Central Asia-South Caucasus: The New Economic Geography of Diversification

Eurasia’s economic geography is undergoing a profound conceptual and structural transformation. This transformation has yet to manifest itself in the institutional collapse of existing regional integration arrangements or the emergence of qualitatively new structures. Instead, a more fundamental process is underway, reflected in states’ reassessment of traditional asymmetric dependencies and their efforts to develop alternative markets, transport and logistics routes, and technological and energy infrastructure.

One of the key manifestations of this geoeconomic realignment is the intensification of interregional cooperation between Central Asia and the South Caucasus. For an extended period, these two regions were viewed as separate and fragmented entities, with their economic, political, and security architectures organized around distinct geopolitical poles and centripetal systems. Today, however, new transport routes, trade flows, and investment projects emerging on both sides of the Caspian Sea are gradually bridging these structural divides. The Middle Corridor, which connects Central Asia to Europe via the South Caucasus, is the most visible manifestation of this geoeconomic realignment.

This transformation is particularly significant in the context of the functioning of the Eurasian Economic Union (EAEU). Although the EAEU retains its trade and economic significance, institutional asymmetries within the Union and the politicization of economic instruments are increasing the imperative for member states to establish alternative channels of access and connectivity. The recent trade restrictions imposed by Russia on Armenia provide a clear illustration of this structural contradiction. When economic interdependence becomes a source of political vulnerability rather than a means of generating mutual economic benefits, diversification becomes an imperative of economic security.

Armenia’s experience, however, is not solely a story of Armenian–Russian relations or the EAEU’s internal crisis. It reflects a broader systemic process in which the countries of Central Asia and the South Caucasus, while maintaining their existing economic and political ties, are simultaneously seeking new partnerships. In this context, Armenia, Kazakhstan, and other countries in the region are becoming increasingly integrated into emerging, more closely interconnected economic and connectivity networks. The key drivers of these networks include the Middle Corridor and new logistics projects, technological cooperation, and the restructuring of global supply chains.

This process is unfolding amid intensifying US-China strategic competition, in which supply chain diversification, access to and control over critical minerals, and the ability to access advanced technologies are becoming key determinants of economic and geopolitical security. Within this paradigm, Central Asia, and Kazakhstan in particular, is gaining strategic weight not only because of its substantial resource potential, but also because of its capacity to establish new logistics and economic hubs across Eurasia.

It is against this backdrop that the article’s central question emerges: Can deepening institutional asymmetries within the EAEU and the politicization of economic leverage paradoxically serve as catalysts for the development of a more diversified and interconnected economic space between Central Asia and the South Caucasus?

From Exclusive Alliances to Strategic Diversification

For an extended period, the conceptual logic underpinning the foreign policy behaviour of small and medium-sized states revolved around the formation of deep strategic alliances with one or a limited number of dominant actors. During the bipolar system of the Cold War, this choice was largely shaped by the structural divide between competing blocs, while in the subsequent unipolar phase, it was driven by the political, military, and economic hegemony of the United States. Today, this model has lost much of its functionality. The transformation of the unipolar world order has not led to the emergence of a new, clearly defined international system in which states could once again build predictable, long-term relationships around a single geopolitical pole. Instead, a more fragmented and unpredictable competitive environment is taking shape, in which global powers, while continuing to compete strategically across different domains, are becoming more cautious about assuming long-term commitments and guaranteeing their fulfilment. Their priorities are changing rapidly, and under new geopolitical conditions, they frequently withdraw unilaterally from political and security commitments made in the past, turning alliances that once appeared predictable into sources of systemic risk.

For small and medium-sized states, this means that critical dependence on any single external actor can generate more risks than opportunities. Under these conditions, strategic diversification becomes not merely a political preference, but a fundamental instrument for managing risks and preserving state autonomy. The objective is neither to abandon traditional partners nor to replace one asymmetric dependency with another, but to broaden the scope of strategic choice by diversifying economic, security, technological, and transport and logistics ties.

In contemporary international relations scholarship, this type of behaviour is examined through the concepts of strategic hedging and multi-alignment. These approaches involve diversifying relationships under conditions of uncertainty in order to preserve strategic options and avoid critical dependence on any single power. Research also characterizes strategic hedging as a form of insurance behaviour by small states, allowing them to distribute risks and develop alternative opportunities amid high levels of uncertainty. This is particularly important for states whose external economic or security systems have historically been built around a single dominant partner. Under such conditions of structural dependence, a crisis in bilateral political or economic relations along a single axis can escalate into a systemic risk at the state level.

Armenia’s current foreign policy dynamics offer a clear illustration of this theoretical model. For decades, significant parts of the Armenian economy and security system developed within a framework of deep and multifaceted dependence on the Russian Federation. However, geopolitical developments in recent years have exposed the fundamental vulnerability of this arrangement: when political disagreements and conflicting interests arise, economic, energy, and logistics interdependencies can quickly become instruments of political pressure and coercion.

It is in this context that developments surrounding Armenia within the EAEU acquire systemic significance. In theory, the purpose of a regional economic integration arrangement should be to eliminate trade barriers among member states, expand market access, and increase the predictability of the economic environment. However, when economic integration mechanisms are instrumentalised to advance political objectives, they lose their core function of promoting economic cooperation and instead become asymmetric instruments of political influence.

The recent trade restrictions imposed by Russia on Armenia are a concrete manifestation of this instrumentalization. Since May 2026, Russia has imposed restrictions on various Armenian export products and their transit, accompanying these measures with explicit threats to suspend or reconsider supplies of energy resources and other goods if Armenia continues to pursue closer ties with the European Union.

The issue extends beyond individual product categories or the interests of particular businesses. The more fundamental question is what structural risks emerge when a key member of an economic union is unable to separate economic relations from its political agenda. Under such circumstances, economic integration ceases to function as a mechanism for reducing risks and instead becomes an additional source of national vulnerability.

In effect, this dynamic produces a paradox: the more frequently economic interdependence is used as an instrument of political coercion, the stronger the incentive for member states to develop alternative markets, transport corridors, and new strategic partnerships. In other words, the politicization of integration mechanisms accelerates diversification among small states as they seek to mitigate their dependence on a single centre and the systemic risks associated with it.

In Armenia’s case, this entails a structural reassessment and diversification of external dependencies. Yerevan is steadily broadening its scope for strategic choice by developing new partnerships, deepening existing partnerships, developing transport and logistics infrastructure, and pursuing alternative avenues for economic development.

In this context, Armenia’s balanced and balancing foreign policy is not an exceptional case. It reflects a broader pattern within the international system, in which small and medium-sized states seek to preserve existing ties while simultaneously building alternative strategic options. The countries of Central Asia provide some of the most prominent regional examples of this approach.

Central Asia in New Geography of Diversification

A defining feature of Central Asian states’ foreign policies today is the parallel development of multi-vector relations with global and regional centres of power, aimed at systematically diversifying their economic, political, and security interests. This approach is particularly evident in Kazakhstan, the largest economy in Central Asia and a key actor in regional economic and connectivity processes.

Astana maintains high-level strategic bilateral relations with Moscow and is a founding member of the EAEU, while simultaneously deepening its economic and political ties with China and expanding cooperation with the United States and the European Union. In recent years, cooperation with Western partners has broadened to encompass trade, foreign direct investment, transport and logistics networks, energy, critical raw material value chains, digital technologies, and innovation.

For both Yerevan and Astana, a fundamental objective of foreign policy is to safeguard national economic security and reduce asymmetric external dependencies. This approach is also driven by a reassessment of Central Asia’s strategic role in the global geoeconomic system. Whereas external interest in the region was previously driven primarily by its raw materials and natural resources, its significance has now expanded to encompass the resilience of global supply chains, access to critical minerals, and Eurasian transport and logistics corridors. For Western countries, Central Asia’s strategic value is no longer limited to access to regional markets. Its integration into supply chain diversification efforts is becoming increasingly important as a means of reducing critical dependencies on a single source or a limited number of suppliers.

Against this backdrop, US–China and US–Russia competition is creating new economic opportunities for Central Asia, while simultaneously increasing the need for diplomatic balancing between competing economic and political interests. The United States’ growing interest in the region is one of the geoeconomic manifestations of this competition. It is driven not only by geopolitical considerations, but also by concerns over supply chains, technological security, and industrial resilience.

Critical minerals, rare earth metals, and the supply chains involved in their processing and distribution have become strategically important sectors for advanced technologies, semiconductors, artificial intelligence, the defence industry, and the transformation of energy systems. China’s dominant position in several supply chains has further increased the strategic importance of finding alternative sources and routes.

Among other factors, Kazakhstan’s strategic weight derives from its substantial resource base. As of the end of 2024, Kazakhstan’s oil reserves were estimated at approximately 2.85 billion tonnes, its natural gas reserves at 1.3 trillion cubic metres, and its coal reserves at 28.7 billion tonnes. During the same period, Kazakhstan accounted for approximately 39 per cent of global uranium production, extracting around 23,270 tonnes. The country also holds significant positions in the production of chromite, lithium, titanium, molybdenum, rhenium, and other strategically important minerals.

For the United States and Europe, which are seeking to reduce concentration in technological, energy, and nuclear fuel supply chains, this resource potential elevates Kazakhstan beyond the role of a mere raw material supplier, making it a key partner in the development of new industrial and technological value chains.

The scope of strategic cooperation with the United States is also expanding into advanced technologies and artificial intelligence. In June 2026, the Government of Kazakhstan signed a package of agreements worth approximately $10 billion with Firebird and NVIDIA to develop AI infrastructure. This dimension of cooperation extends Kazakhstan’s economic diversification into the domains of advanced computing capacity and AI infrastructure.

Kazakhstan’s growing significance stems not only from its resource and technological capabilities, but also from the infrastructure connecting them to external markets. In this context, the Middle Corridor is not merely a transit route for Kazakhstan; it is an instrument of economic diversification. In 2025, freight volumes along the Middle Corridor increased by 62 percent, while container traffic grew 2.7-fold, reaching approximately 56,500 containers. The corridor’s current annual capacity stands at around 6 million tonnes, with plans to increase it to 10 million tonnes by 2030.

Kazakhstan’s external economic diversification is also reflected in its efforts to attract international capital and expand multilateral cooperation. During President Kassym-Jomart Tokayev’s visit to Washington in November 2025, Kazakhstan and the United States signed 29 trade and investment agreements worth approximately $17 billion. Meanwhile, commercial deals announced between the United States and the Central Asian states under the C5+1 framework exceeded $25 billion. The cooperation agenda encompasses trade, investment, transport, and energy.

In December of the same year, US President Donald Trump personally invited Kazakhstan’s President Kassym-Jomart Tokayev to attend the G20 summit, scheduled to take place in Miami on 14–15 December 2026, as a guest. This invitation further connects the economic agenda of Kazakhstan’s relations with the United States to broader international frameworks.

It is against this backdrop that the significance of emerging interregional economic ties between Central Asia and the South Caucasus becomes apparent. In this process, the Caspian Sea is no longer merely a geographical barrier separating the two regions, but an economic and logistics space connecting them and creating new opportunities for interregional connectivity.

Armenia at the Crossroads of New Economic Connectivity

The economic and geopolitical reassessment of Central Asia can translate into a genuine strategic opportunity for the South Caucasus only if appropriate geographical and infrastructural foundations are established between the two regions. It is precisely this process that is gradually integrating the South Caucasus into a broader geoeconomic system extending westward from Central Asia. In this context, the unblocking of transport links between Armenia and Azerbaijan takes on particular significance, as it could substantially transform Armenia’s access to the Caspian Sea basin and the logistics architecture of the Middle Corridor.

The recent dynamics of bilateral relations between Armenia and Kazakhstan demonstrate that this reassessment is already acquiring tangible political and economic substance. During Armenian Prime Minister Nikol Pashinyan’s official visit to Kazakhstan in November 2025, the two countries elevated their relations to the level of a strategic partnership. The visit resulted in the signing and adoption of an extensive package of bilateral agreements and cooperation documents, including a Roadmap for Trade and Economic Cooperation for 2026–2030, as well as memoranda of cooperation covering infrastructure, industry, advanced technologies, artificial intelligence, the peaceful use of nuclear energy, science and education, and agro-industry. The conceptual significance of this partnership lies in its coverage of strategic sectors capable of transforming bilateral economic relations into a sustainable ecosystem of trade, investment, and technological cooperation.

President Kassym-Jomart Tokayev’s statements are particularly significant in this context. He emphasized the prospects for expanding cooperation with Armenia in the economic, industrial, infrastructure, and digitalization sectors, giving priority to the development of transport and transit routes. President Tokayev also reaffirmed Astana’s interest in participating in TRIPP (the Trump Route for International Peace and Prosperity), viewing it in conjunction with Armenia’s Crossroads of Peace, North–South, and Middle Corridor projects.

For Armenia, the strategic significance of TRIPP lies precisely in its potential to establish this interregional connectivity. The unblocking of transport routes and the possibility of integrating into the Trans-Caspian transport system and the Middle Corridor could provide Armenia not only with additional channels of access to external markets, but also with the opportunity to become an actor capable of shaping economic routes and exercising agency over the flows moving through them. From this perspective, TRIPP’s geoeconomic significance extends beyond the mere unblocking of transport links between Armenia and Azerbaijan. Its broader impact must be assessed within the context of regional connectivity.

Other Central Asian states are also demonstrating considerable interest in these transformations. At a meeting of the leaders of Azerbaijan and Central Asian states in July 2026, Uzbekistan’s President Shavkat Mirziyoyev spoke of a “historic opportunity” to establish a common development space linking Central Asia and the South Caucasus. President Mirziyoyev’s statement constitutes an important political signal: it indicates that Central Asian states are increasingly viewing the expansion of ties with the South Caucasus not as a separate foreign policy direction, but as an integral part of a broader process of interregional development.

Uzbekistan’s foreign policy provides a particularly clear illustration of this approach. Tashkent continues to cooperate with the EAEU as an observer state and, in 2026, proposed new avenues for deepening trade, industrial cooperation, and digital economic ties with the Union. At the same time, Uzbekistan is actively pursuing greater intra-regional integration in Central Asia, deeper ties with Azerbaijan, and the expansion of economic and transport links towards the South Caucasus. Uzbekistan is also deepening its relations with the United States in the areas of critical mineral value chains and infrastructure investment, reflecting Tashkent’s ambition to develop new economic and technological partnerships.

Taken together, these developments are giving the emerging links between Central Asia and the South Caucasus a more tangible economic dimension through new trade flows, technological cooperation, energy connectivity, and transport routes. It is in this context that Armenia has an opportunity to transform its position: from a passive participant in existing economic systems into an active and autonomous node within the emerging interregional connectivity networks.

The New US-Armenia Partnership and the Expansion of Economic Opportunities

Armenia’s strategic prospects for economic diversification extend beyond deepening cooperation with Central Asian states. They are also shaped by the qualitative and conceptual transformation of its relations with the United States, where traditional political dialogue is gradually being complemented by strategic dimensions involving infrastructure, technology, energy, and investment. The most visible manifestation of this qualitative shift is the TRIPP project. For Armenia, TRIPP is significant not only as a new transport and logistics route, but also as an integral part of a broader geoeconomic strategy.

The United States’ strategic engagement offers opportunities not only to secure financing for infrastructure development and attract capital investment, but also to integrate Armenia into regional economic and logistics architectures in which the country’s agency and influence have historically been considerably more limited. The TRIPP Framework Implementation Agreement reflects precisely this logic, positioning the project as a long-term foundation for infrastructure modernization, economic growth, and regional integration.

At the same time, the new phase of US–Armenia cooperation extends beyond a narrowly defined transport and transit agenda. The bilateral cooperation framework already encompasses artificial intelligence, semiconductor manufacturing, civil nuclear energy, energy security, and the supply of critical minerals and rare earth metals. These areas are important not only for Armenia’s economy; they are also among the sectors in which global economic and technological supply chains are being reconfigured.

In this context, the Firebird project is particularly significant. In August 2026, the region’s largest NVIDIA AI factory was launched in Hrazdan, with subsequent phases of the project providing for the deployment of more than 70,000 NVIDIA GPUs in Armenia. The presence of Firebird in both Armenia and Kazakhstan reflects a broader strategy of expanding AI infrastructure into emerging markets.

This development creates an important geoeconomic parallel between Armenia and Kazakhstan. Both countries are increasingly being viewed by the United States and leading Western technology companies not merely as transit corridors or resource partners, but also as strategic platforms for locating advanced technological and economic infrastructure. In this sense, Firebird’s presence in the development agendas of both countries symbolizes a qualitative shift: for external political and economic actors, the strategic value of Central Asia and the South Caucasus is no longer defined solely by natural resources or transit geography.

Conclusion

The emerging interregional ties between Central Asia and the South Caucasus do not yet signify the formation of a new economic bloc or a unified geopolitical space. Nevertheless, they reflect a structural transformation in regional economic relations. The countries involved are systematically broadening the geographical reach of their partnerships, export markets, and transport connections, seeking to reduce asymmetric dependencies on individual routes and partners while expanding their room for economic manoeuvre.

The central logic of this process lies not in the formation of new alliances, but in the extent to which regional states can turn great-power competition and growing interest in the region’s resources, markets, and connectivity potential into opportunities for their own economic development.

For Armenia, this entails not only diversifying access to transport routes and external markets, but also securing greater agency in shaping the architecture of interregional connectivity. The unblocking of transport links, the implementation of TRIPP, and deeper partnerships with Central Asian states could substantially transform Armenia’s position, enabling it to move from a passive participant to an active actor in shaping the regional economic system.

Accordingly, the effectiveness of economic diversification should be assessed not by the number of partners alone, but by the extent to which it enhances a state’s strategic options and autonomy. From this perspective, the significance of the emerging relations between Central Asia and the South Caucasus extends well beyond increased trade or transit volumes, acquiring a broader strategic and geoeconomic dimension.

Author: Elen Hokhikyan

This version of the article was translated from the original Armenian with the assistance of artificial intelligence (AI) tools and has been reviewed for accuracy.

This article was prepared with the support of the Democracy Development Foundation. The content of this publication is the sole responsibility of the Women and Global Security Architecture (WGSA) Think Tank and does not necessarily reflect the official views of the Democracy Development Foundation.