The Russia-Ukraine Conflict and Central Asian Economies

The significant economic repercussions of the ongoing Russia-Ukraine conflict on the global economy are undisputed. The numerous threats of sanctions would cripple Russia’s economy by targeting the nation’s financial and energy sectors and yet, by extension, would also severely impact the rest of the world. This includes the proposed sanction of expelling the nation from the system of international payments that global trade runs on, the SWIFT system, and also the threat to Nord Stream 2, the 11 billion USD gas pipeline across the Baltic Sea. The conflict’s inevitable impacts on international trade and export are also unsurprising with Russia’s energy leverage as the largest supplier of Europe’s oil and gas, which could be cut off in the event of a conflict, alongside the discontinued metals, manufacturing, technology, and even agriculture and food exports. However, amongst such general global economic repercussions, a more specific impact that could be especially interesting to observe is the impacts on Central Asian migrant workers, and by extension and their countries’ economies.

Russia ranked fourth globally among destinations for international migrants in 2019. Central Asian economies are intricately tied to Russia’s economy and workforce, with more than 3 million migrant workers from Uzbekistan, nearly 1.6 million from Tajikistan, and 620,000 from Kyrgyzstan having entered Russia between January and September 2021. The dependence of such Central Asian emerging economies on Russia’s remittances is evident in how they constitute 30% of Tajikistan’s GDP, 28% of Kyrgyzstan’s, and almost 12% of Uzbekistan’s. The Russian economy’s influence on Central Asian countries is also evident in past Russian economic crises that have severely crippled their economies. This includes after 2014 when Washington imposed economic curbs following Moscow’s annexation of Crimea, halving Tajikistan’s incoming remittances between 2013 and 2016, decreased Uzbekistan’s remittances by nearly 30%, and Kyrgyzstan’s by 25%, all in a year. Not only has the mere threat of sanctions dramatically cut the value of the earnings and savings of migrant workers with the weakening of the rouble of 1.40% at 77.16 per dollar, but the sanctions specifically targeted at Russia’s major banks also have implications for these workers.

As Russia’s largest bank, Sberbank, pays out more than half of the country’s wages and pensions, such punitive measures on financial institutions could potentially prohibit workers from actually receiving their salaries. Moreover, if banks in other countries snap ties with their Russian counterparts to avoid sanctions themselves, international money transfers would also become impossible. The Russia-Ukraine conflict’s significance for such Central Asian economies also greatly impacts the prospect of their collective international security. The regional integration of Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan would theoretically make it more difficult for the Kremlin to contain the fallout of any potential military operation. By binding their interests more closely together, Central Asia can create thick linkages that would be more costly for the Kremlin to break. However, this security would only be attainable if the respective economies were not individually heavily dependent on Russia’s workforce, demonstrating how the economic repercussions of the Russia-Ukraine crisis go beyond impacting domestic economies, but also international relations and global security. Such repercussions would also inevitably damage Russia’s economy that depends on these migrant workers, their important contribution being proven during the pandemic when their absence significantly slowed the country’s recovery. The impact of this labour shortage, on top of the aforementioned depreciation of the ruble, will only worsen the country’s declining workforce.

In short, it is indisputable that the Russia-Ukraine conflict will have a significant impact on other emerging market economies, particularly throughout Central Asia. This conflict has exposed the complex and intricate socio-economic relationship between these emerging market economies with its impacts ranging from the individual families in remittance-dependent countries to the global security of such former Soviet republics. Ultimately, it will be fascinating to keep up with how Russia deals with the inevitable labour shortage that will follow this. Only time will tell if, and how Putin’s administration will take steps to insulate migrant workers from the worst effects of any new sanctions.

By June Seo Chung

Sector Head: Gregor MacDonald

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