Review of developments in Afghanistan
The impact of the US-Iran war on the Afghan economy are emerging as a significant geopolitical risk in the region. The US-Israeli military actions against Iran have resulted in considerable adverse effects on the global economy, and the consequences of this conflict are expected to become increasingly apparent in the future. The influence of the Afghan economy on the US-Iran war aligns with the global trend; however, there are factors that contribute to the Afghan economy’s resilience in the face of this conflict. This note aims to analyze the vulnerabilities of the Afghan economy stemming from the US-Iran war, as well as the underlying reasons for its resilience.
The impact of transit routes on the US-Iran war
Regarding transit, Afghanistan, being a landlocked nation, relies significantly on pathways through Pakistan and Iran to reach seaports. The route through Pakistan, historically the primary channel for Afghanistan’s international trade, has faced substantial limitations due to political strains between Kabul and Islamabad, with no evident signs of a sustainable reopening in the near future.
Under these conditions, the Iranian route has emerged as a crucial alternative; however, with the onset of the US-Iran conflict, this route has also encountered significant threats. Such disruptions may arise from insecurity at ports, limitations or blockades in the Strait of Hormuz, and constraints on navigation in the waters of the Sea of Oman and the Persian Gulf, all of which hinder the flow of maritime trade.
As a result, Afghanistan is nearly experiencing a “transit deadlock.” In this context, while there is a growing focus on Central Asian routes such as Uzbekistan, Turkmenistan, and Tajikistan, these alternatives cannot fully substitute the Iran-Pakistan route due to inadequate infrastructure, elevated and prolonged costs, and the unavailability of certain essential goods. They merely alleviate some of the strain. For instance, the closure of the Afghan border with Pakistan and the interruption of economic trade with India through Iran have resulted in the price of a bag of rice in Afghan markets doubling.
US-Iran war impact on Afghanistan’s supply of basic goods
Afghanistan economy, particularly regarding basic goods, is heavily reliant on imports and significantly depends on foreign production, notably from Iran. The ongoing conflict impacts this sector in two primary ways. Firstly, the war has led to a decrease in production and supply capabilities in Iran, caused by disruptions in production, transportation, and distribution. Secondly, the Iranian government’s regulatory measures, including the prohibition or limitation of exports of certain essential goods to satisfy domestic demand, further exacerbate the situation. As a result, these two elements contribute to a diminished supply of basic goods in the Afghan market.
Replacing these products from Central Asia or other nations is feasible; however, because of variations in pricing, transportation expenses, and market dynamics, it typically leads to elevated costs and delays. Consequently, the outcome will not only be shortages but also rising prices and inflationary pressures. Alongside the rise in the prices of certain industrial goods in Afghan markets, there has been a significant surge in the cost of some food items, exemplified by the fact that the price of one clove (seven kilos) of potatoes in Kabul has risen by fifty percent.
US-Iran war impact on Afghanistan exports
In addition to interruptions in import pathways, Afghanistan’s exports will also face considerable impacts due to the US-Iran conflict, given that the nation’s export framework is largely reliant on a few limited and precarious transit routes. In recent years, with the Pakistani route being either closed or destabilized, Afghan exports, particularly to the Indian market, have become increasingly dependent on Iranian ports like Chabahar. The escalating insecurity along these routes, whether stemming from military threats or from restrictions related to insurance, transportation, and shipping, effectively raises the costs and risks associated with exports, thereby diminishing the competitiveness of Afghan products in their target markets.
While alternative pathways like the Iran-Turkey rail corridors and Central Asian routes are still available, these options either lack the capacity to handle full export volumes or are less efficient regarding cost and time. Conversely, the rise in global fuel prices, directly resulting from the conflict, escalates transit expenses both regionally and globally, thereby exerting further pressure on Afghan exporters. Under these conditions, even if exports persist physically, profit margins are likely to diminish, and some export markets may be forfeited due to the heightened final prices of goods.
US-Iran war impact on Afghanistan’s fuel supply
The fuel industry within the Afghan economy represents one of the most delicate sectors that is influenced both directly and indirectly by the US-Iran conflict. This influence extends beyond a mere physical scarcity of fuel; it encompasses rising prices and interruptions in supply chains. At the primary level, instability in the Persian Gulf area and the potential for disruptions in energy exports due to limitations on maritime transport have resulted in a surge in global oil prices, which will also impact Afghanistan due to this price hike.
At the second level, Afghanistan exhibits a considerable reliance on fuel imported from Iran. The trade structure of Afghanistan, particularly within the energy sector, indicates that the nation’s dependence on Iranian fuel is more profound than it may initially appear. A substantial portion of Afghanistan’s fuel consumption is sourced from Iranian oil refineries or through Iranian transit routes. Given Afghanistan’s geographical proximity and shared border with Iran, it is likely that the country will continue to receive fuel supplies without restrictions as it has in the past. Furthermore, following the blockade of the Strait of Hormuz by the United States, Iran may prioritize fuel exports to Afghanistan more than it has previously. In this scenario, Afghanistan stands to gain from its advantageous proximity and, similar to numerous other nations globally, will not encounter a crisis or shortage of fuel; however, it has been impacted by rising fuel prices.
Eurasia’s role in Afghanistan’s fuel supply
Besides Iran, Russia, Central Asian nations, and Belarus serve as significant fuel suppliers to Afghanistan. Throughout its brief governance of Afghanistan, the Taliban administration has implemented a strategy aimed at diversifying the sources of imports for essential goods. Consequently, in the area of petroleum products, it has not only relied on Iran and Iraq but has also prioritized fuel imports from Central Asian countries, Belarus, and Russia.
Afghanistan imports approximately 3.5 million tons of oil annually. As per the statistics from 2024, Iran accounted for the largest portion of Afghanistan’s oil supply, comprising nearly 80 percent. While this figure may have fluctuated over the past year, Iran remains a crucial source and pathway for fuel imports into Afghanistan.
While Central Asian nations play a significant role in providing fuel to Afghanistan, they face two main challenges: firstly, they lack the capacity to completely meet the fuel demands of the Afghan market, and secondly, as they are also influenced by global pricing trends, they are unable to stop the increase in fuel prices within Afghanistan.
Although Eurasian nations contribute to Afghanistan’s fuel supply, the primary outcome of the Iran conflict is the transmission of fuel price shocks throughout the Afghan economy. This rise in energy costs directly elevates transportation expenses, the cost of imported goods—particularly food—and overall inflation. In summary, fuel in Afghanistan serves not only as a consumer product but also as a crucial factor in the nation’s economic stability, and any disruption can swiftly escalate into a widespread economic crisis in Afghanistan.
The Resilience of the Afghanistan Economy in the US-Iran War
The Afghan economy has demonstrated a degree of resilience in response to the repercussions of the US-Iran war, attributed to various structural, geographical, and social factors. Firstly, despite Afghanistan experiencing a rise in fuel prices, its geographical closeness to Iran, along with concurrent access to fuel supplies from Uzbekistan, Turkmenistan, and Russia, has ensured that there is no physical fuel shortage, and the energy supply chain remains intact; this variety in import sources has averted the emergence of a crisis.
Secondly, the framework of the Afghan economy is predominantly non-industrial and small-scale, depending heavily on traditional sectors like agriculture and trade. Consequently, unlike industrial economies, the effects of energy price surges are not instantly and broadly manifested in production and employment; rather, their influence is more gradual.
Thirdly, the significant degree of social resilience exhibited by the Afghan population, stemming from years of enduring war, political turmoil, and economic challenges, has prompted families and economic participants to implement various adaptation strategies to confront crises.
Fourth, considering that Iran is Afghanistan’s primary economic partner and the geographical closeness of the two nations, the volume of goods traded between them during wartime is anticipated to surpass previous levels. It is projected that the export of certain products to Afghanistan, which have been restricted from other global and regional markets, will see an increase. However, it is important to note that some products may face bans from entering Afghanistan due to the demands of Iran’s domestic market. Conversely, Iran is expected to exhibit a heightened interest in importing various goods from Afghanistan or from alternative sources through Afghanistan, and the cumulative effect of these factors is likely to be advantageous for the Afghan economy.
In summary, these elements have guaranteed that, notwithstanding the influence of the Afghan economy on the US-Iran conflict, the nation is safeguarded, at least temporarily, from experiencing a severe and extensive economic crisis, even though inflationary pressures and a reduction in purchasing power persist.
Related content
The Economy of Afghanistan under Taliban governance
Afghanistan’s Subsistence Economy under Market Pressure
Conclusion
Overall, the influence of the US-Iran conflict on the Afghan economy consists of a mix of significant pressures alongside elements that mitigate the crisis; on one side, disruptions in transit routes, heightened costs for importing essential goods, declining exports, and escalating fuel prices have presented the economy with concrete challenges and inflationary pressures. Conversely, factors such as a relative diversity in supply routes, particularly within the fuel sector, the non-industrial nature of the economy, and a robust level of social resilience have averted the onset of a widespread and immediate crisis. Consequently, as a result of the US-Israeli conflict against Iran, the Afghan economy is more susceptible to gradual deterioration due to rising costs and diminished purchasing power rather than abrupt shocks; a scenario whose persistence or escalation will hinge on future developments in the conflict and the stability of regional trade routes.
