Procurement Intelligence Unit

A week ago Kyrgyzstan was just another former Soviet Republic – now it's a country teetering dangerously close to civil war as mob rule in the southern cities of Osh and Jalabad threaten to deliver a humanitarian and diplomatic crisis on a par with the one witnessed in Georgia just two short years ago.

The violence, which erupted last week, has already seen at least 200 people lose their lives (the real total could be far higher) and has seen almost 100,000 ethnic Uzbek refugees flee to the Uzbekistan border.

According to reports much of Osh is still burning, and with the flames still flickering there's a very real danger that this strategically important, and previously relatively stable, state could fall into chaos.

At the heart of the current crisis lies the overthrow of former president Kurmanbek Bakiyev in April. Since being deposed an interim administration has been widely supported by Uzbeks within Kyrgyzstan's borders. Now, with rumours that the police and army have been complicit in the attacks of the past week, it seems unclear if the new government commands any support.

Russia, of course, is no stranger to conflict on its doorstep. But with the country's involvement in the bloody Chechen war still fresh in people's minds, not to mention its heavy-handed intervention in Georgia in 2008, it's unlikely that there's much appetite from the Kremlin for a re-run in Kyrgyzstan. That said, if the situation worsens and the neighbouring states do come to blows, then Russia will come under huge pressure to take action.

What these latest events demonstrate – at least from a supply chain and procurement standpoint – is just how quickly country risk can escalate into a regional crisis.

Kyrgyzstan itself is situated at the very heart of Asia and maintains a strategically important position. It is also a member of the Collective Security Treaty Organisation (CSTO), which includes Russia, Belarus, Armenia, Kazakhstan, Tajikistan and Uzbekistan.

Clearly any conflict between two members is likely to put the rest of that particular organisation at loggerheads, exacerbating an already fraught situation. And the fall-out could spread well beyond Central Asia.

Of course, no amount of intelligence gathering could have predicted the kind of eruption of violence that we've seen in the country over this past week – Kyrgyzstan was neither upgraded nor downgraded in AON's 2010 risk map – but a thorough understanding of the potential regional conflicts that have become common place in this part of the world (and their potential effects) should now form an integral part of any risk assessment.

As a PIU Country Risk report illustrated late last year, Russia's wealth of resources, as well as its geographical proximity to both Europe and Asia, and still untapped pool of talent, singled it out as one of the promising locations for both sourcing and outsourcing over the next decade.

However, while the country undoubtedly has more going for it than most, the latest conflict will once again bring into sharp focus the problems faced by its neighbouring states. And with Russia assuming the role of roving policeman in the region and therefore always likely to be heavily involved in any conflict that does take place on its borders, it could dissuade many companies from investing too heavily in a country that offers much, but comes with more baggage than most.

In relation to the current crisis in Kyrgyzstan, we're already hearing the uttering of emotive phrases such as genocide and ethnic cleansing by both those suffering in the violence and outsiders watching on.

For now, Russia has only sent in paratroopers to protect its own interests, but as the international community becomes more vocal and the attacks continue, it may only be a matter of time before this hands-off approach is abandoned in favour of a rather more proactive one.

The rest of Asia, meanwhile, watches and waits.