In Sanctions Enforcement, Follow Central-Asia’s Middle Corridor

In Sanctions Enforcement, Follow Central-Asia’s Middle Corridor

 

As the Suez Canal becomes a new front in the Israel-Hamas conflict and the Red Sea is a “no-go zone” for most vessels, geopolitics is casting a shadow over the international trade landscape. With the shipping industry caught in the crossfire of an escalating geopolitical conflict, the precarious security situation has effectively halted the much-celebrated, albeit stillborn, India-Middle East-Europe Economic Corridor.

Throughout history, geopolitical events have had far-reaching impacts on trade networks, redrawing global routes and transport corridors in ways that have both united and divided the world. From the rise and fall of empires along the Silk Roads to globalization fervor and, more recently, Russia’s full-blown invasion of Ukraine—geopolitical and technological shifts have profoundly shaped the global trade landscape.

 

Nowhere has geopolitics had more severe consequences than in Central Asia. Landlocked, it has repeatedly found its trade and transit routes held hostage to the changing geopolitical tides. With its global trade share under 1 percent, today, Central Asia is one of the least integrated regions in Asia and the Pacific, with a heavy reliance on routes through Russia. In early 2022, as Russian tanks rolled across the Ukrainian border, Central Asians found themselves flanked by the heavily sanctioned Iran to the south and Russia to the north. In response, the Middle Corridor—a transit link between Europe and China via the Caspian Sea—has garnered unprecedented interest and prominence.

The rise in the Middle Corridor’s strategic importance is evidenced by the intensity of high-level regional dialogue and the substantial investments by governments in the east-west transport infrastructure. Yet, analyses from international institutions, including the EBRD, the World Bank, and the OECD, have highlighted severe operational obstacles: the surge in traffic by 33 percent in 2022 laid bare the trans-Caspian corridor’s limitations—insufficient capacity, high costs, and over fifty days on average of transit inefficiencies. As a result, in early 2023, traffic dropped by 37 percent to below pre-war levels, prompting a reevaluation of its feasibility.

Substantial investments in hard infrastructure upgrades are critical to the corridor’s successful operationalization. Yet soft connectivity measures that are low-cost but high-benefit can yield quick gains for Central Asia. While politically difficult, reducing quasi-monopolies in rail and maritime transport, easing restrictions on services trade, and improving supply chain visibility tools that facilitate traceability would enhance efficiency and lower costs.

New technologies, such as supply chain visibility platforms, are particularly crucial for cross-border trade as they carry significant potential to streamline transactions and improve transparency. They are also an essential instrument in closing sanctions loopholes.

As EU exports to the South Caucasus and Central Asia have surged by 80 percent since early 2022, evidence shows that dual-use goods have flowed to Russia. The U.S. Bureau of Industry and Security has identified several prevalent transshipment points, notably countries close to Russia and along the Middle Corridor. Notorious for the transit of restricted exports en route to Russia, these countries have widely gained a reputation as “circumvention hubs.”

Washington and Brussels have sought to choke off such evasion through “sanctions diplomacy” and tightened restrictions, adding throughout the year a dozen entities in Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan for supporting Russia’s military-industrial complex to the sanctions list. The EU also introduced an anti-circumvention tool to restrict the sale and transfer of sanctioned goods to nations deemed at high risk for breach. Unlike U.S. secondary sanctions, the tool bears no extra-territorial implications and is meant to be used as a last resort after other interventions fail.

On December 18, the EU adopted the twelfth package of sanctions with more robust anti-circumvention measures that require “that EU exporters contractually prohibit re-exportation to Russia and re-exportation for use in Russia of particularly sensitive goods and technology.”

Yet, along the Middle Corridor, the West has limited infrastructure to “follow the money” or data to pursue export control violations. In Central Asia and the South Caucasus, border and customs agencies are notoriously corrupt, with the World Bank Logistics Performance Index ranking Kazakhstan eighty-third, Uzbekistan eighty-eighth, Georgia eighty-ninth, Armenia ninety-third, Kyrgyzstan one-hundred-thirty-third, and Tajikistan one-hundred-thirty-fifth for their customs score. The anti-circumvention problem is especially challenging in the Russia-led EAEU member states, where arrangements allow for the movement of goods with minimal border checks and with Russian customs authorities having representatives embedded in their national customs offices.

Not surprisingly, Russia-linked bad actors continue to exploit trade opacity along the Middle Corridor, obfuscating shipping routes and documents. This makes due diligence remarkably challenging without robust tracking systems and data transparency at border checkpoints. Kazakhstan, for example, ranks number one among the world’s most restrictive for digital trade and transport data exchange, outstripping Zimbabwe and Russia. 

Still, Central Asia’s heavy reliance on Russia for trade, transit, and investment leaves it vulnerable to Moscow’s geopolitical agenda. Nowhere is this dependence more evident than in Kazakhstan, where over 96 percent of oil exports transited Russian territory in 2022 despite efforts to find alternative routes. A war zone in the Black Sea—through which most Kazakh oil flows—demonstrates the risks of such overreliance on a single partner.

As global supply chain disruptions spotlight the importance of efficient logistics for national security and commerce, Central Asian nations should be pushing to overhaul customs and streamline border controls. With an eye on the Middle Corridor as a key trade artery to reduce reliance on routes via Russia, Western governments and international institutions, on the other hand, have a critical role to play in its infrastructure upgrade.

The Middle Corridor’s strategic significance extends beyond being just an alternative transit link between Europe and China; it’s a pivotal pillar for Central Asia’s regional trade architecture and a litmus test for its cooperative policymaking with the West.

Dana Masalimova is a Fellow at the Davis Center for Russian and Eurasian Studies at Harvard University and a former diplomat with the Foreign Service of Kazakhstan.

Image: Shutterstock.com.