The Iran War Threatens Central Asia’s Economic Growth
Iran's southern ports are important logistics hubs for the landlocked countries of Central Asia.
By Shakhlo Kamaladinova
The war unfolding across the Persian Gulf is intensifying economic shocks far beyond the region by disrupting critical global systems, including energy chokepoints, shipping insurance markets, and aviation networks. For the countries of Central Asia, especially Uzbekistan and Kazakhstan, exposure to this shock is structural rather than geographic. As landlocked economies, both countries rely heavily on external transit systems. Evidence from UN trade and development analysis shows that landlocked countries face trade costs roughly 40% higher than coastal economies, largely due to dependence on cross-border infrastructure and transit corridors. Disruptions in the Gulf will hit Central Asia indirectly, by straining the transport, logistics, and energy networks on which the region’s external connectivity depends.
In early March, Kazakhstan’s Foreign Minister Yemek Kosherbayev convened a joint consultation with Central Asian and Azerbaijani counterparts, where ministers called for de-escalation and adherence to international law to maintain regional stability. The coordinated response reflects growing awareness that continued tensions could have broader implications for regional connectivity and economic activity.
Iran’s Southern Ports
Direct trade between Central Asia and the member states of the Gulf Cooperation Council (GCC) has expanded rapidly from a low base, but disruptions to this trade remain a secondary concern during the war. Total trade reached $3.3 billion in 2024—more than four times higher than in 2020—with Turkmenistan accounting for the largest share, followed by Uzbekistan and Kazakhstan. However, this relationship is highly concentrated, with the United Arab Emirates (UAE) accounting for around 97% of total Gulf–Central Asia trade.
The more pressing vulnerability facing Central Asia is its dependence on Iran as a transit hub. Although Iran represents only a small share of Central Asia’s trade in value terms, it provides critical access to seaports for the region’s landlocked economies. For example, Uzbekistan’s trade with Iran accounted for just 0.7 percent of its total trade turnover in 2025, indicating limited direct dependence. However, this understates Iran’s importance as a corridor through which trade with third markets is routed.
Uzbekistan and Kazakhstan have sought to increase southern connectivity. Uzbek officials have actively prioritised southern connectivity through Iran by advancing the Uzbekistan-Turkmenistan-Iran corridor, including agreements to establish joint logistics infrastructure at Chabahar Port and Bandar Abbas Port, alongside measures to reduce transit costs such as the mutual removal of freight truck entry fees in 2025 (previously around $400 per vehicle) .
These policy efforts are increasingly reflected in operational use: in 2024, a pilot multimodal route linking Indian ports to Uzbekistan via Bandar Abbas handled initial shipments of 20 containers over 2,673 km in around 20 days, demonstrating the viability of Iran as a transit corridor for third-country trade rather than merely a bilateral partner.
Corridor diversification is best understood as a portfolio strategy: the goal is not a single optimal route, but sufficient redundancy to prevent any one disruption from becoming a macroeconomic shock.
Likewise, last year Kazakh officials signaled plans to significantly expand trade with Iran and deepen logistical integration between Kazakh Caspian ports and Iranian port infrastructure, explicitly framing Iran as a gateway to wider markets.
Central Asian economic diplomacy has supported the development of the International North–South Transport Corridor (INSTC), which connects Central Asia to global markets via Iranian ports. The corridor is designed to link Eurasian rail and road networks with maritime routes in the Persian Gulf, offering an alternative to longer and more geopolitically constrained routes. Within this framework, the main Iranian port of Bandar Abbas serves as a gateway for accessing global markets, with smaller volumes of cargo passing through Iran’s other southern ports. This structure explains the region’s vulnerability to spillovers. The immediate effects of the war, such as rising insurance costs, reduced shipping activity, and disruptions to airspace, directly affect the maritime and logistical exit points on which these southern trade corridors depend.
Data compiled by the OECD suggests that the three main branches of the INSTC, which all pass through Iran’s southern ports, handle around 19 million tonnes of cargo annually, representing around 8 percent of the total cargo throughput available to Central Asia. Rerouting this trade through other corridors will prove challenging. The Trans-Caspian Transport Corridor which crosses the Caspian into Azerbaijan is running at full capacity. Increased use of the Northern Eurasian Corridor, which utilizes Russia’s rail network, will increase Central Asian strategic dependence on Russia, at least in the short-term.
Impact of Maritime Risk Pricing
The most immediate transmission channel from the Gulf war to Central Asia operates through maritime risk pricing. When shipping routes face credible security threats, costs rise sharply through higher war-risk premiums, insurance withdrawals, rerouting, and increased freight rates driven by vessel scarcity. War-risk premiums have surged: in some cases increasing more than tenfold, with coverage costs rising from roughly 0.25 percent to around 3 percent of vessel value—equivalent to several million dollars per voyage for large tankers.
For Central Asia, this repricing has three key economic implications, even though direct trade with the Gulf and Iran remains limited. First, transit costs increase even when goods are not destined for the Gulf. For exporters in Uzbekistan and Kazakhstan using Iranian routes to access global markets, the maritime segment becomes the main cost constraint. Higher insurance and freight costs feed back into the entire supply chain, raising overall logistics expenses and reducing export margins.
Second, reliability becomes a binding constraint. Disruptions at a major chokepoint reduce schedule predictability: vessels face delays, cargo misses connections, and firms are forced to either reroute shipments or hold larger inventories. These indirect costs can be as significant as the increase in freight rates, particularly for time-sensitive or perishable goods.
During the 12-Day War between Iran and Israel last June, the Uzbek presidential administration issued a statement noting that the war was “bound to impact Uzbekistan’s foreign economic relations and access to global markets” and that ongoing disruptions to key trade corridors “could increase transportation costs by up to 30 percent.”
Impacts on Aviation
A second spillover channel is aviation, which impacts both passenger connectivity and air cargo capacity. In early March, Uzbekistan temporarily suspended flights to several destinations, including the UAE, Qatar, Iran, Kuwait, and Saudi Arabia, while maintaining limited services primarily to repatriate citizens. Kazakhstan’s flagship carrier also experienced immediate disruptions, with flights cancelled, turned back, or diverted on routes such as Almaty–Dubai, Almaty–Doha, and Almaty–Medina.
For trade, the more material impact comes from the loss of air cargo capacity that typically moves through Gulf hubs and over Gulf airspace. A logistics intelligence briefing in March reported approximately 23,000 flight cancellations since late February, with global air cargo capacity declining by around 18% as of the week ending 8 March. In response, freight forwarders began chartering additional flights to compensate. The same analysis noted that a significant share of China-Europe air cargo normally transits the Middle East, and that nearly one-fifth of global air cargo is linked to the region through transit, origin, or destination flows.
For Central Asia, this capacity constraint has two main implications. First, it raises the landed cost and extends delivery times for high-value, time-sensitive imports, such as industrial components, electronics, pharmaceuticals, and specialized machinery that are typically transported by air during periods of supply chain stress. The result is not only higher freight costs but also increased production risk, as delays in critical inputs can disrupt manufacturing schedules.
Second, it interacts with labour mobility and remittance flows, particularly as Gulf labour markets expand recruitment from Central Asia. The Central Bank of the Republic of Uzbekistan reported remittance inflows reaching $18.9 billion in 2025, a 28 percent year-on-year increase, underscoring their importance for macroeconomic stability and foreign exchange balance. While traditional destinations remain dominant, Uzbekistan has been actively expanding labour migration partnerships with Gulf countries; for example, Saudi Arabia has announced plans to recruit at least 20,000 Uzbek workers under new agreements.
The implication is not that Gulf-linked remittances currently represent the largest share, but that aviation disruptions may become increasingly macro-relevant as migration corridors diversify. Disruptions to air travel can delay worker rotations, slow recruitment processes, and complicate family mobility, while also increasing the cost and friction of remittance transfers, particularly where cash-based channels are affected.
Mixed Picture in Energy
For Kazakhstan, higher oil prices provide short-term fiscal and external support. Oil accounts for over 50 percent of exports and a substantial share of fiscal revenues, meaning price increases can strengthen budget balances and foreign exchange inflows. However, these gains are not without risks. Prolonged volatility may also weaken investor confidence and heighten macroeconomic uncertainty.
Uzbekistan, by contrast, faces a more adverse impact. As a net importer of refined fuels and energy products, the country is directly exposed to rising global prices. Estimates suggest that Uzbekistan spends around $9 billion annually on food and energy imports (approximately 6 percent of GDP), and that each $10 increase in oil prices can raise import costs by $500–600 million. This translates into higher transportation and production costs, adding pressure to domestic inflation and complicating monetary policy.
Urgency of Corridor Diversification
A central insight from the current crisis is that connectivity strategy has effectively become macro-stabilization policy. For landlocked states, diversification across transport corridors is analogous to diversification across export commodities: it reduces exposure to a single external point of failure.
In this context, the Trans-Caspian International Transport Route (also known as the “Middle Corridor”) has gained renewed importance. Its recent growth is measurable as in the first 11 months of 2024, cargo volumes increased by 63 percent year-on-year to 4.1 million tonnes, while container traffic rose approximately 2.6 times to around 50,500 TEU. Transit times on some routes have also improved significantly, falling from 38-53 days to around 19-23 days as coordination and infrastructure improve.
However, the key lesson is not that the Middle Corridor can replace southern routes. Each corridor has its own bottlenecks, meaning resilience depends not only on creating alternatives, but also on improving capacity and operations.
The current conflict has therefore accelerated an existing policy agenda. For Uzbekistan, the southern corridor through Iran remains economically attractive in normal conditions, offering the shortest route to South Asia and the Middle East, though it faces infrastructure and coordination gaps. In wartime, however, its risk-adjusted cost rises sharply due to insurance and security constraints. For Kazakhstan, diversification serves both trade and macroeconomic objectives. Expanding corridor options supports non-oil exports while also helping manage the domestic effects of oil price volatility.
In this sense, corridor diversification is best understood as a portfolio strategy: the goal is not the creation of a single optimal route, but sufficient redundancy to prevent any one disruption from becoming a macroeconomic shock. As the President of Uzbekistan, Shavkat Mirziyoyev noted in 2025, “the recent geopolitical events have once again demonstrated the risks of disruption of the supply chains, highlighting the strategic importance of establishing alternative transport corridors,” explicitly framing redundancy as a response to external shocks. The key implication is that in the wake of the Iran war and the unprecedented disruptions to global trade, connectivity is no longer just an infrastructure issue, but a core element of economic resilience. Countries that invest in diversified, well-functioning corridors will be better positioned to absorb external shocks and maintain stable growth. This challenge is especially acute for the landlocked countries of Central Asia.
Shakhlo Kamaladinova is Central Asia Coordinator for the Bourse & Bazaar Foundation, focusing on the Rihla Initiative for Green Economic Growth. She is a graduate of the Master of Arts in Global Risk program at the Johns Hopkins School of Advanced International Studies (SAIS). She is based in Tashkent, Uzbekistan.
Photo: Canva