The Black Sea region’s states are: Ukraine, Russia, Georgia, Turkey, Bulgaria and Romania. However, a more in-depth analysis reveals that this area’s economic and international reality is not limited to them. However, it extends to other neighbouring and distant countries, influencing under different aspects and expanding this region’s borders: Greece and Moldova in the Mediterranean, the countries of the Caspian Sea, Iran, Azerbaijan, Kazakhstan, and Turkmenistan and Armenia which, despite not having a terminal on either of the two seas, straddles both.
The Black Sea turns out to be an important centre of energy policy: in fact, the region is the second-largest source of oil and natural gas after the Persian Gulf and is also a critical corridor for the transfer of energy. Furthermore, the Black Sea has the peculiarity of historically representing the cultural border between the Western Christian world and the Eastern Muslim world. For this reason, the stake of the transport “routes” of this area of the world is an element that objectively unites relations between nations but which, at the same time, generates competition and friction.
As stated by Ronald Asmus, Svante Cornell and Gareth Winrow, this space innervates on the Caspian Sea. The Balkans route is now central to the Eurasian balances control to guarantee the Euro-Atlantic axis’s solidity to the Middle Eastern countries.
After the fall of the USSR, Turkey has increasingly sought to assert its role in the area, institutionalizing the BSEC – the Organization for Economic Cooperation of the Black Sea – which aimed precisely at a greater connection between the sea basins of the Aegean Sea (and therefore the Mediterranean Sea) and of the Caspian Sea, which the Black Sea would appear to link.
The Black Sea area becomes central in terms of security policy and energy supply, opening the debate on whether the region is also known as the Greater Caspian region should be added to the Black Sea economic area and whether it should also consider Iran in the Wider Black Sea Region (WBSR).
With due caution, we believe that the answer must be affirmative if we consider that the Central-Eastern Europe / Black Sea / Transcaucasian area is crossed by oil and gas pipelines and one of the arteries of the so-called “Silk Road”.
The Black Sea is relevant for the role it can play in maritime transport. 90% of international trade goods travel by sea and, consequently, transport and logistics related to them make up about 12% of world GDP. The estimates for the future are even more significant, despite the setbacks due to Covid-19: in the forecast for 2024, a 3.5% increase in traffic and container handling is estimated, and in particular, the Mediterranean recorded a 6-fold increase in traffic or container between 1995 and 2017 while traffic between the east shore and the Black Sea is growing at an even faster rate than average, registering an increase of 630%. Another relevant figure is the Black Sea’s cargo traffic towards the Far East that passes through the Suez Canal.
The importance of the Black Sea on maritime traffic and as a gateway to the east is confirmed taking into account that 27% of the approximately 500 world scheduled services by ship pass on the Mediterranean routes, while through the Bosporus, according to relative estimates in 2018, there was talk of transit of about 50,000 / 60,000 ships a year.
At the same time, there is a significant increase in rail transport on the China-Europe route and vice versa. In July of last year, the number of freight trains reached a record of 1,232 trains, with a 68% increase compared to July 2019. Further confirmation of the Black Sea’s strategic importance is the highway that connects it to Kiev, an exception to the other highways of the former Soviet Union, which are not in excellent condition. The beneficiaries of these trade routes for import and export are of course the riparian countries and, as previously mentioned, those linked to the WBSR area extended to the Caspian Sea: Russia, Ukraine, Bulgaria, Romania, Turkey, Armenia, Georgia, Kazakhstan, Azerbaijan, Iran, and the other countries born from the disintegration of the USSR and linked to the Caspian Sea area. Therefore, a careful analysis of this area’s economy should consider the relative balances to the Donbass, the crisis in Crimea, its fallout and influences on neighbouring countries such as Iran and, consequently, the Persian Gulf. The Black Sea represents a valid alternative to the Iranian ports in the Gulf of Oman (Chabahar) or the Persian Gulf (Bandar Mahshahr or to be more precise Bandar Imam Khomeini), both small or medium ports.
The essential country overlooking the Black Sea is, of course, Russia, which has increased its trade volume to ease the burden on the port of St. Petersburg (although due to the effects of climate change, routes to the north, above the Arctic Circle, will grow more numerous and be used for more extended periods of time in the future).
Aside from Sevastopol, which also has the most important Russian naval base in the area, and the port of Kerch, Russia’s main commercial port is Novorossiysk, near the Crimea. Another port further south (but still relatively close to the area of influence of Crimea) and of medium size is the port of Tuapse. Other relevant ports are Taganrog and Rostov; in this regard, it is worth remembering that the Don is perhaps the main inland waterway of Russia and that the Volga-Don canal is the sea route connecting the Caspian Sea to the Black Sea. All the Sea of Azov’s Russian ports are located between Crimea and the Donetsk region, making them quite sensitive to the Region’s military instability due to tensions between Russia and Ukraine. From the maritime point of view, Russia’s main problem is that it can count on a few ports compared to its territorial extension. Moreover, all are in unfortunate positions: St. Petersburg on the Baltic, the ports on the Black Sea or even the Sea of Azov, which are subject to the control of the Crimea and the Donbas and, in the second-order, they are linked to the Bosporus; and finally, Arkhangelsk, which has been operational all year round since 1977.
From the military point of view, however, Russian ports are all appreciably close to Ukrainian military posts, making Crimea strategic for the control and security of Russian trading ports. To counteract the influence of the Atlantic Alliance and the EU, Russia has strengthened its collaborations with the CIS states (Commonwealth of Independent States, a confederation consisting of nine republics of the former Soviet Union) – Belarus, Kazakhstan, Kyrgyzstan and Tajikistan – through the establishment of the Eurasian Economic Union (2005) and the launch of the project of a single monetary system (2010). The importance of Russian ports on the Black Sea is therefore evident. In 2018 Russia was in 11th place in terms of GDP (in US dollars),
The second most important player is undoubtedly Turkey. Turkey’s main ports are located in the Bosporus (Istanbul), in the Dardanelles (in particular, Canakkale that, together with the Bosporus, is one of the critical Turkish ports), and the Sea of Marmara. Its importance is self-evident: the Bosporus, the door that connects the Black Sea to the Mediterranean, is under the full control of Turkey and all maritime traffic, imports, and exports to and from the Mediterranean, depending on its opening.
Transit through the Bosporus is regulated by the Treaty of Monteux (1936), which guarantees the transit of ships in peacetime unless there are urgent and imminent threats to Turkey’s security; in this case, there are restrictions. The passage through the Bosporus and the Dardanelles, although guaranteed, is not free. As far as the transit of warships is concerned, the regulation is more complicated: simplifying it provides that in the event of war, the transit of belligerent ships can be prevented by Turkey even maintaining its neutrality.
In this regard, it is emphasized that escalation of friction between Ukraine and Russia would most likely cause a closure of the Bosporus to Russian ships, with dramatic repercussions on commercial and economic traffic for all riparian countries of the Region. Hence, the Russian government may have been pushed to make more mind with hybrid (IT and not) methods, driven by economic reasons to protect a vital transit channel for its exports. On the other hand, the energy supplies of both Ukraine and Turkey still depend mainly on Russian gas: in fact, the first item of imports for Ukraine is refined oil (for $5.47B) and the first importer in Ukraine is Russia (for $9.53B) as well as Turkey which for 60% of its total energy supplies depends on that it from Russia.
On the other hand, there are not only relations between Turkey, Russia, and the European Union to be taken into consideration, but also those with the United States. Now, although Russia plays a fundamental role in economic procurement to date, the EU is the most important economic partner of the Black Sea region as a whole. The United States remain a crucial player for the security of Bulgaria, Romania, and Turkey as well as for partners such as Ukraine and Georgia, all of which border the Black Sea.
The United States has supported heavy sanctions against Russia as a price for the occupation of Crimea and other transgressions of international law (for example the illegal occupation of parts of Georgia and the recent violation of international law committed by Russia near the Strait of Kerch). The United States, like its European allies, has never recognized Russia’s claim to Crimea, which it views as part of Ukraine just like it recognizes Abkhazia and South Ossetia as part of Georgia. The United States had increased sanctions against Russia at several intervals, most recently in January 2020, when it blacklisted Crimean officials engaged in that peninsula’s Russian occupation.
Hence, the Black Sea region constitutes an important maritime route of the trade routes of Asian countries to the Mediterranean and has crucial importance as a crossroads of the east-west and north-south routes for oil and natural gas. Therefore, the struggle for regional influence also occurs through control of the existing (and proposed) pipeline network that crosses the Region and runs under its waters.
These pipelines are critical, not only for the Region but also for Europe, and it is not necessary to dig very deeply to understand how energy ambitions and concerns are determinants of regional tensions. Russia’s illegal annexation of the Ukrainian peninsula of Crimea preceded its claim to exercise control over an exclusive economic zone (EEZ) rich in offshore gas.
Crimea has essential oil and gas reserves, which the unrecognized government supported by Russia commissioned Gazprom to manage. The company, led by Aleksej Borisovič Miller, has purchased the land branch of the Ukrainian hydrocarbon companies present in Crimea while Russia is intent on claiming not only Crimea but also the rest of the continental shelf of Ukraine and the Exclusive Economic Zone.
Therefore, maritime safety in the Black Sea is linked by a double thread to the broader challenges in energetic supplies for the Region and Europe more generally. 3% of the world’s oil is extracted from Russia in the Caspian region transits through the Turkish Strait of Istanbul and Çanakkale as well as significant Russian and Kazakh wheat quantities. However, Turkey is entrusted with control over those narrow waters. Governed in compliance with international law, the passage which connects the Black Sea to the Mediterranean stays vulnerable. This vulnerability becomes even more worrying amid heightened Russian-Turkish tensions, resulting from the conflict in Syria. Strengthening connections between coastal countries from an energy supply point of view is a crucial challenge: a series of interconnection projects in the energy and transport sectors are trying to achieve this and some progress is evident.
Romania, for example, which was previously a somewhat isolated country, not in the EU in terms of energy infrastructure, has managed to reach a much higher level of integration, and now it is much less vulnerable in terms of procurement. In 2019, for example, the Romanian gas supplier Transgaz announced development plans for the Poor gas pipeline to join the Black Sea coast to the Romanian national transport system and which should be completed by 2021, a project born following the agreement between Bulgaria, Romania, Hungary and Austria (BRUA) in 2016. Precisely about Romania, based on the data provided by the Romanian Institute of Statistics (INS), it is recorded that in 2019, therefore before the stop of trade due to Covid-19, the trade between Italy and Romania had reached a total value of 15.65 billion euros, also marking a slight increase of 0.8% compared to 2018.
As can be seen from Romania’s case, there are competing poles of attraction to the two leading players operating in the Region. The EU is present along the coast, and Ukraine aspires to forge closer relations with the European Union and Georgia. Of course, the accession path for both of these countries is likely to be very long. Coastal countries along the Black Sea heavily depend on their access to the sea, a vital transportation artery connecting them to world markets. There is some degree of specialization between Tuapse and Novorossiysk’s Russian ports and Georgia’s Batumi port, which focuses on the oil trade.
In contrast, the Bulgarian ports of Varna and Burgas and Constanta in Romania play a vital role in connecting their respective countries to Europe and global markets. Therefore, trade in the Region is mainly linked to the Danube, which connects the entire Region deep into the Balkans, Hungary and Austria. With so many coastal countries increasingly dependent on these waters’ access, regional cooperation is essential for long-term development and prosperity. The results on this front are starkly mixed, particularly in the wake of Russia’s illegal annexation of Crimea, although there have been several vital initiatives working towards these common goals. Regional cooperation is essential for long-term development and prosperity.
Black Sea Economic Cooperation (BSEC) is perhaps the most ambitious and comprehensive between these. It was founded in June 1992 with the signing of the Istanbul Summit Declaration and the Bosporus Declaration by the heads of state and government of the Region’s countries. The Charter entered into force on May 1, 1999, when it became the Organization for Economic Cooperation of the Black Sea. Its geographical coverage is comprehensive and includes all littoral states, the Balkans, and the Caucasus. The BSEC seeks to build cooperation in a wide range of sectors including trade, transport, energy, small and medium-sized enterprises, finance, fight against organized crime, customs, digital technologies, education, environmental protection, health pharmaceuticals, tourism, science, and technology and emergency preparedness. The BSEC organizes its agenda around the summits during which the heads of state and government of the member states define its strategic direction.
In a sense, the BSEC embodies the aspirations of many for a more integrated, secure and prosperous Black Sea region and the difficulty it is encountering shows how many geopolitical interests contrast. Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldavia, Romania, Serbia, Russia, Turkey, and Ukraine are all members of the BSEC. However, this list of countries alone illustrates the problem of heterogeneity and conflicting interests. BSEC can help on the fringes by pursuing highly targeted cooperation projects. However, it is not structured to address the major political obstacles to regional cooperation that ultimately need to be addressed directly by the Region’s governments and those they represent.
Clearly, the EU is interested in the Black Sea region continuing on its path of mutual integration, to the extent that Russia’s illegal occupation of Crimea can be resolved. All this, through the creation of tools such as the one for the “blue growth“: a financial mechanism where regional stakeholders are supported to identify shared priorities for maritime cooperation in the sea basin in areas such as transport, environment, food safety, research and innovation. Funding comes from several EU programs including the Instrument for Pre-Accession Assistance, the Horizon 2020 SME Instrument and the European Neighbourhood Instrument (European Commission, “Sea Basin Strategy”).
The Black Sea Synergy, instead, is part of the European Neighbourhood Policy and has become an institutionalized but flexible forum for EU cooperation with coastal countries on a range of issues. These projects also involved Bosnia and Herzegovina, Bulgaria, Croatia, Moldova, Romania, Serbia and Turkey. They include the introduction of wastewater treatment, the restoration of wetlands and degraded land, addressing the problems related to the erosion of the soil and water quality. The projects were organized under the Global Environment Facility Strategic Partnership, heading on the Black Sea and the Danube Basin. They involved the World Bank, the United Nations Development Program, the United Nations Environment Program, the countries concerned and various environmental funds.
The geopolitical puzzle described so far presents its own heavyweight protagonists but, as it was seen, there is also space for smaller states that enrich the Region in a variegated geopolitical pluralism. These actors certainly have secondary roles, as sometimes they are relegated to the background, but this does not mean making the mistake of considering them less relevant or interesting as in Georgia’s case.
Bulgaria is the last country directly bordering the Black Sea. Bulgaria, a state that quickly risks being underestimated, aspires to play a more critical role in the political and economic scenario of the WBSR, thanks above all to its geographic location, which allows it access to the sea, and the fact that it is already a member of the European Union and NATO.
All countries of the Black Sea area have trade relations with China; therefore, no coincidence that an artery of the so-called “Silk Road” will follow a route along the axis from Samarkand in Uzbekistan to the Bosporus, affecting Turkmenistan and Iran.
In addition to the case of Turkmenistan, the country that is indirectly connected to the Black Sea economy is Iran. Without going into the details of the data relating to the composition of its economy, it is sufficient to remember that Iran has two medium-sized ports on the Caspian Sea: Omarabad and Anzali, both not far from Tehran which, thanks to a good motorway network, is well-connected to one of the most important ports of Iran, Bandar Abbas. The two cities are also connected via a railway line connecting to the Central Asian network via Mashhad. Of course, the problem for a significant increase in Bandar Abbas’s port’s commercial traffic is the military instability in the Persian Gulf.
With Biden’s election as the 46th President of the USA, Iran’s other problem, political isolation, could be resolved or at least lessened. Of course, Iran’s repeated threats to close the Strait of Hormuz, in the event of a military attack by the United States, are a reminder of how action to interfere with energy transit routes can be a weapon, but this is one scenario that, with the new President in the White House, could be more unlikely. Therefore, Iran would have every interest in maintaining peace in the Persian Gulf area to propose itself as an alternative route to import and export trade from the Mediterranean to the Far East and vice versa; just as Russia would also have advantages in having alternative access to the sea,
Faced with the challenge posed by Covid-19, all the Black Sea region countries have taken unprecedented measures to minimize the negative impact on citizens’ health. These policies have focused on stopping the spread of the virus from having a substantial impact on the economy to calm the adverse effects; governments also have enacted policies e fiscal and monetary levels between 2.0-14.0% of GDP. Calculations indicate that the total tax measures in the Black Sea region correspond to at least USD $125 billion. While differentiating in detail, the policies were broadly similar in all countries: an increase in direct tax spending, reallocations of expenditure items, statements of guarantees by the states to meet the debts of private individuals, exploitation of international funds. Starting in May and continuing until June, all Black Sea countries had initiated a gradual easing of restrictive measures, as statistics relating to Covid-19 have been improving. Countries have mostly presented organized reopening plans that provide a full return to normal by the end of June 2021 or by the beginning of the third quarter, based on the trend of infections. So all in all, compared to Western Europe and other hard-hit places, the Black Sea region is facing the pandemic with relative success and most countries position themselves quite well in the rankings of the rates of infection and deaths attributable to the pandemic.
According to IMF estimates, the global economy after one contraction in 2020 of 3.5%, should restart in 2021 with a projected GDP growth rate of 5%. The contraction will be more severe in advanced economies, which are expected to contract by 6.1%, compared to developing economies, where the projection is around 1%. Despite ongoing global uncertainties, too loose credit conditions and the expected stabilization of activity in the EU were factors that could improve the growth outlook compared to 2019. However, the pandemic and the blockages that created the key answers to protect the public health and contain the spread have had significant negative consequences for financial markets and economic activities in the Black Sea region. Therefore, BST DB’s projection for 2020 is that the Black Sea region will experience a 4.7% GDP contraction, with a moderate turnaround in 2021, as GDP is expected to grow to 2.5% and continue with the growth that will reach 3.0% in 2022. In contrast to the years 2017-2019, in which each country in the Region recorded positive GDP growth in each of those years, in 2021 all of them are expected to experience growth lower than the estimates made in 2019.
However, in 2021, the current expectation is that all twelve countries in the Region between the Black and Caspian Seas will still experience positive, albeit moderate in some cases, growth. The imponderable events associated with the evolution of the pandemic make any projection highly uncertain. Depending on how the pandemic develops in the coming months, and until it feels entirely under control, there may still be successive rounds of economic hardship and lingering uncertainty which will negatively impact new investment activity. Furthermore, depending on their structural characteristics, the economies of these countries are experiencing a decline in the reserves of commercial goods.
In conclusion, the Black Sea area shows the complexity of socio-economic conditions that generate security, political, economic issues and that do not only involve stakeholders (countries with direct interests in the area), but distant countries too. The Black Sea region enjoys the presence of numerous regional structures and programs that appeared after the end of the Cold War and which include organizations such as BSEC, GUUAM, ODED (Organization for Democracy and Economic Development which includes Georgia, Ukraine, Uzbekistan, Azerbaijan, Moldova), CDC (Community of Democratic Choice) and the Black Sea Forum. There are also programs initiated by the EU such as the TRACECA project, DALLAS (Danube Black Sea Task Force) and the INOGATE (Interstate Oil and Gas Transportation in Europe) covering the fields of transport, water and energy respectively. Furthermore, there exist broader community policies such as the European neighbourhood policy, the Black Sea Synergy and the Eastern Partnership.
On that basis, anyone could be justified to believe that the Region is a hive of international activity, a consequence of its peculiar strategic, economic and political relevance. Indeed, this proliferation of organizations is inserted in a context of overlapping agendas, regional rivalries and tense bilateral relations, accompanied by the insufficient institutional capacity of individual countries.
Written by Emilio Lo Giudice and Cosimo Melella.