Key Takeaways:
China and Afghanistan have established a direct rail link - the latest indication that the Taliban government is increasing economic ties with China, Iran, and Central Asian nations despite their lack of formal recognition.
Afghanistan’s poor infrastructure, security issues, and international sanctions hinder the exploitation of its resources. Despite these challenges, China is positioned to dominate future access to Afghan critical minerals, including lithium.
Regional economic cooperation is likely to stabilise the environment for trade and transport in Central Asia.
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China-Afghanistan Rail Link
For the first time since the Taliban regained power in Afghanistan following the 2021 departure of the US Armed Forces, a direct freight train from China arrived in the Afghan city of Mazar-e Sharif on the 23rd of November. On its route to Afghanistan, it passed through the territories of Kazakhstan and Uzbekistan. The train is scheduled to transport Afghan goods back to Central Asia and China.
The Taliban’s Economic Diplomacy
No state officially recognises the Taliban government. However, countries in close geographic proximity, such as China and Iran, host Taliban-appointed diplomats. Meanwhile, Kazakhstan has removed the group from its list of terrorist organisations, reflecting the perceived necessity to engage with the Taliban government on cross-border issues, such as terrorism and drug-trafficking.
The launch of the rail link is the latest indication that the Taliban is intensifying its efforts to develop trade relations with Central Asia, Iran, China and Russia. Over the past six months:
Taliban officials frequently interacted with Chinese officials and China has announced plans to grant Afghan goods tariff-free entry into the Chinese market. In July, the China Metallurgical Group Corporation started construction on the Mes Aynak copper mine near Kabul.
Uzbek Prime Minister Aripov visited Kabul on the 17th of August, signing economic cooperation agreements and pledging to increase trade volume with Afghanistan.
Sergei Shoigu, Secretary of Russia’s Security Council, held talks with various high ranking Taliban officials in Kabul on the 25th of November where he pledged to improve bilateral relations.
Incentives to Engage with the Taliban
Afghanistan’s neighbours seek to develop economic ties with the Taliban government to:
Reduce the threat from other terrorist groups operating in the country such as ISIS-K or the Turkestan Islamic Party.
Develop the Afghan economy to enable the exploitation and export of its natural resources.
Forge a direct infrastructure link between Central Asia and the Indian subcontinent.
Afghanistan has vast mineral reserves, including copper and lithium, as well as extensive hydrocarbon reserves, but severe Western sanctions and an already struggling economy means that Kabul lacks the capital necessary to capitalise on its natural resources. Therefore, the Taliban is looking to secure outside investment to fund extraction projects, offering foreign investment opportunities in return for political engagements that give the Taliban greater global legitimacy, and potentially formal recognition (by bilateral partners) as the Afghan government.
Looking forward:
Domestic & Economic Stability in Afghanistan
KSG assesses that current head of the Islamic Emirate of Afghanistan Haibatullah Akhundzada is highly likely to hold on to power, which will likely ensure domestic stability over the next two years.
However, economic development will be strained by UN sanctions, which:
Freeze Afghan foreign reserves
Deny the Taliban the use of Afghanistan’s Special Drawing Rights in the IMF
Impose travel bans on Taliban leaders, as well as entities and individuals associated with them
KSG assesses that despite the sanctions, the economic situation in Afghanistan is likely to remain stable as investment from China and Central Asian countries cushion the impact of UN sanctions.
Economic Stability in Central Asia
KSG assesses that domestic stability in Afghanistan and increased engagement with the Taliban on the part of Central Asian governments are likely to alleviate major threats to the political stability of current autocratic regimes in Central Asia by decreasing the risk of terrorist attacks and the likelihood of armed conflict over scarce water resources. The Taliban has some capacity to contain the threat from terrorist groups operating in Afghanistan and to reduce the amount of water diverted for irrigation from the Amu Darya, one of two main rivers ensuring water supply for Central Asian nations.
Economic Cooperation Central Asia - Afghanistan
Central Asian nations are highly likely to continue to seek deeper economic cooperation with the Taliban, despite the Taliban government’s alleged human rights violations.
KSG assesses that Central Asian states will likely attempt to forge a trade route to access the Indian subcontinent via Afghanistan in order to develop transit infrastructure to export resources to markets with a high demand for energy, such as Pakistan.
KSG assesses that Central Asian nations likely seek to expand their export of agricultural products and textiles to the Afghan market, driven by the desire to reduce their economy’s reliance on remittances by expanding domestic labour-intensive industries.
KSG assesses that Tajikistan, Uzbekistan, and Turkmenistan are likely to increase the export of electricity to Afghanistan and are likely to invest in improving and expanding the cross-border transit infrastructure within the next 18 months.
Global Diplomacy
Given the Taliban’s continued adherence to hardline policies curtailing women’s rights, the UN sanctions denying financial assets and official recognition to their government will highly likely continue.
KSG assesses that it is likely that some Global South countries will advocate for easing international sanctions while they bilaterally engage with the Taliban on economic and security issues. Therefore, the Taliban will seek to increase liquidity to make additional funds available for infrastructure development and enable the expedited exploitation and export of mineral resources to the Russian and Chinese markets.
Critical Minerals and Hydrocarbon Resources
The Taliban’s increasingly stable control over Afghanistan and the West’s inability to engage with the Taliban is highly likely to grant China control over Afghan mineral resources, strengthening China's competitive edge in energy storage and other advanced technologies.
However, it is highly unlikely that Afghan mineral resources will be exploited on a significant scale in the next two years due to security concerns and the inadequate state of road and rail infrastructure.
KSG assesses that despite the associated risks, likely initially low profitability, and slow progress of projects like the Mes Aynak mine, China will highly likely continue investing in Afghanistan. Chinese investment is designed to stabilise the country and increase the Taliban’s capacity to contain the threat of Uyghur terrorism to China and Central Asia. China seeks to prevent a situation where Central Asians sympathetic to the agenda of groups like the Turkestan Islamic Party find a safe haven in Afghanistan from which to carry out attacks on China and Chinese nationals throughout the region.
Over the next decade, exploration and investment by Chinese companies is highly likely to significantly increase Afghan oil exports also, providing a lucrative revenue stream for Afghan authorities and representing a profitable investment by Chinese companies - possibly attracting Central Asian oil companies to the Afghan market.
Increased stability in Central Asia increases the likelihood that the capacity of Kazakh gas transit infrastructure, especially the Beyneu-Bozoy-Shymkent pipeline, will be expanded as part of a plan to facilitate Russian gas exports to China via Kazakhstan.
Most Likely Scenario in 12 Months (December 2025):
The Taliban will have strengthened diplomatic ties and increased trade volume with China, Iran, Uzbekistan, Kazakhstan and Russia.
However, these countries will have stopped short of officially recognising the Taliban as the legitimate government of Afghanistan and the UN sanctions regime will remain in place.
Afghanistan will be an unofficial part of China’s Belt and Road Initiative, through which Chinese investors will scale up investments in Afghanistan to begin connecting Afghan infrastructure to the China-Pakistan Economic Corridor and Pakistan’s ports in the Arabian Sea.
Despite securing additional contracts to exploit Afghan mineral resources, Chinese projects will have made slow progress on implementation, although this will not deter increased investment from Chinese companies.
The Chinese government will have granted Afghan exports tariff-free access to the Chinese market.
Afghanistan will not have developed as a transit nation between Central Asia and the Indian subcontinent, given its lack of suitable existing infrastructure and unstable security situation. However limited progress will be visible.