By Eldaniz Gusseinov and Rassul Kospanov

Pakistan's declaration of “open war” on Afghanistan in late February 2026, following sustained airstrikes on Kabul, Kandahar, and Bagram airbase under Operation Ghazab Lil Haq, has effectively closed the principal corridor through which Afghan trade reached the sea. While attention has been concentrated to the immediate military dimension, a structurally more consequential process is unfolding in parallel: a reorientation of Afghanistan’s external economic links away from Pakistan and toward Central Asia. This shift was already underway, driven by periodic border disruptions, trade friction, and the steady maturation of northern infrastructure, but the war has compressed its timeline considerably. Three concurrent developments: the collapse of Pakistan-Afghanistan commerce, the ratification of a preferential trade agreement between Uzbekistan and Kabul, and the near-completion of the CASA-1000 power transmission project, suggest that Afghanistan's economic geography is quickly being redrawn.

 Image Credit: View of the old city of Kabul, Afghanistan, first uploaded on Wikipedia Commons [http://en.wikipedia.org/wiki/User: Casimiri]

BACKGROUND:

Afghanistan’s economic dependence on Pakistan long predated the current escalation. The Torkham and Chaman crossings served as the country’s principal gateways to Karachi and Gwadar, providing access to maritime trade routes that Central Asian landlocked corridors could not replicate. Yet the relationship was structurally vulnerable. Kabul’s refusal to formally recognize the Durand Line as an international border underpinned recurring post‑2001 border closures and trade disruptions, and the Taliban’s return to power in August 2021 added a new layer of friction as Islamabad’s demands that Kabul curb TTP sanctuaries went largely unmet. By 2024, divergence was increasingly visible: Pakistan substituted Afghan coal for sea‑borne coal imports and other suppliers while Afghan exporters faced tightening customs and transit restrictions. Bilateral commerce between Pakistan and Afghanistan contracted from approximately USD 2.46 billion in 2024 to USD 1.77 billion in 2025. At the same time, Afghanistan’s trade with Central Asian countries increased significantly, rising by 77 percent. The main driver of this growth was trade between Uzbekistan and Afghanistan, which expanded by 53 percent, reaching approximately US$ 1.6 billion.

The February 2026 escalation removed whatever residual reliability the southern corridor retained. Pakistani airstrikes under Operation Ghazab Lil Haq targeted Taliban military infrastructure across multiple provinces, a full trade suspension was imposed, and buffer-zone operations along the Durand Line added a physical barrier to the political and commercial obstacles already in place. For Afghan business networks and logistics operators, the southern route shifted from periodically unreliable to operationally closed.

Uzbekistan’s Hairatan border crossing on the Amu Darya handled approximately 76 percent of Afghanistan’s northern freight transit before the current escalation, channeling goods toward Russia, China, and the Caspian. Afghanistan’s dependence on Central Asian electricity suppliers, principally Uzbekistan, Tajikistan, and Turkmenistan, which together provide 80-85 percent of the country's power imports, had established dense operational relationships at the border long before formal trade policy followed. Total transit volumes through Afghanistan reached 5 million tons in 2024, demonstrating that the trans-Afghan corridor had become integral to Central Asian commerce with South Asia. The Central Asian factor in Afghanistan’s economy was already structural; yet the war changed its relative weight.

IMPLICATIONS:

The most immediate institutional development is the Uzbekistan-Afghanistan Preferential Trade Agreement, signed at the Tashkent International Investment Forum on June 10, 2025, and ratified by President Mirziyoyev in March 2026. The agreement eliminates customs tariffs on 14 categories of goods, prioritizing Afghan agricultural exports, streamlines phytosanitary certification for Afghan farm produce, and formalizes 24-hour operations at the Hairatan-Termez border crossing to accommodate increased volumes. Tashkent’s stated ambition is to raise bilateral trade from roughly US$ 1.6 billion toward US$ 5 billion within five years. It is significant not merely as a commercial target but as a political signal. By institutionalizing preferences and creating a structured long-term framework, Uzbekistan has moved well beyond the ad hoc transactional engagement that characterized the immediate post-2021 period.

The CASA-1000 project, which will add approximately 300 megawatts to Afghanistan’s power supply via a transmission line from Kyrgyzstan and Tajikistan, has reached an advanced stage of completion on the Afghan segment, with commissioning targeted for 2027. Uzbekistan has separately committed US$ 1.15 billion in deals for gas-fired generation and transmission infrastructure within Afghanistan, while a 25-year contract for development of the Toti-Maidan gas field deepens the bilateral energy relationship further. In parallel, following the Kazakhstan–Afghanistan business forum held in Shymkent, Astana announced plans to begin geological exploration in Afghanistan’s Laghman province. As part of this initiative, the Kazakh companies Kazatomprom and Kazakhmys conducted two geological missions to assess the potential development of beryllium and lead deposits.

These linkages carry strategic weight beyond their technical specifications: a country that depends on Central Asia for the electricity powering its cities and industries has strong incentives to sustain institutional connectivity with the region, irrespective of the diplomatic nuances in its relations with individual Central Asian capitals.

The Trans-Afghan Railway, whose feasibility framework was signed in July 2025, constitutes the third pillar of this emerging architecture. The corridor, linking Uzbekistan through Mazar-i-Sharif toward South Asian ports, had historically been conceived as a north-south bridge serving Central Asian exporters seeking sea access through Afghanistan. 

Kazakhstan does not oppose Uzbekistan’s project but is promoting an alternative corridor through western Afghanistan. The route Turgundi–Herat–Kandahar–Spin Boldak is considered technically simpler due to its largely flat terrain, compared to the Uzbek route that passes through the high-altitude Salang Pass. Kazakhstan plans to invest around US$ 500 million, including the construction of railway segments and the creation of a logistics hub in Herat, which is expected to become a key “dry port” for Kazakh cargo.

If realized, this project would represent the first attempt since the nineteenth century to build a railway corridor in this direction. In 1879, British authorities considered constructing a railway to Kandahar. It was never implemented due to resistance from local tribal elites and the ongoing Anglo-Afghan War. After the Russian Empire captured the Panjdeh area north of Herat in 1885, Russian officials explored but never realized the possibility of extending the Trans-Caspian Railway from Krasnovodsk (now Turkmenbashi) through Merv to Herat. Kazakhstan is now demonstrating political boldness by advancing an ambitious initiative seeking to accomplish what the great empires of the past ultimately failed to achieve.

While the Pakistani military campaign has not eliminated the long-term logic of that corridor, it has introduced a medium-term disruption that reinforces Afghanistan’s own interest in northern connectivity, not merely as a transit function enabling others.

The structural dynamic underlying all three of these processes is that Central Asian states, particularly Uzbekistan, have pursued a consistently pragmatic engagement with the Taliban since 2021. Tashkent, Astana, and Ashgabat have avoided formal recognition while building dense working relationships on trade, border management, energy supply, and security coordination. For the Taliban, whose options have narrowed sharply as a result of the Pakistan conflict, this transactional model is comparatively attractive. Central Asian partners do not demand regime change or condition economic engagement on governance reforms and are geographically indispensable for the country’s energy supply. Tashkent and Kabul are not natural allies but increasingly unavoidable partners.

The risks in this trajectory lie in its structural fragility. Afghanistan’s trade deficit reached approximately US$ 9.4 billion in 2024, its export base remains concentrated in agricultural goods and coal, and its settlement infrastructure relies heavily on informal hawala transfers rather than banking channels. Northern trade growth has been accompanied by a persistent imbalance: Central Asian exports to Afghanistan are growing in volume while narrowing in variety, concentrated in flour, fuel, and electricity, with volatility coefficients suggesting that these supply chains remain sensitive to disruption. A durable transformation will require not merely preferential tariff access but energy and industrial investment capable of shifting Afghanistan from a consumer of basic goods to a contributor of productive capacity. For Central Asian states, this is not merely an altruistic objective: without a functional industrial base in Afghanistan, Central Asian exporters will face continued concentration risk in a market that is simultaneously growing and fragile.

CONCLUSIONS:

The Pakistan-Afghanistan war has accelerated Afghanistan’s northward economic pivot. By severing the southern corridor at precisely the moment that Central Asian infrastructure like CASA-1000, the Hairatan-Termez corridor, and the Trans-Afghan Railway framework are reaching operational maturity, the conflict has compressed a decade-long structural transition into a period of months. Uzbekistan has moved most aggressively to institutionalize this realignment through the Preferential Trade Agreement and its energy investment commitments, but the broader dynamic reflects a regional logic that extends to Kazakhstan, Tajikistan, and Turkmenistan: Central Asian states require a stable Afghanistan as a transit corridor and buffer against militant spillover, while Afghanistan requires Central Asian energy, markets, and institutional connectivity as substitutes for a now-hostile southern partner. Whether this convergence of interests consolidates into durable integration will depend on whether both sides can address structural fragilities such as payment infrastructure, export diversification, and logistics gaps, which continue to constrain the corridor’s full potential. The war has resolved an ambiguity in Afghanistan’s foreign economic orientation; the harder task of building a resilient northern integration architecture now begins.

AUTHOR’S BIO: 

Eldaniz Gusseinov is Head of Research and сo-founder at the political foresight agency Nightingale Int. and a non-resident research fellow at Haydar Aliyev Center for Eurasian Studies of the Ibn Haldun University, Istanbul. Rassul Kospanov is a Senior Researcher at the National Analytical Center under Nazarbayev University, where he coordinates socio-political research projects and prepares analytical reports and policy recommendations for central and local government bodies. His work focuses on political processes in Kazakhstan and across Central Asia, as well as issues of regional cooperation.

By Tomáš Baranec and Giorgi Khishtovani

Long-term rapid GDP growth is one of the pillars on which the Georgian government builds its legitimacy amid social and political instability following the October 2024 parliamentary elections. The numbers seemingly confirm the government’s argument. Georgia's GDP growth was 7.8 percent in 2023 and 9.7 percent in 2024. In 2025, overall growth is expected at 7.5 percent and International financial institutionsexpect GDP growth at 5-5.5 percent for 2026. The growth of recent years, however, was driven by several temporary and random factors rather than structural reforms. Numerous indicators suggest that growth in 2025 was artificially inflated and that the Georgian economy is in fact entering a turbulent phase.

BACKGROUND:

Georgia’s high GDP growth after 2020 was driven by three primary and two secondary factors. The first, most short-term, primary factor was natural growth after a sharp decline during the first year of the COVID-19 pandemic. After a contraction caused by the pandemic in 2020, when GDP fell by 6.3 percent, GDP grew by 10.6 percent the following year. The economy grew rapidly, primarily due to the fading of the initial shock from the pandemic and adaptation of the labour market and supply chains to the new pandemic reality.

While the effect of adaptation to the pandemic gradually faded, two other strong primary factors of GDP growth emerged, both associated with the Russian invasion of Ukraine in the spring of 2022. These were the mass arrival of Russian citizens and the opening of a transport corridor for sanctioned goods to Russia via Georgia. Following 2022, more than 80,000 Russian citizens settled in Georgia, mostly IT professionals, small businesspeople, and other members of higher-income groups. Their arrival stimulated overall demand, particularly growth in housing prices and development of the construction and IT sectors. In addition, Russian capital in the form of deposits from Russian citizens began flowing into Georgian banks in large quantities in 2022.

After 2022, Georgia became one of several transport corridors for the (re)export of sanctioned goods to Russia. Official statistics indicate Georgia’s role as an export corridor for passenger cars. In 2025, Kyrgyzstan (export from Georgia US$ 1.49 billion) and Kazakhstan (export from Georgia US$ 909 million) became Georgia’s main trading partners, and the main official export destinations for passenger cars from Georgia. The export value of this commodity reached US$ 2.81 billion. Passenger cars were also the largest import item to Georgia with a total value of US$ 3.87 billion. It should be noted that the “Georgian corridor” is partly absent from Kyrgyz and Kazakh statistics. While there is an immense increase of Georgian exports to Asia, the corresponding imports from Georgia are missing in the statistics of these countries. For instance, Kyrgyzstan’s official imports from Georgia are at least ten times lower than exports from Georgia to Kyrgyzstan.

The war in Ukraine also became the impetus for the emergence of two secondary factors of GDP growth in Georgia: foreign students and Russian tourists. Before the war, universities in eastern Ukraine were the main competitors of Georgian universities for international students, especially from India. After the war broke out, large numbers of students instead came to Georgia, increasing by an average of 20 percent year-on-year. In the 2024-2025 academic year, 37,100 international students studied in Georgia, more than double the 17,500 foreign students in Georgian universities in 2021-2022. This factor is an often overlooked yet significant secondary driver of Georgia’s GDP growth over the past few years.

Moreover, unlike many Western countries, Georgia has not banned flights to Russia, thereby stimulating growth in tourism. Russians represented 23.32 percent of total visits to the country in 2025.

Increased state revenues are an additional element that have contributed to strong growth figures and increased government spending in the years 2021-2025. Central government tax revenues rose from US$ 3.5 billion in 2021 to US$ 8.0 billion in 2025, reflecting a 128 percent increase, while state budget appropriations increased from US$ 6.19 billion to 10.3 billion, a 66.3 percent rise.  

IMPLICATIONS:

Several trends indicate that the main drivers of Georgia’s growth have already peaked and are beginning to fade. The economic growth in 2025 was likely inflated mainly by the International Company Status Act adopted in 2020. The Act grants certain types of companies in the IT and maritime sectors the opportunity to qualify for significant tax breaks. The changes adopted in 2020 allow foreign IT companies to register in Georgia, having to pay only a 5 percent corporate tax and 5 percent on employee wages. The ultimate catalyst for growth under the legislation was the arrival of Russian and Belarusian IT experts in 2022. In parallel with this law, the government also introduced simplified permanent residence for employees in the Information and Communication Technology (ICT) sector in 2025.

In the third quarter of 2025, the ICT sector grew by 21.1 percent; in the second quarter of 2025, by 37.1 percent; and in the first quarter of 2025, by 28.6 percent. In the third quarter of 2025, the sector reached 7.4 percent of the country’s GDP, from only 3 percent in 2020. While the state’s revenues from this scheme are rather insignificant, it does contribute to inflating growth statistics.

At the same time, almost all sectors relevant to the real economy and the state budget recorded a decrease in growth or a decline in the third quarter of 2025: energy (-3.3 percent), agriculture (-5.4 percent), construction (0.2 percent), trade (+3 percent) and manufacturing (+2,5 percent).

Other trends also contribute to the slowdown of the real Georgian economy. The number of people employed in the Georgian economy has decreased (most probably due to emigration) in the third quarter of 2025. Meanwhile, growth rates of imports are decreasing as compared to 2024. 

While state budget revenues increased by approximately 25 percent in 2024, they increased by only 10 percent in 2025, with 4 percent offset by current inflation. These trends contradict the estimated 2025 GDP growth rate.

The Georgian economy’s growth was not only an important PR tool for the Georgian government but also a practical means for maintaining its public support in the critical years of 2024 and 2025.

During its time in power, Georgian Dream has created a self-dependent layer of civil servants and citizens receiving various social benefits. Over the past two years, the ruling party has further strengthened their loyalty by increasing salaries and benefits. This was permitted by strong economic figures in 2022-2024. After 2025, Georgian Dream is starting to run short of resources to continue buying the support of these groups.

Most probably, the Georgian government is aware of the real slowdown in economic growth and the threats it poses to its legitimacy. It is currently taking several steps to address this threat. In the summer of 2025, the National Bank of Georgia managed to restore its dollar reserves to the same level as in 2024, before it started to sharply sell US$. 

Keeping a stable currency is one of Georgian Dream’s main priorities. The government has also become more careful in spending budgetary funds in comparison to previous years, and is actively building a financial reserve to limit the impact of slowing economic growth.

Georgian Dream’s ability to prepare for a period of economic turbulence will depend on several factors. These factors cannot currently be estimated accurately, however, the duration of Western sanctions against Russia stands out among the most relevant. Maintaining Georgia’s relevance as a transport corridor to Russia would significantly help Tbilisi weather the upcoming economic turbulence. On the other hand, a quick resolution of the conflict in Ukraine and the restoration of trade relations between Moscow and the West could, indirectly but significantly, weaken Georgian Dream’s position.

CONCLUSIONS:

The slowdown in the Georgian economy’s real growth will likely be the next big challenge for the ruling Georgian Dream party in the coming years, following the protest year of 2025. Unlike the mass protests, a significant deterioration in the population’s socio-economic situation could undermine support for the ruling party, even among its core electorate. Several current government actions indicate that Georgia’s de facto leader, Bidzina Ivanishvili, is aware of this threat and is taking steps to maintain the government’s capacity to support the existing social system. However, several key factors in this direction are shaped by other actors and trends and depend only marginally on the actions of the Georgian government. Of these, an end to the war in Ukraine could have the most severe negative impact. Moreover, the data accounted for here precedes the recent outbreak of war in Iran. The fallout from the conflict adds uncertainty to an already precarious economic situation in Georgia.

AUTHOR’S BIO: 

Tomáš Baranec is a Research Fellow and Head of the Caucasus Program of the Slovak think tank Strategic Analysis. He currently works as a field researcher on the Georgian-Ossetian ABL. Tomas studied Balkan, Central European and Eurasian Studies at Charles University in Prague. Giorgi Khishtovani is a Full Professor and Head of the Department of Finance at Ilia State University (Georgia). He holds a PhD in Economics from the University of Bremen (Germany), an MSc in Business Administration, and an LLM in Law from the University of Trier (Germany). His research focuses on political economy, governance, economic and fiscal policy.

By Saima Afzal

The escalation of conflict in the Middle East following U.S. and Israeli strikes on Iran is exposing the geopolitical vulnerability of Central Asia’s trade diversification strategy. Over the past decade, Kazakhstan and Uzbekistan have invested significant political and financial capital in developing alternative transit corridors including southbound routes through Iran, Afghanistan, and Pakistan to reduce reliance on northern pathways historically oriented toward Russia and to secure access to global maritime markets.
The current crisis is rapidly testing their underlying assumptions. Instability across key transit regions now threatens emerging logistics networks, raising concerns about the reliability of corridors that were intended to enhance economic resilience.

BACKGROUND:

The latest escalation in the Middle East is reverberating well beyond the immediate theatre of conflict, disrupting energy markets, trade routes, and regional economic planning. Oil prices rose sharply following strikes on Iran and subsequent retaliation, reviving concerns about disruption in the Strait of Hormuz, a critical artery through which a significant share of global oil supplies transits daily. For energy-importing economies across Asia, the shock echoes earlier inflationary pressures experienced during previous geopolitical crises.

For Central Asia, the effects are both systemic and immediate. As landlocked economies, states such as Kazakhstan and Uzbekistan have long prioritized the diversification of trade routes as a strategic objective. This has involved developing southbound connectivity through Iran, Afghanistan, and Pakistan, alongside east–west alternatives linking the region to China and Europe.

Iran has played a central role in these plans, offering access to maritime trade via ports such as Chabahar within the framework of the International North-South Transport Corridor (INSTC). Regional initiatives such as the proposed Uzbekistan-Afghanistan-Pakistan railway have likewise aimed to provide direct access to Pakistani ports and shorten transit times to global markets.

These initiatives were conceived well before the current crisis. What the escalation has done is bring into sharper focus the extent to which their viability depends on political stability across multiple transit regions.

At the same time, the conflict is already producing tangible disruptions. Airspace closures and security risks have forced flight cancellations and rerouting, reduced cargo capacity and raising transport costs. Border crossings that serve as key trade arteries are also under pressure, with increased congestion and tighter controls affecting both freight and passenger movement.

In several cases, these disruptions intersect directly with everyday economic activity. Iran’s temporary suspension of selected exports and interruptions in cross-border trade have affected the flow of food and consumer goods into neighbouring Central Asian markets, particularly in countries with strong import dependence. Localized shortages and price increases have already been reported in border regions reliant on Iranian supplies.

IMPLICATIONS:

The unfolding conflicts across Iran and the Afghanistan-Pakistan corridor highlight a structural feature of Central Asia’s connectivity strategy: diversification reduces dependence on any single route, but it also distributes exposure across multiple geopolitical environments.

Southern corridors illustrate this dynamic most clearly under current conditions. Routes passing through Iran now face heightened uncertainty linked to maritime disruption, rising insurance costs, and sanctions-related risks. Even without a formal closure of the Strait of Hormuz, security concerns have slowed tanker traffic and increased freight premiums, costs that are disproportionately borne by landlocked economies.

Overland connectivity through Afghanistan and Pakistan remains constrained by persistent insecurity and fragile political relations. Escalating tensions between Kabul and Islamabad further complicate both the implementation and long-term reliability of projects such as the Uzbekistan-Afghanistan-Pakistan railway. Existing road and rail links are vulnerable to disruption, while transit agreements risk suspension under political pressure, creating uncertainty for trade flows.

Energy and infrastructure initiatives are similarly affected. Projects such as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline and the CASA-1000 electricity transmission line depend on stable transit conditions across regions that continue to experience volatility. These risks are not new, but they are in the current environment becoming more acute and more difficult for investors and policymakers to discount.

Beyond infrastructure, the economic transmission mechanisms are already visible. Rising fuel prices are feeding into inflation across import-dependent economies such as Kyrgyzstan and Tajikistan, increasing the cost of food, transport, and basic goods. Disruptions to supply chains-particularly for agricultural products and consumer goods imported via Iran are compounding these pressures. At the same time, any slowdown in major partner economies such as Russia or China would have secondary effects through trade, investment flows, and remittances.

Rather than triggering a shift in strategy, the crisis is reinforcing an existing trend toward hedging. Central Asian states are likely to deepen engagement with alternative corridors perceived as comparatively stable. The Trans-Caspian International Transport Route, linking the region to Europe via the South Caucasus, has gained prominence as an east-west option that avoids both Russian territory and southern conflict zones. Similarly, established rail connections to China provide access to global supply chains through more predictable logistical networks.

This does not signal a retreat from southern connectivity. Instead, it reflects a growing emphasis on redundancy-maintaining multiple routes to manage disruption rather than relying on any single corridor to deliver uninterrupted access.

CONCLUSIONS:

At the core of this challenge is a structural dilemma: while diversification reduces dependence on any single route, it also distributes exposure across multiple geopolitical environments. As a result, Central Asia’s broader transport strategy is increasingly shaped not only by infrastructure development, but by the political and security dynamics of regions far beyond its borders. The current Middle East conflict underscores the extent to which this impacts Central Asia’s economic integration. Connectivity initiatives designed to expand access to global markets are now being evaluated through the lens of geopolitical risk and operational resilience.

The immediate impact is not the abandonment of diversification strategies, but their recalibration. Policymakers are increasingly approaching connectivity not only as an economic objective, but also as a risk management tool, placing greater emphasis on flexibility, redundancy, and continuous reassessment of external exposure.

At the same time, the crisis highlights how quickly geopolitical shocks translate into everyday economic pressures-from rising food and fuel prices to disrupted transport links and constrained trade flows. Even without direct involvement in the conflict, Central Asian states are already absorbing its effects.

Ultimately, the resilience of Central Asia’s trade ambitions will depend not only on infrastructure investment, but on the capacity to navigate an increasingly complex and unpredictable geopolitical environment.

AUTHOR’S BIO: 

Saima Afzal is an independent and freelance researcher specializing in South Asian security, counter-terrorism, the Middle East, Afghanistan, and the Indo-Pacific region. Her work focuses on geopolitical developments, strategic affairs, and regional conflict dynamics. She holds an M. Phil in Peace and Conflict Studies from the National Defence University, Islamabad, Pakistan.