China’s $540 Million Energy Deal with Taliban in Afghanistan: What Does It Mean?

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The Taliban celebrated the signing of their first international deal since taking power in August 2021 with a televised event on January 5, 2023. The document signed is a contract for the exploitation of oil reserves in northern Afghanistan with a Chinese business. In accordance with the agreement, Xinjiang Central Asia Petroleum and Gas Co (CAPEIC) will contribute $150 million annually to Afghanistan, rising to $540 million for the 25-year contract in three years. The initiative is focused on a 4,500 square-kilometer region that spans three northern Afghan provinces: Sar-e Pol, Jowzjan, and Faryab. The latter two are Turkmenistan’s borders. After the US soldiers withdrew in August 2021 and the Taliban overthrew the U.S.-backed government, Afghanistan’s aid-dependent economy crumbled. The administration is attempting to stabilize the economy by luring in investments that will provide work for Afghans who are suffering from hardship. One of the few available economic choices is the development of mines and hydrocarbon resources where energy can play a significant role. Besides, in the regional domain, China can play an important role in terms of political and economic prospects. Hence the deal came across.

Previously, the state-owned China National Petroleum Corporation (CNPC) and the previous administration signed such an agreement back in December 2011. The Amu Darya basin was thought to contain up to 87 million barrels of crude oil at the time. Wahidullah Shahrani, the mining minister at the time, stated that “real work will begin in October 2012.” He mentioned negotiations with an undisclosed northern neighbor and the anticipation that Afghanistan may be producing 25,000 barrels per day by the end of 2013 when he stated in March 2013 that “the wells are ready for production.” As Kabul maintained talks with Uzbekistan on transit issues, construction had apparently been suspended and Chinese employees had left the country by August 2013. Hence the recent development holds a great deal of significance.

Dealing with the Taliban is an extension of a strategic conundrum China is experiencing with its energy security. China is the most populated country in the world, a powerhouse industrially, and it also consumes the most energy globally. The nation’s domestic resources are insufficient to meet the demands of its rapidly expanding domestic market. As a result, China is now a sizable net importer of oil and gas, which has been a driving force behind several of its recent alliances, including those with Russia, Ecuador, and the Gulf States of the Middle East. Although China has maintained excellent relations with these nations, Beijing’s energy imports have a strategic weakness since, with the exception of those from Russia, they must be transported by sea and via politically sensitive areas that the US is militarizing including the South China Sea. Since China has the Belt&Road Initiative (BRI) and other projects like this to create its own sphere of influence. But no strategic blueprint of China, including the BRI, would be complete without including Afghanistan. The Middle East, Central Asia, and Southern Asia are all connected via a little section of border that the Central Asian nation shares with China. This indicates that Kabul is essential to China’s own security and strategy as well as for the expansion of economic activities. Despite the fact that Afghanistan has always been intrinsically unpredictable and hence unsuitable in terms of the political landscape, the end of the US-led war against it and the Taliban takeover has provided China the ground to accelerate its sphere of influence in the region. But amidst the Ukraine war, the economy of the country got distorted in many ways and needs some sourcing. On the other hand, China with its vision to become an economic superpower, as mentioned earlier, needs Afghanistan on the right side of the line. Besides, the war also has disrupted its energy supply chain. Against the backdrop of all these, the investment has taken place. The write-up will highlight the major prospects of the deal and its outcomes.

Creating a Viable Economy for Afghanistan

At a contract-signing ceremony for the new field in Kabul, Mullah Abdul Ghani Baradar, the Taliban’s deputy prime minister for economic affairs, stated that his group aimed to create a viable economy for Afghanistan. It will channel newer windows of cooperation between the two.

Paving the ways to Create New Investment Opportunities

The worth of Afghanistan’s natural riches, which include rare-earth minerals now utilized in electric automobiles, was estimated by American specialists to be $1 trillion ten years ago. This potential wealth was never taken advantage of while the war raged. Besides, developing mining and oil ventures in Afghanistan is still the safest it’s been in years in comparison with the previous time. The development of this project provides a paradigm for China-Afghanistan collaboration in big projects in energy and other industries. Besides, Shahabuddin Dilawar, the Taliban’s minister for minerals and petroleum urged China to finish developing the massive Mes Aynak copper mine, which is one of the largest untapped copper resources in the world.

New Job Opportunities for the Afghans

Shahabuddin Dilawar, the Taliban’s minister for minerals and petroleum, claimed that the Amu Darya project would give Afghans 3,000 new jobs. He claimed that the Afghan side initially owns 20% of the project. In two to three years, he would make sure that the economy would flourish, and there would be people coming from overseas to work in Afghanistan. Mr. Dilawar stated that the field’s oil would be refined in Afghanistan, though it is unknown if China would be willing to set up a refinery there.

Attracting New Foreign Investments

Afghanistan has 1.75 trillion cubic feet of confirmed natural gas reserves and some oil in addition to its tremendous mineral wealth. The Chinese investment reflects the current state of improving political and economic nature of the nature. It will attract newer foreign investments in the related fields. Besides, China agrees to follow its long-standing policy of non-interference and to respect Afghanistan’s internal politics in exchange for this agreement. While providing the United States with a significant edge and different option. Other investors may get some insights from this.

Promoting Economic Growth and Stability in the Region

With this investment, in Afghanistan, China has had a significant role in a number of areas, including energy and minerals. The nation has recently made large expenditures in the infrastructure and development of Afghanistan’s natural resources, which has aided in promoting economic growth and stability in the area.

Growing Mineral Industry

China has also grown to be a significant role in Afghanistan’s mineral industry in addition to the energy industry. China has been involved in the exploration and mining of these resources. The nation is thought to have enormous quantities of minerals, including iron, copper, gold, and lithium. For instance, one of the biggest copper mines in the world, Mes Aynak in Afghanistan, has been developed in part by the China Metallurgical Group Corporation (MCC). It is anticipated that the development of this mine will provide thousands of jobs and significantly strengthen Afghanistan’s economy.

Another Milestone for the BRI

The overarching BRI, a worldwide infrastructure development initiative aiming at tying together nations in Asia, Europe, and Africa through a network of roadways, trains, and ports, includes China’s involvement in Afghanistan’s energy and mineral industry. Afghanistan is viewed as a crucial participant in the BRI and as a means for China to expand its economic and political clout globally.

Energy Assurance for China

China has benefited from the expansion of Afghanistan’s oil and mineral industries in addition to the country itself. China is able to assure a consistent stream of energy and minerals for its own use by investing in Afghanistan’s natural resources, assisting in the country’s long-term economic progress. Additionally, China’s investments in Afghanistan’s infrastructure and resources have improved trade and transit connections between the two nations, further solidifying their economic ties.

Exploration of New Gas Fields

But, the estimated oil reserves at the Amu Darya site are not that much significant. However, there is hope that a massive gas field that is just across the border from Turkmenistan extends into Afghanistan; if this is the case, it could make Afghanistan’s economy as important as it is for Turkmenistan.

Facing the Odds: Real Challenges to be Addressed

The Chinese influence in the region will be confronted with strategic and diplomatic approaches by the Unites States of America and other regional actors. Besides, the country is surrounded by so many challenging terrains that it will be a massive task for China to channel out the resources to its destination. The local politics should also be taken into account since local war lords are heavily armed and can make huge obstacles in many areas. But in the end, this is a sign of new competition in the region in terms of economic prospects and the Taliban regime may find a new economic instrument to strengthen its grip in power.

– Syed Raiyan Amir is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA). Previously, he served as a Research Assistant at United Nations Office on Drugs and Crime (UNODC) and International Republican Institute (IRI).

Published in Middle East Political and Economic Institute [Link] and The Business Standard [Link]