Hours before Mikheil Saakashvili admitted defeat, a senior Azerbaijani official told me that the Georgian president had nothing to worry about. He wasn’t the only one miscalling the result: from Tbilisi to Washington, few expected the stunning victory by the opposition Georgian Dream movement, led by billionaire Bidzina Ivanishvili, who claimed victory in the country’s parliamentary elections.

The dust hasn’t settled yet over this geopolitical earthquake in the Caucasus. It’s a vital but often overlooked region of the world, which connects Central Asia with Europe and is the passage to Russia for Iran, Turkey and the rest of the Middle East.

Ivanishvili was a successful businessman in Russia, so one may expect that relations between Tbilisi and Moscow will improve. It’s even possible that Russia would allow Georgian wine and the famous Borjomi mineral water to enter its markets. At the same time, it’s unlikely that the new government will fundamentally change its position toward the Russian occupation of Abkhazia and South Ossetia. And no one thinks the Georgian people’s opinions toward occupation of Abkhazia and South Ossetia will change overnight.

It’s also too early to predict whether the Georgia Dream government would abandon Saakashvili’s goals of Euro-Atlantic integration. For now, Georgia’s friends hope that it will remain a pillar of democracy and market reforms in the faraway Caucasus. Ivanishvili’s two foreign-policy advisors, former ambassador to the UN Irakli Alasania and veteran diplomat and former foreign minister Tedo Japaridze, are staunchly pro-Western.

Russia, however, is likely to apply pressure on the new government in Tbilisi to join the Commonwealth of Independent States, its Common Security Treaty Organization and eventually maybe the Eurasian Union, Vladimir Putin’s quasi-imperial brainchild.

A friendly Georgia may also provide Russia a land corridor to Iran via Armenia, a transportation artery that is more difficult to monitor and capable of forwarding much larger cargoes than the air route.

But it is the domestic dimension that makes these elections so fascinating. These were historic because the ruling party let the opposition win—a rarity in the former Soviet Union.

While political violence is a venerable tradition in the Caucasus mountains, for now, there was none of it. There seems to have been no severe fraud during elections, according to the Central Election Commission and Organization for Security and Cooperation delegation, which called them “very competitive.”

The elections were indeed competitive, with active citizen participation throughout the campaign. But the campaign environment was polarized and tense, with some instances of violence. The campaign often centered on the advantages of incumbency, on one hand, and private financial assets on the other—rather than on concrete political platforms and programmes.

While freedoms of association, assembly and expression were generally respected, instances of harassment and intimidation of party activists and supporters marred the campaign environment and often ended with detentions and fines of mostly opposition-affiliated campaigners. This contributed to an atmosphere of distrust among contestants.

Now the fun of cobbling together a parliamentary majority really begins. An election loss would signal a hiatus for Saakashvili’s political career. Ivanishvili called for Saakashvili to resign, a call that was rejected. His presidential term is scheduled to end in 2013, when the country will elect a new president.

To those watching from the outside, parliamentary elections in Georgia were a litmus test for democratic governance in the former Soviet space—and for the legacy of Saakashvili’s reforms. Georgia passed the test, looking better than Belarus, Russia and other countries. In particular, the contrast is sharp when compared with latest presidential and parliamentary elections in Russia, where thousands of violations were reported. No Putin-Medvedev flip-flopping there.

Saakashvili, a staunch U.S. ally, who since becoming president in 2003 has focused on developing Western democratic institutions and fighting corruption, proved that his reforms bore fruit, even at the price of his own party losing power. Despite hundreds of millions of dollars of Ivanishvili’s personal wealth that he poured into the elections, the Georgian ruling party seems to have made to no attempt to “fix” the vote count.

Georgian Dream delivered the coup de grâce for Saakashvili’s United National Movement in late September, when the videos of abuse in the Georgian prisons became a huge national scandal. Smuggled jail videos broadcasted on national television showed inmates being beaten and sexually abused by guards. According to polls, support for the ruling party soon dropped by 20 percent.

But the story is not over yet. The impending power transition is a real test for Georgia, whose political elites should work to ensure domestic peace. It’s important not to allow corruption and lawlessness to thrive as they do in Ukraine. Kyiv also fell more under Moscow’s influence after President Viktor Yushchenko and then prime minister Yulia Tymoshenko, the leaders of the 2004 Orange Revolution, were defeated by current Ukrainian president Viktor Yanukovych in January 2010.

Saakashvili, possibly already thinking about a future return to power, prefers an elegant exit from the political scene the next fall. He has announced that he is ready to work with the Georgia Dream until the end of his presidential term. If he does, he will shore up his legacy as a successful reformer of his ancient and beautiful country.

Ariel Cohen, Ph.D., is senior research fellow in Russian and Eurasian Studies at The Heritage Foundation.