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Mark O' Donnell
 · 
Research Analyst
August 22, 2021
 · 

Afghanistan Conflict and Commodity Prices

Afghan

The political, social, and military turmoil currently occurring in Afghanistan will have wide-ranging consequences. Some of which have, of course, already played out. Some will play out over a more extended period.

The consequences I am interested in are related to the commodities market. The consequences, as it relates here, could play out over the short or long term.

Short term consequences

The possibility of unrest in Afghanistan spilling over to its neighbouring region, however that manifests, is a real threat. Afghanistan shares a border with several significant producers of the most commodity traded raw commodities.

To the west of Afghanistan is Iran, a big producer and exporter of oil, iron, and copper. Iran is responsible for approximately 3.5% of the global crude oil production, churning out 2.7 million barrels per day. Concerning Iron and Copper, Iran ranks 11th and 15th largest producer globally, respectively.

To the South and East of Afghanistan is Pakistan. Pakistan is the fifth largest producer of cotton in the world. The sixth-largest producer of cotton, and second-largest exporter, Uzbekistan, shares a tiny slither of a border with Afghanistan in the north. Together, Pakistan and Uzbekistan produce more than 2 million tonnes of cotton per year.

Turkmenistan, the fourth-largest producer of Natural Gas globally, shares a sizable border with Afghanistan's north.

Political implications of trading with Afghanistan or the countries leadership have also to be taken into consideration. For one, Afghanistan's newly self-appointed leadership, the Taliban, are said to have halted imports and exports with Pakistan and India, two of its largest trading partners, as of last week.

Production and exports of Afghanistan

exports

Afghanistan itself is not an efficient producer or exporter of goods. In 2019, they exported a minuscule US$780 million worth of product. For comparison’s sake, Turkmenistan exported US$10.5 billion worth of goods in the same year.

Yet, within Afghani exports are some commonly traded soft commodities, like Coffee, Cotton, and Soybeans. While, at this point, they appear in minor quantities, Afghanistan has room to lift its production capacity significantly.

Gold and other minerals appear sparingly on the export sheet of Afghanistan. It is within the sphere of hard commodities that Afghanistan holds the most promise.

 

Afghanistan underutilising its natural resources

Afghanistan's infrastructure is severely underdeveloped, resulting in underutilising its natural resources and limiting its production capacity.

It is estimated that the country holds more than US$3 trillion worth of minerals within its complex geography. Mineral deposits are thought mainly to consist of iron, copper, cobalt, lithium, and gold.

Herein lies the long term consequences. Afghanistan can become a much bigger player in the supply of raw materials. But this will, of course, take time and investment in the country's infrastructure. From whom this investment might come is up for debate, but it appears China has already thrown their hat in the ring.

Arguably, the most exciting resources that Afghanistan have are cobalt and lithium. Cobalt and lithium are in high demand due to their application in emerging technologies like EV batteries. Macquarie Bank of Australia is predicting a lithium shortfall of up to 61,000 tonnes by 2023, up from 2,900 tonnes in 2021.

Cobalt and lithium are currently priced at three-year highs. Cobalt at US$50,000 per tonne and lithium at 92,500 yuan per tonne (~US$14,000).

Colbalt Lithium

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