibit the sea importation of Russian crude oil starting from December 5, 2022, and the importation of petroleum products from February 5, 2023. The importation of crude oil and oil products through pipelines will not be affected by the sanctions. However, Hungary and Slovakia will be prohibited from reselling Russian oil products to other countries.


In 2015, IDFI published a report entitled "Russian Capital in Georgian Business", which provided a general overview of Russian business activities in all sectors. However, given the recent radical changes, it has become essential to reassess the impact of these transformations on the Georgian business sector and to fill the existing gaps in our knowledge. As a result, updates for 2021-2022 have been divided by economic spheres, with the first stage focusing on the telecommunication, banking, mining, and mineral water sectors. This report, on the other hand, will delve into several strategic sectors, including electricity, oil, and gas.


Summary of key findings:



- The proportion of Russian products in the oil sector has risen, with the share of Russian oil in the Georgian market increasing by 5% in just one month, from May to June. This suggests that the trend is on the rise.


- In the natural gas sector, imports to Georgia are mainly carried out from Azerbaijan. In 2021, the amount paid for gas imported from Russia was 22% of the total value of imported gas, and in the first 6 months of 2022 it was 14.6%.


- The share of oil imported from Russia in May 2022 was almost 139 thousand tons, which accounted for 28% of total oil imports. Within a month, the share of Russian oil in the Georgian market increased by 5%.


- The volume of fuel imported from the Russian Federation was increasing on the market and it made up 64-65% of the total import.


- The National Statistics Service has provided information indicating that four out of the five largest companies in the fuel market that import from Russia are "San Petroleum Georgia," "Lukoil Georgia," "Visol," and "Sokar."


- In 2010-2022, the state agencies of Georgia signed up to 3,000 contracts with the Russian company "Lukoil" for the supply of motor fuel. During this period, the state agencies bought 200 million GEL of fuel from Lukoil.


- The share of electricity imported from Russia in total imported electricity is 25% (252.2 million kW/h). The rest comes from Azerbaijan (60%) and Turkey (15%).




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