War endangers Georgian economy

Georgian banks have stopped issuing personal loans, following instructions from the National Bank of Georgia. And international rating agencies have cut the country’s credit rating as the conflict threatens foreign direct investment.

Georgia may face serious problems if it continues its military action for more than six months, says the country’s former economy minister, according to Interfax news agency.

International rating agencies agree. Standard and Poor’s cut Georgia’s credit rating from B + to B, amid concern the conflict with South Ossetia may cut inflows of foreign investment.

Last year Georgia exported products worth $US 1 billion, while imports totalled three times as much. Analysts say the country has run a budget deficit for several years and cannot survive without subsidies.
 
The conflict also raises worries over the security of crude oil supplies. Pipelines through Georgia connect the important Caspian oilfields with the Black Sea and the Mediterranean. Those fears saw the recently-weak oil price bounce back to $US 117 per barrel.

Georgia hosts several oil pipelines that bring oil mainly to Europe. Large sea oil ports are also located in the Georgian cities of Batumi and Kulevi.
 
Each day 1.6 million barrels of oil pass through Georgia and experts say the conflict dramatically raises the risk of transit through Georgia.
 
One Azerbaijan oil producer has recently cut supplies to the Georgian sea ports due the conflict.