Top five risk drivers | Eurasia - Strategic Outlook 2023

Images: Getty Images (Ludovic Marin; Natalia Kolesnikova; Alexander Nemenov; Tofik Babayev)

THE GLOBAL UNRAVELLING

STRATEGIC OUTLOOK 2023

Eurasia | Top five risk drivers

5

Kazakhstan, Azerbaijan and other energy-rich countries in Eurasia are likely to become growing strategic partners of Europe in 2023. Azerbaijan and the EU have already signed a deal for the former to supply gas, while Kazakhstan has offered to boost oil exports to the EU. And with the continent looking to diversify away from Russian gas, we forecast these countries will increasingly seek to attract Western investment in the hydrocarbons industry, but also in their economies as a whole in 2023.

Eurasia’s changing relations with Europe

4

Power dynamics in Central Asia are changing. Russia has traditionally viewed itself as a security guarantor in the region, but the redeployment of some troops from Tajikistan to Ukraine would suggest this is now a secondary priority. And Central Asian governments seem reluctant to publicly support an increasingly rogue state on the international stage. This leaves a political, economic and security void that China appears keen to fill, based on its growing investment and diplomatic engagement with the region.

Russia’s retreat from Central Asia

3

Russia is now the single most disruptive presence to the international rules-based order. The invasion of Ukraine prompted a rupture in West-Russia relations on a scale not seen since the Cold War. With little political goodwill and so little to lose, we forecast Russia is likely to become an even more disruptive geopolitical actor. This will most probably come in recurring episodes of military tensions with NATO members and increasingly frequent and severe Russian cyber operations on critical infrastructure in Europe.

Russia the disruptor

2

Russia will become even more economically isolated from the West in 2023. The invasion of Ukraine and measures that empower the Kremlin to nationalise foreign businesses that exit the Russian market show the government is no longer interested in being an international investment destination. But with the US likely to maintain pressure on countries to avoid becoming a safe haven for Russian sanctions avoidance, even comparatively non-aligned states will find it difficult to do business with Russia.

Russia’s economic isolation

1

Ukraine and Russia are gearing up for a protracted conflict. Moscow finds itself in a vicious circle where military failures prompt the Kremlin to double down. And Ukraine’s opposition to ceding territory to Russia is hardening. Emboldened by military successes in the autumn of 2022, Kyiv appears determined to retake all of its land from Russia. But this will likely be a long, arduous fight and one whose second and third order consequences continue to reverberate across Europe.

Ukraine conflict

Indicators

Governments have to use dwindling foreign reserves to afford basic food and fuel imports.
No agreement with IMF and external debtors on future bailouts.
Significantly high inflation and currency depreciation
Governments introducing austerity measures.
Shortages of imported goods including food, medicines and fuel.