Iran this week restarted fuel exports to Afghanistan that had been disrupted by fighting between the Taliban and forces under the now deposed Afghan government, traders in Tehran and former U.S. officials say, with the Taliban now providing critical dollars to the sanctions-crushed Iranian economy from its lucrative narcotics operations.
The burgeoning trade relationship between Tehran and the Taliban threatens to undermine key U.S. pressure campaigns against both.
Iran has been cut off from the global market for the greenback by U.S. sanctions, and the Taliban’s willingness to trade with their neighbor gives Iran rare access to U.S. dollars it needs to import essential goods and bolster its depreciated currency.
Meanwhile, the arrangement enables the Taliban, who are also cut off from trade and finance by international sanctions, to purchase basic commodities vital to keeping the ailing Afghan economy running.
Iranian traders, who had been selling to Afghan businessmen under the supervision of the U.S.-backed government in Kabul, stopped sending refined petroleum to their Eastern neighbor this summer after fighting escalated between the Afghan national army and the Taliban.
After the conflict largely ended with the hard-line Islamist faction taking control of Kabul last week, the Taliban permitted the cross-border trade in petroleum products to resume. It has now returned to levels seen earlier in the year, to about $5 million a day, traders and officials say. With the Taliban desperate for oil and short on other trading partners—and Iran in need of cash—trade is expected swiftly to rise.
Proceeds of Iranian fuel sales are deposited in dollar bank notes at the Afghan branch of Iran’s state-owned Bank Melli, among other financial firms, said Hamid Hosseini, a spokesman at Iran’s Oil, Gas and Petrochemical Products Exporters’ Union in Tehran. Bank Melli, which didn’t immediately respond to a request for comment, has been sanctioned by the U.S. since 2018 for handling transfers to Iraqi militias. The bank’s Afghan branch transfers the dollars as a money exchange house, Mr. Hosseini said. The system operates outside the traditional financial infrastructure, thus evading international financial sanctions.
“It is an important sort of lifeline for Afghanistan and, historically, a supply of dollars to Iran," said Rachel Ziemba, a senior fellow at the Washington-based Center for a New American Security, a bipartisan think tank that has called for carefully calibrated sanctions policy on Iran.
For the Taliban, the fuel trade undercuts the financial leverage the Biden administration holds over the militant group, according to analysts and former U.S. officials. The Taliban’s takeover of the country has cut the country off from the foreign financing that has kept the country afloat. The U.S. led a successful international effort to block the United Nations-sanctioned group from accessing the country’s assets overseas, including dollar reserves, and financial aid that provided more than half of the government’s budget. Furthermore, the U.S. and other world powers could expand the sanctions against the Taliban to include all of Afghanistan, further isolating the country.
In recent years, Tehran sought to play both sides of the Afghan civil war, supporting the Kabul government while also maintaining ties to the insurgent Taliban.
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The Taliban’s ascent now poses risks to Iran, which has faced waves of refugees in previous Afghan civil wars and the threat of extremist Sunni terrorist groups that oppose its Shia brand of Islam. But Iranian traders and officials say they expect a boost in dollar-denominated energy sales to Afghanistan. Mr. Hosseini said the Taliban have cut the customs tariff on oil products by 70%. In addition, other Afghan trading partners may be reluctant to sell directly to the new regime.
“The greater part of trade on the border with Afghanistan is done in cash, and, due to these reasons, a bigger volume of dollars will flow into Iran from Herat," Masoud Daneshmand, a member of Iran’s chamber of commerce, said in an interview with Iranian newspaper Ebtekar.
That is particularly the case because Afghan’s official currency, the Afghani, has little value outside the country and the exchange rate has tumbled to record lows in recent weeks.
Since the Taliban took Kabul the U.S. has moved to block access to U.S. dollars to the group.
The U.S. canceled bulk shipments of dollars headed for the country as Taliban fighters took control of Kabul, and are working to prevent the group’s access to nearly half-billion dollars-worth of reserves at the International Monetary Fund, The Wall Street Journal has reported. And on Tuesday, the World Bank suspended funding for dozens of projects in Afghanistan, citing questions over the legitimacy of Taliban rule.
Iran traders expect Afghanistan’s booming heroin sales to partly offset a lack of access to U.S. dollars abroad.
“They are exporting [a] billion of dollars in ‘al afiun,’" said Mr. Hosseini of Iran’s oil exporters union, using a Persian word for opium.
The U.N. Security Council, which oversees sanctions on the Taliban and the country’s Islamic State affiliate, estimates taxation of drug trafficking could amount to a quarter of the Taliban’s annual combined revenue of as much as $1.6 billion a year.
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