Georgia: Tensions escalate between the EU and Russia under the new President

At the end of 2024, Georgia found itself at a crossroads. After two decades of drifting towards the West, Tbilisi is now openly discussing the possibility of rapprochement with Moscow. The indirect presidential elections held on 14 December, in which Mikhail Kavelashvili from the ruling Georgian Dream party emerged victorious, intensified the ongoing political crisis and cast serious doubt on the country’s future European integration. This election marked the first time the president was chosen indirectly following a constitutional amendment. Under the new system, the president is elected by parliament rather than by popular vote, a change that many opposition groups and pro-Western observers criticised as undemocratic. Allegations of a rigged process further inflamed tensions and fuelled widespread protests.

The roots of the current crisis trace back to the parliamentary elections held on 26 October 2024, which were marred by controversy. The ruling Georgian Dream party retained power, but opposition parties accused it of electoral fraud and aligning with Moscow’s interests. For many, this election was seen as a referendum on Georgia’s future direction: continuing its path towards the European Union or turning towards authoritarianism and closer ties with Russia. Protests erupted immediately, with demonstrators demanding a recount and accusing the government of manipulating the results. "We have been striving to become part of the EU since gaining independence," one protester stated. The government dismissed these allegations, further consolidating its power amidst growing unrest.

The political crisis has not only deepened societal divisions but also created significant economic challenges. Strikes in major cities have paralysed business activity and eroded investor confidence, adding to an already volatile economic environment. These events have raised questions about how Georgia reached this critical point and what challenges and opportunities lie ahead for its new leadership, which must navigate complex relations with the United States, the European Union, and Russia.

Georgia’s aspirations for European integration have been a defining feature of its post-Soviet trajectory. Since joining the Council of Europe in 1999, the pursuit of EU membership has symbolised the country’s independence from Moscow and its commitment to modernisation. A key milestone was the 2014 Association Agreement with the EU, which created a deep and comprehensive free trade area. This agreement opened access to a market of 450 million people and provided significant benefits for agriculture and tourism. However, the path towards integration has been fraught with challenges. The EU has demanded extensive reforms, including measures to combat corruption, strengthen the rule of law, and ensure judicial independence, which have often faced resistance from within Georgia.

In November 2024, the government postponed EU integration talks until 2028 and rejected all EU budget grants during this period. Prime Minister Irakli Kobakhidze argued that Brussels was using the accession process to "divide society" and harm Georgia’s international reputation. Officials justified this suspension as a means to "properly prepare for EU membership" and reduce dependency on European financial aid. "We are not going to join the EU by begging and pleading; we will join with a proper democratic system and a strong economy," Kobakhidze declared in a briefing on 28 November.

Despite these tensions, Georgia continues to play a significant economic role in the region, bolstered by its status as a tax haven. According to the World Bank, Georgia ranked seventh globally in 2020 for ease of doing business. Its liberal tax system, low VAT, and corporate tax rates attract foreign companies in sectors such as IT, logistics, and investment. However, Kavelashvili’s presidency has raised concerns about potential EU sanctions and prolonged political instability, which could undermine this favourable business environment.

If Georgia distances itself further from the EU, the economic consequences could be severe. The EU is Georgia’s largest trading partner, accounting for over 22% of its exports. A reduction in EU ties would mean losing preferential trade agreements and access to the Single European Market, subjecting Georgian businesses to higher tariffs, stricter customs regulations, and diminished access to investors and suppliers. Foreign direct investment, already in decline, would likely decrease further. Many Western companies see EU integration as a marker of political and economic stability, and without the prospect of membership, Georgia may be perceived as a higher-risk market. Foreign direct investment fell by 55.2% in the third quarter of 2024 compared to the previous year, reaching $197.7 million, as political unrest stalled activity in key sectors such as logistics, tourism, and IT.

A pivot towards closer ties with Moscow could deepen Georgia’s economic dependence on Russia. Despite the absence of diplomatic relations since the 2008 war, Russia remains Georgia’s largest trading partner, with trade turnover reaching $2.5 billion in 2023. This economic relationship has supported key sectors such as agriculture, wine production, and mineral water exports, but it has also left Georgia vulnerable to market volatility and geopolitical pressures. Strengthened ties with Russia would limit diversification opportunities and further complicate access to more lucrative Western markets.

Closer relations with Moscow carry additional risks, including potential sanctions from the EU and the United States. Secondary sanctions could target Georgian companies engaged with Russian entities, creating obstacles for international companies operating in Georgia. Western political pressure might also deter foreign investment, exacerbating economic instability.

However, there are potential benefits to improved ties with Moscow. A stable market for Georgian goods, reduced energy import costs, and increased tourism from Russian visitors could provide short-term economic relief. Yet these advantages come at the expense of political and economic independence, as well as reduced integration into global markets.

The United States also plays a pivotal role in Georgia’s foreign policy. Since independence, the U.S. has provided substantial support for Georgia’s security and democratic institutions. However, relations have cooled in recent years, particularly after U.S. sanctions against Georgian Dream founder Bidzina Ivanishvili. With Donald Trump returning to the presidency in 2024, there may be a shift in U.S. policy towards the region. Trump’s administration is expected to prioritise national interests over promoting democratic values, potentially reducing financial aid and less actively supporting Georgia’s EU integration. This could give Tbilisi more room to pursue a pragmatic foreign policy and develop strategic partnerships in areas such as renewable energy and IT.

Georgia, situated at the crossroads of Europe and Asia, remains at the centre of geopolitical competition between the U.S., the EU, and Russia. The policies of President Mikhail Kavelashvili will shape the country’s relationships with these powers, with significant implications for its economy and regional stability. As Georgia faces this pivotal moment, its ability to maintain independence, resilience, and economic growth will be critical for navigating the challenges ahead.