Situated at the crossroads of three important regions - Europe, the Middle East and Central Asia - the Black Sea is recognized by the United States for its geostrategic importance. In recent years, the Black Sea has featured high on the radar for US companies looking for alternative locations to do business - in part due to Black Sea countries’ success in creating a favorable business climate and offering flexibility as an adaptable production base. This trend has been exacerbated by global developments such as the US-China trade war and most notably, COVID-19.
The Black Sea is bordered by six countries, including two EU members states (Bulgaria and Romania), three NATO member states (Bulgaria, Romania, and Turkey), two EU and NATO aspirant countries (Georgia and Ukraine), and Russia. The region offers an array of economic benefits, including access and control of valuable natural resources, advantageous trade terms, and efficient trade routes.
Since the late 1990s, the region has experienced increased interest from not only political stakeholders, but also from within Western business communities. One reason for this has been the oil and gas of the Caspian region, which has attracted the interest of many private and state-owned companies. Investment in oil exploitation has been an important factor in highlighting the importance of the region to Western stakeholders, including policymakers and those within the private sector. But however crucial oil has been, it is far from the only factor contributing to the region's economic importance.
Economic advantages of the Black Sea
The Black Sea and adjusted coastal regions are home to vast economic potential. Between 2014 and 2019, as with previous years, economic activity directly connected to the Black Sea in all littoral countries centered around several key sectors: shipping and ports, fishery, tourism, and oil and gas. Meanwhile, the region’s favorable business climate and well-educated, highly skilled, and low-cost labor force has attracted foreign entrepreneurs.
The Black Sea benefits from a competitive advantage for several reasons. Its close proximity to European markets – and the fact that it connects Central Asia and the Middle East with the rest of the world – means the region is at a valuable geographic location. In a way, the region functions as a bridge connecting Western Europe with dynamic countries of the East, helping to enhance creative collaborations in production and transportation.
The region is an expanding market with great development potential. It is also an important hub for energy and transport flows, linking European, Middle Eastern and Central Asian countries with global markets. Ukraine hosts 18 deep-sea merchant ports and 11 merchant river ports connected to the sea. The biggest seaports of Odessa, Illichivsk, and Yuzhny make up 60 percent of the total cargo turnover through Ukrainian seaports. There are also several seaports along Georgia's Black Sea coast, the largest of which is the Port of Batumi. In Bulgaria, shipping is primarily oil transportation. Romania’s Constanta connects oil-bearing regions with international markets. Turkey has the longest shoreline in the Black Sea, putting the country in a strong strategic position at the intersection of East-West and North-South international transport corridors. This also offers the potential for development of offshore infrastructure. Domestic and international short-sea shipping is well developed in Turkey because of its unique geographic position.
The Black Sea has historically functioned as a crossroad, with a great variety of commodities travelling through Black Sea waters to Europe, Central Asia, and the Middle East. Port cities located on the Black Sea coastline have developed amidst a number of regional conflicts and political changes, as well as the economic and political transition of the region. The area’s stability and prosperity have been threatened by various geopolitical issues. However, new economic opportunities continue to arise, and the region enjoys a number of advantages compared to the rest of the world. Black Sea countries possess the resources and means to manage challenges of energy security, regional cooperation, economic crises, and sustainable development. What the region lacks is the proper political environment and support.
The Black Sea in a post-pandemic world
Since the outbreak of COVID-19 and subsequent unprecedented supply chain disruption, foreign businesses have begun evaluating their alternatives. Until very recently, most global companies could build their supply chain designs on the assumption that supplies flow freely. This enabled them to source, produce, and distribute products at the lowest-cost locations around the world. This assumption has now been challenged. The pandemic has illustrated the vulnerability of basing all operations in one location and has exposed the liabilities of the existing system.
Early responses of many western companies have been to find alternative locations for production. As noted by The Financial Times: “Steve Madden is shifting handbag production to Cambodia, Vietnam is sucking up some production for Hoover-maker Techtronic Industries and Google’s hardware maker Flex is seeking new production centers from Mexico to Malaysia.”
Navigating the complex geopolitical landscape during this period of global instability can be difficult for businesses. However, the Black Sea region is poised to take advantage of this transformational shift and has the potential to play an important role in offering businesses an alternative.
US economic interests in the Black Sea
The Black Sea is strategically significant for the US because it is an important part of the Western security environment, as well as a political and logistical hub for power projection to crisis vulnerable areas beyond the Black Sea basin. US interests in the Black Sea are focused on advancing democratic and market reforms, strengthening economic ties, creating energy diversity, and ensuring a cleaner, more sustainable environment to preserve the Black Sea’s natural beauty and resources.
America's economic cooperation with Black Sea countries has strengthened in recent decades. The US has granted Ukraine market economy status and terminated the application of the Jackson-Vanik amendment, while the US-Ukraine Council on Trade and Investment – established under the countries’ agreement on trade and investment cooperation – works to increase commercial and investment opportunities. In Georgia, America’s Development Finance Corporation (formerly OPIC) has a large portfolio of investments, valued at close to $500 million, with assets spanning shipping, banking, manufacturing, hospitality, and energy. The US is also working with Georgia on strengthening economic cooperation and bilateral trade, including improving Georgia’s business climate, protecting intellectual property rights, and dealing with labor disputes. Overall US-Turkey trade jumped from $10.8 billion in 2009 to $20.7 billion in 2019 but remains modest compared to its potential. In 2019, President Donald Trump and President Recep Erdogan agreed to work toward increasing annual bilateral trade to $100 billion annually. The bilateral investment treaty (BIT) between the US and Romania came into force in 1994, and Romania attracts US investors interested in accessing the European market, with relatively low costs and a well-educated, tech-savvy population among the major benefits. Meanwhile, US companies conduct business across the major industry sectors in Bulgaria, and the US and Bulgaria have a treaty on avoidance of double taxation and a bilateral investment treaty.
In the medium to long term, the Black Sea region has the prospect of becoming a truly global hub on the New Silk Road and the energy market, especially given the current environment and shifts. By encouraging cooperation between Black Sea countries and making a commitment to support supply chain relocation in a post-pandemic era – and as well as offering further infrastructure investment opportunities to counter the China’s BRI and Russia’s Black Sea ambitions - the US will provide further impetus for political and economic reforms in the region. This is especially the case for those Black Sea nations striving to fully harmonize and integrate into the Euro-Atlantic structures.
Nona Mamulashvili is a fellow with MEI's Frontier Europe Initiative. She currently leads the Caucasus Economic Policy Institute, a think tank promoting structural change and institutional development through policy research and advocacy in the Caucasus. The views expressed here are her own.
Photo by Vyacheslav Argenberg