I have received a lot of questions from coworkers and clients about the situation in Georgia. Obviously during a conflict, the hope of nearly everyone is that the fighting will cease and a peaceful resolution will be reached quickly. But from a business perspective, companies in EMEA, the US and around the globe want to know what, if any, impact the situation will have on their supply chains, fuel prices and broader economy.

The good news is, the current crisis is unlikely to have far reaching, lasting impacts.

In terms of their current role as a Central & Eastern Europe (CEE) low-cost country sourcing target, Georgia is really a tier 4 or 5 opportunity. Services and agriculture represent over 70% of their GDP. The country is rather small with a population of 4.6 million inhabitants and a size of 70,000 square kilometers (similar to the size of Bavaria). They have limited raw material resources. Major export commodities are scrap metal, wine, mineral water, ores, vehicles, fruits and nuts. And most of their trading is with Turkey, Azerbaijan and the USA. So, unless you’re among the small list of companies with sourcing operations in or transportation routes through Georgia,  we do not expect any direct impact on your supply chain or costs.

Georgia has no significant oil or natural gas resources, though two pipelines cross the country; one pipeline for natural gas (South Caucasus Pipeline) and one for oil (Baku Tiflis Ceyhan Pipeline or BTC). The pipelines run in parallel from Azerbaijan via Georgia to Turkey. Strategically, these pipelines are seen as an endeavor by Europe and the USA to ensure supplies of natural gas and oil without touching Russian territory or the Middle East, so gaining more independence (diversifying sources of supply). Overall the capacity of the BTC pipeline only represents 1% of the global demand and as such its impact is limited. Currently the pipeline is out of order. In other words, the short term impact is negligible. However, long term control over these pipelines, especially if there is more unrest in the Middle East, could be significant.

The potentially bad news is the uncertainty over the global balance of power (is this a limited regional conflict or new Cold War with the west?). If the conflict escalates or this does shape up to be a US vs Russia proxy war, it is likely that there will be an impact on raw material pricing just because of the unrest in the region. And in that scenario, ownership of the pipelines could also have repercussions. So, although short term the conflict is unlikely to be felt, it is certainly something to keep an eye on since in a global economy, what starts as a ripple may some day turn into a wave.

Daniel Laumayer is a Senior Category Manager for EMEA in Ariba’s Global Sourcing Organization. Based in Frankfurt, Daniel works with global companies on strategic sourcing projects in EMEA.