Over the past month the Russian government announced an embargo on Georgian wine, as well as threatened to ban the sale of Georgian mineral water in Russia. While officials in Moscow maintain this is merely a part of an ongoing campaign to clean the market of falsified products, Georgian authorities argue the embargo is political. According to Georgian businessmen, the government’s strategy is doing more harm than good for those struggling under the embargo. Moscow’s decision to ban all Georgian and Moldovan wine imports in March did nothing to improve the already tense relationship between Russia and Georgia. Coming mere days after the Georgian government refused to support Russia’s bid for the World Trade Organization, President Mikheil Saakashvili and his administration attacked the embargo as political blackmail.

As a tool of pressure, the embargo is ingenious. An estimated 60-70 percent of all Georgian wine exports go to Russia, along with over half of all mineral water exports, which were put on the warning list last week. On April 18, Georgian media reported that nearly 10,000 bottles of the Georgian mineral water Nabeghlavi have been confiscated in Moscow. Members of the Georgian government, the Georgian Wine Producers Union, and importers in Russia have all appealed to the Russian government over the embargo, to no avail. According to members of the union, an extended embargo could set the Georgian wine industry back two or three years.

The wine embargo officially started on March 27, days after Georgia refused to support Russia’s bid into the WTO. The standoff over the WTO is just the last in a long line of political fighting between Moscow and Tbilisi. In February, relations hit an all-time low when the Georgian parliament passed a resolution against the Russian/CIS peacekeeping mission in the South Ossetian conflict zone. Prior to that, Georgia was plunged into days of freezing weather with no gas supply after the pipeline carrying Russian gas into the Caucasus was bombed.

According to the Russian government, the process to clean its market from dangerous and falsified products is even-handed and apolitical. On April 17, Mikheil Zurabov, the Russian minister of health and social development, announced that the ban was part of an ongoing effort to encourage countries to use ‘permitted fertilizers’ in hopes of saving the 35,000 estimated people who reportedly annually die in Russia from alcohol poisoning due to poor quality products.

Even among Russian politicians, the embargo is controversial. According to an editorial published in The Moscow Times, several deputies questioned the health ministry’s accusations of pesticide use, noting that some of the substances reportedly found have not been used for decades.

Over the past month, the Georgian government has attempted to fight back. President Saakashvili promoted Georgian wine in China during a recent business forum there. He also traveled to Kakheti in March and promised wine and grape producers support during the embargo. The government has also highlighted its own high profile efforts to cleanse Georgian wine production of false and/or dangerous products over the past two years. However, local economists have criticized the administration for not taking additional steps to protect the economy from the embargo.

In addition to the high-level trip to Moscow on April 12-13 – during which the Georgian Minister of Agriculture Mikheil Simonovich was unable to get a single meeting with a high level Russian official – Saakashvili announced that Defense Minister Irakli Okruashvili would seek out new, international markets for Georgian wine.

Despite the oddity of the appointment, Okruashvili has vowed to bring Georgian wine to new clients. According to the defense minister, Georgian wine producers have not been diligent in marketing and he plans to increase consumer awareness outside of the CIS, as well as improve management.

\"Okruashvili has always been successful in everything he has done,\" Saakashvili was reported as saying during the Georgian-Chinese Business Forum in Beijing, in April. He noted, according to Georgian media reports, that everyone is a ‘commercial agent’ for the country. Okruashvili’s new responsibilities will reportedly last three months.

However, Georgian mineral water producers claim Okruashvili’s statements in the press, which have been widely quoted and misquoted in both the Georgian and Russian media, are hurting their efforts to maintain good relations with both their Russian consumers and Russian health officials. According to sources within mineral water producer Borjomi, the company had made serious progress in ensuring the continued sale of the famous mineral water. However, a massive campaign was launched against it in Russia after the defense minister reportedly said ‘even feces’ could be sold in Russia.

According to industry insiders, it has taken ten years to reinstate the Borjomi brand in the Russian market. While experts maintain that the industry can withstand an embargo, they noted that it would seriously undermine their success over the past decade. According to their statistics, no more than one percent of Borjomi mineral water sold in Russia is falsified; ten years ago, an estimated 50 percent was falsified. To date, Georgian mineral water is still being sold in Russia although there is no guarantee that an embargo will not be installed.

The Russian wine and mineral water ban could be a potentially serious blow to the Georgian national economy and industry. While the Georgian government is trying innovative ways to lessen the embargo’s impact, the country could face a real economic crisis if it continues, especially in the eastern region of Kakheti, which is largely dependent on the wine industry. However, despite the potential for short-term economic hardship, if Georgian wine producers use this opportunity to actively seek new markets, in the long term the embargo could help Georgia free itself from Russia’s economic influence.

Regardless of the ultimate outcome of the embargo, the potential economic impact could serve as a powerful lesson for Georgian authorities. Moscow has agreed to remove its military bases, but it is learning to flex its economic muscle with greater effectiveness. The loss of the Russian market could prove to be more serious than previous military threats and saber-rattling.