Michael Hughes
October 5, 2024

Afghanistan’s trade with Pakistan has plummeted since the rise of the Taliban 2.0 regime, driven by political rows and security issues, and to compensate Kabul is hoping to enhance commerce with Iran, India, and neighbors across Central Asia.

Tensions between Afghanistan and Pakistan have resulted in closure of trade routes and stiff tariffs along with bans on hundreds of items. Pakistan trade is down 60 percent overall and transit trade is off by 80%. Annual trade with Pakistan has fallen from $2 billion to about $500 million, according to Afghan commerce authorities. 

“We tried a lot to convince the government of Pakistan but border closure and transit challenges such as high taxes led to a significant decline in trade with Pakistan,” Afghanistan Chamber of Commerce and Investment Deputy Head Khan Jan Alokozai said as quoted by Arab News on October 3. 

Taliban have been reluctant to go nuclear in the trade war although they continue warning Islamabad of dire consequences. Taliban’s Political Deputy Minister of Foreign Affairs, Sher Mohammad Abbas Stanikzai, expressed this hesitance combined with a veiled threat.

“Afghanistan serves as a vital transit route between Pakistan and Central Asia,” he said. “We could close our borders and cause them problems, but we do not wish to harm our Pakistani brothers,” Stanikzai said as quoted by ANI.

Stanikzai urged Pakistan to keep its borders open amid Afghanistan’s fruit and vegetable season so the goods can reach markets in India and other countries. According to the report, these products are sold to neighboring countries in Asia but Pakistani trade restrictions have hindered access to key ports and land routes. The closure of trade routes and increase in customs tariffs led to a 10% decline in Afghanistan fruit and vegetable exports to Pakistan in the first five months of this year, the report added.

While Afghanistan’s relations with Islamabad have been deteriorating, improvements in ties with Tajikistan, Uzbekistan, Turkmenistan, India, and Iran have helped fill the gap. Alokozai said Afghanistan had roughly $2 billion worth of imports from Iran last year primarily via the Chabahar and Bandar Abbas ports. Afghanistan’s commerce body indicated efforts are also being pursued to increase Afghanistan’s exports to India, Russia, and Arab countries.

Replacing Pakistan as a trade partner will not be something easy to do overnight, but India and Iran are gradually making headway. In 2023, Afghanistan’s exports totaled $1.9 billion versus imports of $7.8 billion, a trade deficit of $5.9 billion, up from $4.4 billion the year prior, according to the World Bank. In 2023, Pakistan and India accounted for 54% and 31%, respectively, of Afghan export markets. By January 2024, this shifted to 45% for Pakistan and 34% for India.

In 2023 exports overall remained flat while imports surged by about 23%. Coal exports were a solid $476 million in 2022 but nosedived 46% to $257 million as Pakistani buyers turned to traditional sources because Afghan coal became less competitive. Pakistan’s imports of Afghan coal continue to fall due to Taliban taxes on coal mines and export duties. Rising food and textile exports, especially to India, have to some extent offset declines in coal. Opium, unofficially, remains a top export although production was drastically cut last year, which dealt a devastating blow to the economy, including losses of $1.3 billion.

Iran was the largest import source in 2023 at 23%, which grew to 32% in January 2024, while Pakistan’s share shrank from 19% and 14%, followed by China (15% and 5%), and the UAE (15% and 27%). Earlier this year, Iranian diplomat Hossein Rustayi said Iranian businesses needed to invest more in production of pharmaceuticals and food, among other products, to maintain its share of the Afghan market over the coming years. 

Columnist James Durso observed encouraging steps by regional actors to enhance commercial ties with Afghanistan in the wake of the Western exit, noting that trade with Uzbekistan in 2023 soared six-fold to $266 million. Uzbekistan recently unveiled 35 investment and trade agreements worth $2.5 billion, he also said. Trade with Turkmenistan reached $481 million in 2023 and Afghanistan and Kazakhstan want to increase total trade turnover from $1 billion to $3 billion, according to Durso.

“Now that the U.S.-led punitive expedition to Afghanistan has ended, regional trade patterns are returning to normal, as in pre-Soviet Union normal,” Durso wrote in a piece for OilPrice.com in September.

Afghanistan will likely always rely on Pakistan for key goods that are too costly to acquire elsewhere, not to mention access to trade routes, but Kabul has and can take steps to reduce such dependence. 

Durso ended his argument with an appropriate “risks” section, detailing some of the many hurdles Afghanistan faces to making this hoped-for trade renaissance a reality. A few of the major obstacles include U.S. and EU sanctions, the growing presence of terror groups on Afghan soil, and dysfunctional governance amid a power struggle between Kabul and Kandahar.