As Hormuz Tensions Rise, Central Asia’s Role as Transit Hedge Grows

ASTANA – As risks around key maritime chokepoints such as the Strait of Hormuz intensify, Central Asia is increasingly being repositioned from a transit option into what Jihad Azour, director of the International Monetary Fund (IMF)’s Middle East and Central Asia Department, described in an interview with The Astana Times as a “transit hedge,” offering alternative routes for trade and energy flows amid rising geopolitical uncertainty. On how this situation could affect the attractiveness of overland corridors through Central Asia, especially as maritime routes come under pressure and shipping and insurance costs rise, Azour said their importance will clearly increase. “When key chokepoints like the Strait of Hormuz become riskier and more expensive, trade and energy flows are reassessed not only in terms of cost, but also availability and geopolitical exposure. In this context, Kazakhstan and Central Asia have moved from being a transit option to becoming a transit hedge,” he said. “The Middle Corridor across the Caspian Sea is no longer just an alternative on paper. It is a real opportunity to create resilience and allow firms and governments to plan accordingly,” he added. However, he cautioned that while this is an opportunity, the capacity of overland routes remains limited. Infrastructure constraints and the level of coordination required between countries make these routes more complex than maritime shipping. Addressing this requires three things. “One is to scale up infrastructure by improving quality and investing in more modern systems. Another is to strengthen coordination between institutions across countries, including harmonizing customs rules. And third is to allow the private sector to use different logistics facilities to ensure more seamless integration of value chains,” Azour said. The same geopolitical tensions reshaping trade routes are also reverberating through energy markets. Hormuz risk: a double-edged sword for oil exporters like Kazakhstan With the war in the Middle East sending economic shockwaves through Central Asia, exposing the region’s vulnerability to global disruptions even as oil exporters like Kazakhstan see short-term gains, Azour said this situation presents both an opportunity and a risk. Ongoing disruption in oil markets could provide upside for Kazakhstan but also pose risks, depending on the shock’s duration and policy responses. According to him, higher oil prices can deliver a short-term boost to the economy and strengthen fiscal and external balances. Yet, they also create pressure on the global economy due to inflation risks. “Therefore, volatility in oil prices and the risk of inflation transmission are the two main risks for Kazakhstan at this stage,” he said. Azour noted that, on the positive side, this could bring additional investment into the energy sector in other countries due to shifts in demand. However, financial conditions, inflation transmission, and the impact on global demand could negatively affect oil-exporting countries outside the Gulf region. When asked what countries like Kazakhstan, with elevated inflation, can do to curb price pressures if such a scenario plays out, Azour said this will depend on how long the crisis lasts, which remains the first level of uncertainty. “The second question is what the transmission to international prices and inflation risks will be. For Kazakhstan, the policies are clear: maintaining macroeconomic stability by activating monetary policy instruments to reduce the impact on domestic prices, including adjusting interest rates when needed to preserve price stability and reduce inflation risks,” he said. He added that it is also important to keep fiscal policy under control by monitoring and managing additional non-oil spending and reducing pressure from government spending, which could fuel inflation. Resilient growth, but structural gaps remain The IMF described Central Asia as “resilient,” yet growth is projected to slow from 6.2% to 4.8% in 2026, according to its April 2026 Regional Economic Outlook Update. Azour said this 4.8% brings the region closer to its growth potential and is not a sign of weakness. He added that growth in recent years, particularly since 2022, has outperformed both emerging markets and developing economies, as well as the European average and advanced economies. However, he noted that some countries have supported this expansion through expansionary fiscal policies and state-led investment that boosted domestic demand. While this progress is welcome, he stressed that it remains important to strengthen macroeconomic policy frameworks. Another priority, he said, is to accelerate economic diversification by reducing the state’s footprint, increasing productivity growth, and deepening financial markets. “These are important issues in order to address the question you raised: why people are not feeling the impact. People will feel it when there are more jobs, more growth, and when the private sector is expanding,” he said. Azour added that external factors must also be taken into account, underscoring the need to accelerate structural reforms while maintaining fiscal stability, reducing inflation risks, and ensuring that geoeconomic and geopolitical developments do not negatively affect the region. Preparing for shocks: Central Asia’s worst-case scenario playbook With the IMF often emphasizing the region’s resilience and stability, Azour also addressed a potential worst-case scenario for Central Asia. He said the world has become increasingly shock-prone, with major events occurring almost every year. According to him, the best way to prepare is to build buffers in good times so they can be used when needed. This includes accumulating reserves wisely and strengthening the capacity to respond to shocks. He also emphasized the importance of ensuring that growth is inclusive and that economies provide both opportunities and protection. “This requires accelerating economic transformation to increase inclusion, especially for young people and small and medium-sized enterprises, and strengthening social protection frameworks. Creating jobs, supporting entrepreneurs, and building strong systems for health and education will increase the resilience of both the economy and society,” he said. Azour said that for countries that are growing and not currently facing major shocks, there are three key pillars to focus on: sound macroeconomic policies, strong fiscal management, and inclusion. “Macroeconomic stability is key. It is at the center of everything,” Azour said. He added that another important element is strengthening regional integration across Central Asia to deepen markets and become a regional economic powerhouse capable of creating more opportunities.