April 4 (Bloomberg) -- Afghanistan’s commerce minister said his country hopes the U.S. will give it leeway from economic sanctions intended to curb imports of oil from Iran.
“We hope that our special situation should be taken into consideration,” Anwar-Ul-Haq Ahady, the Afghan minister of commerce and industries, said yesterday in an interview in Washington. “We don’t have much of an alternative.”
The request exposes a conflict between the Obama administration’s efforts to curb Iran’s suspected nuclear weapons program and its campaign to bolster Afghanistan’s economy and government so the NATO-led international coalition is able to withdraw most of its forces by the end of 2014.
Afghanistan is struggling to shore up its finances, and one of Ahady’s deputy ministers, Mutasil Komaki, said in an interview in Kabul last month that Iran provides about 50 percent of the country’s oil imports. The next-biggest sources are Russia and then Turkmenistan, which supplies mainly natural gas, Ahady said, and now the war-torn nation is looking to those countries and others to reduce its dependence on Iran.
“The conflict between Iran and the United States is, to some extent, played out in Afghanistan, especially as Iran tries to counter U.S. influence in that country,” Alireza Nader, a senior international policy analyst at the RAND Corporation in Arlington, Virginia, said in an e-mail. “The effort to stop Iran’s nuclear program may at the same time hurt other U.S. policy objectives -- for example, maintaining a secure and stable Afghanistan.”
The more favorable scenarios for Afghanistan project economic growth of 4.5 percent to 6.2 percent a year through 2018, down from an average 9.1 percent in the past seven years with the influx of foreign aid, according to statistics from the World Bank and the Afghan Ministry of Finance.
President Barack Obama cleared the way last week for sanctions on banks in countries that import Iranian oil. Under a law he signed Dec. 31, banks that settle petroleum-related transactions through Iran’s central bank in any country that has failed to show a “significant reduction” in Iranian oil imports would be cut off from the U.S. banking system.
The law requires reductions by June 28 and countries can avoid the sanctions if they take steps by then. The law doesn’t define the steps needed to qualify for an exemption.
U.S. State Department officials have said they’re working with countries who would be affected by the sanctions to implement the requirements.
“In all our consultations, we have made clear the importance of reducing reliance on Iranian oil and unwinding business dealings with the Central Bank of Iran,” said Laura Lucas, a State Department spokeswoman. “No commitments have been made to any country regarding prospective exceptions to U.S. law.”
Trade With Iran
Afghanistan’s trade with Iran has grown to more than $1 billion annually, placing Iran second after Pakistan’s $3 billion when transit trade via the Pakistani port of Karachi is included. The next-largest trade partners are China and India, Ahady said.
“Iran is becoming a very large trade partner,” Ahady said during a briefing yesterday for reporters in Washington. The estimated $1 billion in commerce with Iran is dominated by oil and fuel, as well as some consumer and industrial goods, he said.
Trade with Pakistan continues to be hampered by border delays and regulatory disagreements that too often require high-level intervention and cost Afghan business owners in the meantime, Ahady said.
Violence and uncertainty over how Afghanistan will fare politically and in terms of security after 2014 are dogging efforts to attract foreign investment. Some of those doing business in the country probably are hedging their bets with alternative plans, Ahady said.
“It’s only natural when there is a level of uncertainty,” he said. “Businesspeople, they tend to be conservative in committing their resources. There is some degree of uncertainty in Afghanistan.”
Private investment in Afghanistan is described as low by the World Bank, at 8.5 percent of gross domestic product, while exports make up 2.5 percent. It has increased slightly in the past two years, Ahady said, without providing figures.
Agriculture accounts for about 35 percent of Afghanistan’s economy, down from as much as 70 percent as foreign projects and other development boost industries such as construction. Agriculture has “considerable” room for growth as new farming technology stimulates production, Ahady said. The country also is counting on untapped mining resources such as copper and iron ore to fill some of the revenue gaps in the future.
The World Bank estimates Afghanistan’s operating expenses will reach almost twice the level of domestic revenue by 2021, and that the projected financing gap will be $7.2 billion in today’s prices. The country of 30.6 million people, 75 percent of whom are illiterate, had gross domestic product equal to $528 per person in the fiscal year that ended in 2011.
Afghanistan will need $4.1 billion a year to cover its security expenses after 2014, including about $500 million from its own coffers, and an additional $5 billion in economic and development assistance, Ahady said.
While the country probably can get by with slightly less in contributions, a failure by foreign donors to come through would prompt an economic crisis, he said.
“There would be serious contraction to the point of depression and a situation where you would have 20 or 25 percent contraction in the economy,” he said. “I don’t think the donors are going to leave us alone there.”
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