A Defining War for the Region
Now in its fourth year, Russia’s full-scale war of aggression against Ukraine continues to shape developments across Eastern Europe, the Caucasus and Central Asia. But its effects are far from uniform. While Ukraine and Moldova have strengthened their democracies despite intense pressure from Moscow, Georgia has veered toward autocratic rule while at the same time benefitting economically from the war.
The BTI 2026 points to a fragile stabilization across Eastern Europe, the Caucasus and Central Asia. The period under review has been marked by democratic backsliding, modest economic recovery and stagnating governance. The sharpest decline was recorded in Georgia, which saw significant losses in both its democracy status (–1.28 points) and Governance Index (–0.99) scores, leading to its downgrade to a moderate autocracy. This reflects the country’s deepening alignment with Russia and the government’s increasing reliance on repressive measures. The number of countries in the region classified as democracies has thus shrunk to four – fewer than ever before in the BTI.
Russia, reaffirming its status as a hard-line autocracy with what the BTI designates as failed governance, remains near the bottom of the global rankings, just ahead of the region’s usual poor performers; Tajikistan and Turkmenistan. This stands as a stark symbol of the region’s ongoing authoritarian consolidation. In sharp contrast, the primary target of Russian aggression – Ukraine – continues to demonstrate remarkable resilience in the fourth year of the war. Both its professional wartime management under extremely difficult conditions and its government’s ability to maintain political consensus remain impressive.
Moldova, also affected by Russia’s war, has managed to retain its classification as a defective democracy, as has Armenia, which continues to face military and diplomatic pressure from neighboring Azerbaijan following Baku’s full takeover of Nagorno-Karabakh in September 2023. Compared to these countries, Georgia finds itself in a far more comfortable position – at least economically – as it is among those reaping considerable benefits from the market opportunities created by Western sanctions on Russia.
Political transformation
Aggression and repression
Although Georgia is itself a victim of Russian aggression – as Moscow initiated and continues to support the separatist movements in Abkhazia and South Ossetia – the country has also economically benefited from the ramifications of the war. The influx of Russian émigrés and Moscow’s efforts to bypass Western sanctions through “parallel” gray-market trade routes have helped fuel economic activity. At the center of these new economic and political entanglements stands Bidzina Ivanishvili, the shadowy but powerful figure behind the ruling Georgian Dream party.
Georgia’s political trajectory, however, has shifted decisively away from democratic norms. Increasing repression, curtailed media and opposition freedoms, and the ruling party’s alignment with Russian interests have marked a clear break from the country’s previously pro-European orientation. The marred 2024 parliamentary elections, repressive legislation targeting supposedly foreign influence, and the revocation of opposition mandates all point to a deepening authoritarian turn. Georgia’s EU accession process has effectively stalled, and its relations with the EU are deteriorating sharply. When the government announced its plans to suspend accession talks until at least the end of 2028, the decision sparked a wave of protests – and the authorities responded with force.
In contrast, despite facing significant pressure from Russia, Moldova has taken a different path, even though disruptions to energy supplies, price shocks, and direct interference aimed at destabilizing the pro-European government – including the bribing of voters and officials – have taken a toll. Deep political polarization was evident in the closely contested presidential election and the referendum to anchor EU accession in the constitution, which were held on the same day. In both cases, the pro-European camp narrowly prevailed. Formal EU accession talks were launched on June 25, 2024.
During the review period through early 2025, Ukraine continued to make notable strides toward EU integration. Particularly striking is the country’s sustained level of civic mobilization and social capital as well as the increasingly effective and democratically accountable use of international assistance by public institutions. Armenia’s domestic politics also remained dominated by foreign policy and showed deep polarization, much like those of Georgia and Moldova. Meanwhile, the region’s most stable democracy, Mongolia, continues to hold its ground despite being geographically encircled by two autocracies: China and Russia.
By contrast, the region’s two military aggressors, Azerbaijan and Russia, registered further setbacks. In Azerbaijan’s case, the restoration of territorial integrity has not led to any political opening. For three decades, the conflict over Nagorno-Karabakh served as a key justification for internal repression and external militarization. Yet rather than initiating reform, Baku’s military victory over Armenia triggered a fresh wave of repression, including arbitrary arrests targeting the country’s few remaining independent journalists and opposition figures.
In Russia, the intensifying wave of repression can certainly be traced in part to the protracted war in Ukraine. But while the war may have served as a catalyst, the consolidation of authoritarian control long predates it. Years of propaganda and a steady stream of repressive legislation have embedded authoritarian practices so deeply into the state apparatus that even the end of the war – or the collapse of Putinism itself – may not be enough to reverse them. The final confirmation of Vladimir Putin’s full embrace of hard-line autocracy came with the March 2024 presidential election. In the past, the Kremlin still went to some effort to simulate democratic procedures. This time, however, even the appearance of a real contest was abandoned in favor of a carefully orchestrated wartime plebiscite. Elsewhere in the region’s autocracies, incumbents faced no real threat of electoral defeat. Their main concern was managing succession, while elections served largely as symbolic rituals aimed at reinforcing legitimacy.
Economic transformation
Rapid growth and weak sanctions
Russia’s war of aggression against Ukraine has created a number of economic winners, particularly in the South Caucasus and Central Asia, where several countries have recorded stable multiyear growth. Three main factors help explain this trend. First, “parallel imports” have allowed goods to flow into Russia via third countries – often with the tacit cooperation of Western companies. The Eurasian Economic Union (EAEU) has offered Armenia, Kazakhstan, Kyrgyzstan – and even Georgia – a convenient backdoor for reexporting sanctioned goods to Russia. Second, the estimated 600,000 Russians still living abroad do not merely represent a case of brain drain. In fact, several tech clusters, such as Uzbekistan’s IT Park and Kazakhstan’s Astana Hub, now serve as platforms for Russia-oriented digital products and services. While labor migration to Russia has seen a slight decline overall, remittances from migrants working there remain vital for several economies, such as those of Kyrgyzstan and Tajikistan. Third, the war has contributed to a surge in global energy prices – benefiting export-dependent economies, such as Azerbaijan and Turkmenistan, in particular.
By contrast, energy importers, such as Moldova, have come under intense pressure due to their dependence on Russian gas. Moldovan authorities in Chișinău had anticipated disruption given the country’s longstanding energy vulnerability. But when Gazprom fully cut off supplies on January 1, 2025 – citing both the halt in Ukrainian transit and alleged Moldovan debt – the shock still hit hard. Public frustration over the supply crisis has since created fertile ground for pro-Russian narratives.
And Russia itself? So far, Western sanctions have largely failed to achieve their intended effect. This is partly because restrictions on oil and gas imports have been only partially enforced, and partly because domestic growth drivers – most notably, soaring defense spending and related wage increases – have offset much of the impact. Even so, doubts about the sustainability of this model are growing, even within official circles. Sharp declines in several sectors, such as automotive and aviation, lend weight to these concerns. As of mid-2025, 70% of the new passenger cars sold in Russia were made in China, and of the 1,000 passenger aircraft that the Kremlin had promised to produce by the end of the decade, only five had been completed. Nonetheless, the so-called siloviki, made up of the security elites within Putin’s inner circle, continue to dominate policymaking. They frame Russia’s decoupling from the West not as a crisis, but as an opportunity. This mindset is reflected in the ongoing wave of nationalizations, which remains unchecked.
While Russia, as the aggressor, has faced an unprecedented array of Western sanctions, Ukraine has received equally unprecedented levels of international support – with more successful results. After implementing restrictive stabilization measures early in the war, such as gas price caps, capital controls and a fixed exchange rate, the government has gradually begun to loosen its grip. Still, the fiscal gap remains enormous. In 2024, defense spending alone accounted for 34% of Ukraine’s GDP – the highest proportion in the world by far.
Governance
Good governance under challenging conditions
The increasingly efficient and transparent use of public funds is one reason why Ukraine achieved its highest score in the BTI Governance Index since 2006 and has consolidated its position as the regional frontrunner. Notable initiatives include the launch of a public investment management (PIM) system and the creation of the European HUB, a consultation mechanism that brings together government, business, civil society and international partners. Moldova also reached an all-time high in governance performance, a development that was driven in large part by deepening international cooperation. Mongolia, meanwhile, has maintained consistently solid governance for over a decade.
Below the top tier, however, the picture is more mixed. In Armenia, societal tensions have eased somewhat, and the government succeeded in implementing politically sensitive measures, such as a partial border agreement with Azerbaijan, without resorting to repression. Kazakhstan remains the only autocracy in the region classified as featuring moderate governance, although key promises made under the banner of a “New Kazakhstan” – including public-sector modernization and the strengthening of civil society – have largely proved rhetorical.
Georgia’s downgrade to the category of weak governance reflects significant setbacks across all major dimensions: international cooperation, anti-corruption efforts, civil society engagement and conflict management. Governance in the region’s other autocracies remains consistently poor. In the BTI 2026, governance in Belarus, Russia and Turkmenistan is classified as failed. In Russia’s case, the designation reflects President Vladimir Putin’s subordination of all state functions to the war aim of stripping Ukraine of its independence. But the war has also come with political costs. While Moscow has managed to deepen its strategic ties with China and key members of the so-called “global majority” under the BRICS umbrella, Russia’s position within its traditional sphere of influence appears increasingly mixed.
Only Belarusian dictator Alexander Lukashenko has adopted a posture of near-total subservience, as his country remains bound to Moscow through the framework of the so-called Union State. Beyond elite collusion and militarized power projection, however, Russia offers little in the way of genuine appeal. Hence, in the region’s democratic states, such as Armenia, Moldova and Ukraine, Russian-aligned elites have long been relegated to the opposition, which has prompted ever more aggressive interference from the Kremlin.
Outlook
Dual divide
The region remains marked by a dual divide. Nine autocracies now stand opposite just four democracies, while the war in Ukraine has further fractured the landscape into victims, supporters and neutral beneficiaries. These two dividing lines do not overlap entirely. While the war’s victims – Ukraine, directly, and Moldova, indirectly – are both democracies, and its supporters – Russia and Belarus – are autocracies, the group of neutral states also includes democratic Armenia and Mongolia.
A clear break with Moscow’s methods is least likely to come from the autocracies of Central Asia. However, their declared neutrality also signals a growing sense of autonomy. These countries no longer see themselves as subordinate parts of a Russian-led sphere and have increasingly diversified their foreign relations. Still, deeply entrenched post-Soviet networks of elites ensure that Russia continues to be viewed as the primary guarantor of regime stability. This remains the case even as China, an even more powerful autocracy, pushes deeper into the region from the east, potentially disrupting Russia’s strategic dominance of it.
For the West – and, above all, the European Union – this presents a strategic imperative: to bolster the democratic resilience of those countries with which it has opened accession negotiations or maintains association agreements. But supporting Ukraine remains the greatest challenge, as the outcome of the war will decide both the country’s future and the broader balance of order across Eurasia and beyond.