Exploring Iran-Afghanistan collaboration: Kabul’s Pursuit of Trade Diversification
One of the several Iran-Afghanistan meetings organised in the last months (Credits: Mehr News Agency, CC BY 4.0, via Wikimedia Commons)
Persian Files ISSN 2975-0598 Volume 19 Issue 1
Author: Silvia Boltuc
The prospect of enhanced cooperation between Iran and Afghanistan holds a dual promise: not only does it offer a pathway to augment trade and boost revenues for two nations grappling with economic challenges and Western sanctions, but it also serves as a strategic move to counterbalance the escalating economic influence of China within the Afghan market.
This report delves into recent events and high-level meetings that underscore Tehran-Kabul collaboration, particularly in the realms of trade and mining. By examining these developments, the analysis seeks to shed light on the potential ramifications that a strengthened Iranian-Afghan partnership could have on existing Chinese investments in Afghanistan.
In doing so, it explores the intricate interplay of economic interests, geopolitical considerations, and regional dynamics, offering insights into the evolving landscape of alliances and rivalries that shape the economic future of the involved nations.
Iran-Afghanistan’s Recent Meetings and Agreements:
Background Information
On November 6th, 2023, Iran Chamber of Commerce, Industries, Mines, and Agriculture (ICCIMA) hosted a high-ranking Afghan delegation where the Afghan officials expressed their eagerness to make use of the potentials of the Iranian private sector.
During the meeting, ICCIMA Vice President Payam Bagheri mentioned that Iran and Afghanistan have significant opportunities for enhancing their economic and trade relationships. Bagheri also declared the readiness of the Iran Chamber of Commerce to identify specific areas where the two nations can collaborate.
In October 2023, Iran’s Ambassador to Kabul Hassan Kazemi Qomi, said that Tehran and Kabul have agreed to create an Iran-Afghanistan chamber, trade development, to provide of facilities in the transit sector and investment in the agricultural sector.
Establishing the Iran-Afghanistan Joint Chamber serves as a means to showcase the potential and mutual economic advantages of both nations. This joint initiative, overseen by the Chambers of Commerce in both countries, aims to promote companies, entrepreneurship, and economic institutions to foster bilateral economic relations.
Furthermore, the Afghanistan Railway Authority has agreed with the Iranian Railway Consortium concerning the utilisation of the Khawaf-Herat railway. As per the agreement, Iran plans to transport 100,000 tons of goods via this route in the initial year, with an annual increase of 100,000 tons thereafter.
During the agreement’s signing ceremony, Bakht-ur-Rahman Sharafat, the head of the Afghanistan Railway Authority, announced that the construction of the initial phase of the fourth section of the Khawaf-Herat line was expected to begin by the end of October 2023.
Simultaneously, over 80 Iranian businessmen visited Afghanistan to facilitate trade between the two nations and enhance business opportunities by providing necessary support and resources for fellow business executives.
Strategic diversification: Afghanistan eyes Iran as key mining partner to counterbalance China’s monopoly
Afghanistan was facing severe economic challenges due to various factors, including the Taliban takeover, the withdrawal of foreign aid and financial support, ongoing conflict, and disruptions to trade and economic activities.
The situation was dire, with a collapse of the banking system, high unemployment rates, a sharp decline in the value of the Afghani currency, and a shortage of essential goods. The country heavily relied on international aid, and the withdrawal of such assistance significantly affected the economy and the livelihoods of the Afghan people.
Additionally, the freezing of Afghanistan’s foreign reserves by some international entities further exacerbated the economic crisis, limiting the country’s ability to access its funds held abroad, which were crucial for essential imports and basic services.
Iran has been facing economic difficulties because of sanctions imposed by the United States and other countries. These sanctions targeted various sectors, including oil exports, banking, and trade, significantly affecting Iran’s economy by restricting its access to international markets and finance.
High inflation rates and currency devaluation are also ongoing issues in Iran, in addition to the economic repercussions of the COVID-19 pandemic.
Iran has been attempting to navigate these challenges by exploring alternative economic strategies, including bolstering non-oil sectors, expanding trade with neighbouring countries, and seeking ways to mitigate the impact of sanctions.
Urging the need for both governments to facilitate economic and trade exchanges between Iran and Afghanistan during the November 6th, 2023, meeting, Bagheri said that the banking system has to establish financial relations.
To avoid sanctions, the two parties might engage in barter trade or utilise informal channels to conduct trade outside formal banking systems. This could involve exchanging goods or services directly without relying on traditional financial transactions. Another potential solution could involve trading goods using local currencies.
It should be noted that U.S. sanctions do not necessarily apply to foreign companies doing business with the Taliban as long as they avoid going through U.S. financial systems.
Afghanistan’s acting minister of commerce, Haji Nooruddin Azizi, noted that his country has been focusing on developing its mines. The U.S. Department of Defence estimated in 2010 that Afghanistan could hold 1 trillion dollars of untapped mineral deposits.
The country has substantial deposits of lithium, a key component in batteries used for various electronic devices, electric vehicles, and renewable energy storage systems. In addition to copper, iron ore, gold, uranium, silver, platinum, bauxite, Rare Earth Elements (REEs), crucial in the manufacturing of high-tech electronics, renewable energy technologies, and defence equipment. Gemstones, including emeralds, rubies, sapphires, and lapis lazuli. Afghanistan does also have some oil and natural gas reserves, but they are relatively modest compared to its mineral wealth.
However, despite the presence of these resources, Afghanistan’s ability to effectively exploit and develop its mining sector has been hindered by various challenges, including political instability, security issues, lack of infrastructure and know-how, limited investment, and regulatory concerns. As a result, the full potential of Afghanistan’s mineral wealth has yet to be realised.
Haji Nooruddin Azizi stated that although there are many proposals for investments in Afghanistan from different countries, Kabul insists on cooperation with the Iranian companies, as many Afghan mines are located near the joint border with Iran.
It should be mentioned that China has expressed interest in investing in Afghanistan’s mining sector. Beijing is seeking access to raw materials for its industries and control over oil, lithium and copper mines in Afghanistan with an aim to control global prices of the strategic minerals. Indeed, China consumes 50% of the world’s copper and they have a firm eye on the price of copper globally.
The first major public commodities extraction deal the Taliban administration has signed with a foreign company since taking power in 2021, was with Xinjiang Central Asia Petroleum and Gas Co (CAPEIC) to extract oil from the Amu Darya basin in the country’s north.
China is also renegotiating the Chinese state-owned Metallurgical Group contract signed in 2008 to extract copper from the Mes Aynak copper mine in Logar Province, one of the world’s largest copper reserves. If developed, Mes Aynak copper mine may impact Beijing leverage on prices.
In addition, Chinese company Gochin has recently offered to invest 10 billion dollars in Afghanistan’s lithium resources in the south and employing 120,000 people for the operations.
While the deal appears beneficial for reviving Afghanistan’s struggling economy, the Taliban leadership is hesitant to accept it promptly. They express concerns that China would secure it at an exceedingly low cost, potentially compromising on higher labour standards. Past contracts with China have shown a trend of resource exploitation without a concurrent development of the sites, further amplifying the apprehensions surrounding this agreement.
On August 31st, 2023, the Taliban announced they have signed over 6.5 billion dollars-worth mining contracts with local and foreign companies from China, Iran, Turkey and Britain.
Shahabuddin Dilawar, the Taliban minister of mines and petroleum, said the seven contracts cover the extraction and processing of gold, copper, iron, lead and zinc in four Afghan provinces: Takhar, Ghor, Herat and Logar.
Challenges and Opportunities in Afghanistan-Iran Cooperation
During the November 6th meeting, the Afghanistan’s acting minister of commerce underlined the potentials for partnership in other areas such as agriculture, electricity, water and pharmaceuticals in Afghanistan.
Azizi urged increased engagement of bordering provinces in trade between Iran and Afghanistan, emphasising its significance in achieving the 10 billion dollars bilateral trade goal.
He highlighted the necessity of collaborative exports and advocated for the establishment of joint industrial zones with Iran. Furthermore, the minister stressed Afghanistan’s skilled labour force, complementing Iran’s access to affordable electricity and gas, proposing the potential for fostering an industrial revolution in the region.
Several crucial measures have already been taken. One significant advancement is the recent endorsement of the Dogharoun Free Trade Zone by the Islamic Consultative Assembly in August 2023.
Additionally, Tehran is actively pushing for the creation of a joint trade zone between Iran and Afghanistan in the Khorasan region, marking significant progress in this direction.
Already in 2021, Iran has agreed to build roads in eight Afghan provinces in order to improve trade and transportation between the two parties, proving once again Iranian willingness to stabilise borders with Afghanistan and favour Tehran-Kabul cooperation.
Still, between Iran and Afghanistan, there are several unresolved and challenging issues that should not be underestimated. Tehran has not officially recognised the Taliban’s authority. Following the Taliban’s assumption of power in Afghanistan in August 2021, Iran initiated a dialogue with the Taliban, urging the formation of an inclusive government in Kabul.
Iran shares a 945-kilometre border with Afghanistan, where multiple clashes have occurred over the years. The border is a significant route for drug trafficking because of Afghanistan’s position as one of the largest producers of opium and heroin globally. The influx of drugs into Iran has resulted in a range of issues, including drug addiction, health problems, and social instability.
To combat this problem, Iran has implemented various measures: border control and surveillance, establishing checkpoints, and employing technology for better surveillance; drug seizures and crackdowns, regularly conducting operations aimed at intercepting drug shipments, seizing large quantities of narcotics, and arresting traffickers; international cooperation, which includes neighbouring countries. Iran also focuses on reducing domestic demand for drugs by implementing awareness campaigns, providing treatment and rehabilitation programs for drug addicts, and addressing the social and health impacts of drug abuse.
Another critical dossier is the Helmand River, which originates in the Hindu Kush mountains of Afghanistan and flows into Iran, providing water to both countries. Afghanistan constructed dams and irrigation systems along the river to support its agricultural needs, affecting the flow of water into Iran.
Iran has raised concerns about reduced water flow, which affects its access to this vital resource for agriculture and other purposes in its Sistan-Baluchestan province. The decreased water flow due to Afghanistan’s infrastructure developments has led to environmental issues and water shortages in parts of Iran.
Furthermore, another significant concern revolves around the Afghan refugees seeking refuge in Iran ever since the Soviet invasion in the 1980s. The presence of Afghan refugees has had socio-economic impacts in Iran, including competition for jobs, housing, and public services. Additionally, it has raised concerns about security and led to issues related to undocumented migration.
Finally, the Taliban attitude towards the Hazaras remains worrying. Hazaras are a minority ethnic group in Afghanistan, predominantly practicing Shia Islam, which differs from the Sunni majority of the Taliban. This religious difference has often led to discrimination and persecution of the Hazaras by the Taliban and other Sunni extremist groups in the past.
During the Taliban’s rule in the late 1990s, the Hazaras were subjected to severe repression and persecution. The Taliban committed atrocities against the Hazara population, including massacres, forced displacement, and targeted violence due to their religious beliefs and ethnic identity. Hazaras were often discriminated against, denied access to education, employment, and basic rights.
Conclusion
Iran and Afghanistan signed five economic cooperation agreements related to transportation, civil aviation, mining and free trade zones. Kabul is trying to boost the level of exports with Iran.
There are international allegations that foreign investments in Afghanistan are detrimental to the country’s industry, focusing solely on exploitation. To prevent a single actor from monopolising the sector, it’s crucial for Afghanistan to diversify its trading partners. Creating competition in the market could potentially lead to better prices and benefits for the country.
This has been the case of China, accused of seeking to gain control over the mining sector in Afghanistan. Beijing aims to secure raw materials for China’s industrial growth and limit potential Western influence in the Afghan market. Given the global shift toward electric vehicles where lithium plays a crucial role, obtaining access to lithium deposits and other minerals is of strategic importance. This access would bolster China’s already strong position in critical materials and further solidify its global dominance, especially in rare earth elements essential for products like cell phones and defence equipment.
However, Afghan representatives have accused China of seeking to control Afghanistan’s strategic mines without actively developing them, citing concerns related to security and profit-sharing. Allegedly, Beijing primary focus is on extending its Belt and Road Initiative (BRI) and monopolising the mining sector without contributing to Afghanistan’s development.
This opens the possibility for new trading partner such as Iran. Iran routes over 45% of Afghanistan’s transit trade, with the Dugharun border in Razavi Khorasan and Mahirud border in South Khorasan playing pivotal roles.
Afghanistan’s acting minister of commerce affirmed that although Afghan market is small for the Iranian products, due to transit routes to other countries, including Uzbekistan and Tajikistan, exporting through Afghanistan will be cost-effective for Iran.
Additionally, there is a growing emphasis on leveraging the potential of the Chabahar Free Zone, which is exempt from international sanctions and attracts numerous investors, thereby bolstering trade interactions between Iran and Afghanistan.
On November 9th, indeed, the Taliban’s deputy prime minister met key Iranian officials at Iran’s Chabahar port and urged the Iranian authorities to allocate land to Afghanistan at a reasonable cost for an extended period in the Chabahar Port, aiming to establish the necessary infrastructure to enhance Afghanistan’s import and export capabilities through this infrastructure, ultimately elevating Afghanistan’s transit capacity. The outcome of the meeting concluded with a mutual agreement, granting Afghanistan unrestricted access to Chabahar Port, which further proves Iran’s strategic location as an international transit hub.
Collaborative agreements between Afghanistan and Iran could enhance the security along the Afghan-Iranian borders, which have long been affected by ongoing disagreements between Tehran and Kabul. Despite the enduring risks of escalation, particularly concerning issues such as the Helmand River and the persecution of the Hazaras, it remains essential for the Iranian government to pursue a détente with the Taliban leadership to safeguard its borders, even in the absence of formal recognition.
Moreover, a conflict between Afghanistan, which still possesses U.S. weapons, and Iran, heavily armed with drones and missiles, would be harmful for both nations.
Creating Free Economic Zones (FEZs) and enhancing connectivity not only aligns with Tehran’s strategy of fostering good relationships with its neighbours but also benefits Central Asian countries, Russia, and India, all of which have an interest in transit routes passing through Afghanistan.
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