An Overview of Economic Relations between Kabul and Tehran

Author: Amanullah "Hanifi"

Introduction

Following the ascent of the Islamic Emirate to power in Afghanistan, it made a clear declaration to its neighbors, regional partners, and the global community: Afghanistan's foreign policy is neutral and economically focused, rooted in its religious and national values, and it is prepared for bilateral engagement with all nations. This neutral, economy-centric foreign policy has facilitated the establishment of economic relations with various countries, providing a significant opportunity for neighbors to enhance their economic ties with Afghanistan.

Among the countries that have entered into political and economic interactions with Afghanistan is Iran. Iranian officials have unequivocally stated that they will not harbor opponents of the Islamic Emirate and have expressed a readiness to expand their relations with Afghanistan, particularly in the realm of trade. As a result of these policies, the trade volume between the two countries, which had initially declined, has now stabilized and both nations are taking proactive steps to further develop their economic partnership.

In this article, we will briefly discuss the measures taken since the Islamic Emirate came to power to bolster economic and trade relations between Afghanistan and Iran, and the facilities that have been created to support this growth.

Kabul-Tehran Economic Relations

During the 20-year American occupation, trade relations between Afghanistan and Iran were limited to essential goods such as oil, gas, construction materials, medicines and medical equipment, food items, and dry and fresh fruits. There was minimal progress in expanding these economic ties. However, since the Islamic Emirate assumed power, not only has the trade volume between the two countries in these essential goods reached approximately two billion dollars, but both nations have also embarked on new interactions in significant economic sectors.

The fundamental prerequisite for these new interactions was security. Thankfully, security has been established across Afghanistan, providing investors with the confidence to invest heavily in the country. During the last two decades, Iran was unable to invest in Afghanistan's mines and infrastructure. The Islamic Emirate's end of American occupation has now presented Iran, along with other global nations, the opportunity to invest in crucial areas within Afghanistan. With the Islamic Emirate facilitating investment, Iran expressed interest in the mining sector and secured the Herat Ghorian iron mine through an open bidding process. Iranian investors are keen to explore various mining opportunities in Afghanistan, with assurances from the Islamic Emirate of necessary support and facilities.

Additionally, Iran has shown interest in implementing infrastructure projects in Afghanistan, exemplified by the completion of the Khaf-Herat railway. Following the re-establishment of the Islamic Emirate, the remaining construction of the Khaf-Herat railway network has progressed rapidly through bilateral coordination. Its completion is expected to significantly boost trade volume between the two countries.

To further expand commercial and transit relations, the Deputy PM for Economic Affairs, Mullah Abdul Ghani Baradar Akhund, visited Tehran on November 4, 2023, at Iran's official invitation. During this visit, he engaged with senior Iranian officials on various matters, including creating export and import facilities, linking Iran with China through the Wakhan Corridor, connecting Iran with Uzbekistan via Afghanistan, extending railway networks to Kandahar, and joint efforts to combat narcotics production and smuggling. The discussions also covered providing alternative livelihoods to Afghan farmers, increasing customs operation hours to 24 hours on both sides, mutual financial exemptions, achieving trade balance with Iran, imposing preferential tariffs on certain Afghan export goods, and other related issues. Notably, Iran expressed full readiness for Afghanistan to utilize Chabahar Port for export, import, and transit purposes. This has led Afghan businessmen to increasingly use Chabahar Port, reducing time and costs, and subsequently boosting trade levels between the two countries.

Iran is prepared to elevate its trade with Afghanistan to ten billion dollars. The adviser to the special representative of the Iranian president on Afghanistan has articulated that Iran's economic strategy aims to enhance bilateral trade to ten billion dollars within three to five years, incorporating both short-term and long-term initiatives.

Through Afghanistan, Iran can gain direct access to Central Asian countries, particularly China. Although Iran currently accesses Central Asia and China via Turkmenistan, a direct route through Afghanistan would connect Iran to Uzbekistan and Tajikistan. Completion of the Wakhan Corridor would allow Iran to reach China with a shorter route. The Islamic Emirate has commenced efforts to construct the Wakhan Corridor, with expectations for timely completion.

Conclusion

Given the historical context and current opportunities, Afghanistan and Iran have the potential to become strong economic partners. With the re-establishment of the Islamic Emirate, these opportunities have shifted from theoretical possibilities to tangible realities. Significant progress has been made in areas such as Iranian investment in Afghan mining, collaboration on infrastructure projects, enhanced trade relations, and the use of Iranian sea ports for Afghan transit. Additionally, the extension of railway networks within Afghanistan to facilitate transit and bilateral cooperation in various fields are notable developments. These initiatives are expected to balance trade and elevate the trade volume to the projected levels, solidifying the economic partnership between the two nations.