Chapter 3: Trade Patterns amid Shocks and a Changing Geoeconomic Landscape

The trade landscape is changing within the Caucasus and Central Asia and the Middle East and North Africa regions amid heightened global trade barriers and shocks. Since 2022, increased transit trade and trade diversion have led to a notable increase in overall trade activity in the Caucasus and Central Asia. Similarly, trade patterns, particularly for energy products, have shifted in parts of the Middle East and North Africa. Recent tensions in the Red Sea area have led to considerable trade disruptions in several countries. Our analysis suggests that countries in these regions could continue benefiting from increased trade flows or face trade and GDP losses, depending on the fragmentation scenarios considered. Reducing trade barriers, upgrading infrastructure, and strengthening regulatory frameworks could help Middle East and Central Asian countries reduce risks and harness the gains from trade. Over the medium term, diversifying trade and developing alternative trade routes can build resilience to trade shocks.