New Trade Route Opening Up

Afghanistan is one step closer to conducting its trade with the rest of the world through Iran as the Islamic Republic has granted permission to the landlocked country to use its port of Chabahar through which to import and export its goods. This could provide a massive boost to Afghan trade and the troubled country's economy, leaving it less exposed to the vagaries of trading through its powerful neighbour, Pakistan.

At present Afghanistan conducts nearly all of its trade through Pakistan, shipping in and out predominately through the port of Karachi. However, this trade route is fraught with difficulties for landlocked Afghanistan, leaving it open to any deterioration of relationships between Pakistan and the US as well as any disputes between the domestic government and that of Pakistan. This can result in the border between Afghanistan and Pakistan being closed.

Most recently truckers from Afghanistan were banned from Karachi, causing delays of three months. According to Wahidullah Ghazikhel, Afghan commerce and industry ministry spokesperson, this resulted in US$10mn costs for shippers forced to rent storage space for containers, in addition to the costs incurred through the loss of perishable goods, including milk and eggs.

Rapid Growth
Afghanistan's Trade With India And The Eurozone (US$mn)

The agreement with Iran will enable Afghan traders to avoid this scenario in future. Further, it will ease trade with other markets. Ghazikhel told Reuters: 'We want to export to Central Asia and Europe, India wants to use the port to send goods to Afghanistan. We are very interested in exporting to European countries and working on other ways [that avoid Pakistan].' Afghanistan will be granted access to the Iranian port of Chabahar, and the Afghan government is talking of investing in the port and its free zone.

The arrangement will also ease trade with India, Pakistan's regional rival. Pakistan seeks to minimise India's access to the Afghan market, yet nevertheless the value of Afghan-Indo trade has grown hugely over the past decade, from US$41.04mn in 2001 to US$660.84mn in 2011 (last available data). The ability to conduct trade without shipping to or from Pakistani ports, or transit through the country, would serve to boost this trade further.

The Indian government has already commenced a four-year investment programme for the port of Chabahar. This is intended to foster trade links with the Middle East and facilitate improved access to its vast oil resources. The Indian government has invested US$136mn in order to connect the port with Afghanistan's ring road highway. It is expected to provide a further US$100mn for the development of the port itself, while the Iranian government has itself invested US$340mn to date.

Trade with the eurozone, another trade target of the Afghan government, will also grow, having already expanded from US$48.79mn to US$791.48mn over the same period. The trade-boosting potential of the new route will help support economic growth in Afghanistan, which we forecast will average 5.5% a year over our medium-term forecast period, from 2013 to 2017.

This article is tagged to:
Sector: Freight Transport, Shipping
Geography: India, Iran

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