Is Afghanistan a new player in the commodity market?
Filed on August 26, 2021 | Last updated on August 31, 2021 at 04.02 pm
The seizure of Afghanistan by the "Taliban" movement and the declaration of the end of the war in the South Asian State, which had been in the throes of revolution and fighting for 50 years, was one of the major events in world history. The advent of peace in the region, albeit fragile, opens a new era of political and economic relations between the West and East. Located in the heart of Asia, and with a relatively rich natural resource base, Afghanistan may well become a new player in the commodity market, both as an exporter and as a transit country. What are the opportunities for the world economy in Afghanistan and how will that affect the value of commodities? Let's try to understand.
Afghanistan does indeed have a vast and rich natural resource base, valued at $2-3 trillion. The United States Geological Survey uses this data to survey only 30% of the country. Many mistakenly believe that oil and gas are key fossil countries that are of great interest to potential "invaders". However, this view is far from the truth. According to available data, Afghanistan's oil reserves are about 3.6 billion barrels, but even if they were converted to proven reserves, the country's market share in world reserves would be only 0.5%. Natural gas is much better, with recoverable reserves estimated at 1.67 trillion cubes. That puts Afghanistan at 18-19 in the world's reserves, somewhere between Kuwait and Norway. And yet, it's only 1% of the world's reserves. Simply put, Afghanistan is not as rich in oil and gas as people think. Moreover, mining, given the poor infrastructure, the extremely negative investment climate, armed conflicts and other unpleasant factors, will be very costly and unlikely to pay off in the foreseeable future.
What does that mean? That means that Afghanistan is unlikely ever to become an oil and gas exporter. At best, the extracted fuel will go to the domestic market and only when the country is peaceful will the population begin to grow and the infrastructure rebuilt. Consequently, there is no immediate expectation of any pressure on "black gold" and gas prices.
Afghanistan will help green energy
Despite the weak indicators for oil and gas reserves, we repeat that Afghanistan is very rich in natural resources. For example, there are deposits of copper, iron, beryllium, manganese, lead-zinc and tin ores on the territory of the country. The Aynak copper deposit is considered the largest in Eurasia, with reserves of about 240 million tons of ore. The HajiGak iron ore deposit has a preliminary total of 428 million tons and is considered the largest in the South Asian region.
There is also a large alluvial gold deposit on the border with Tajikistan, which is estimated to be more than 30 tons. Marble, talc, granite, basalt, dolomite, gypsum, limestone, kaolin, asbestos, mica and precious stones: emeralds, rubies, amethysts, yashma, kuncita, aquamarine and lazurite can be mined in the territory of the country. Large deposits of lithium, tantalum, niobium and caesium have been found and partially studied.
Perhaps the most important find can be considered the world's largest lithium reserves, which, according to preliminary data, may already be larger than the reserves in Bolivia, which is considered a world leader. Lithium is used in the creation of lithium-ion batteries, which are used in all modern gadgets, as well as as batteries in electric vehicles. Lithium is a key resource in the green energy industry, an industry that is actively gaining momentum. Even today, Afghanistan is called the lithium "Saudi Arabia". All of the above minerals are of key importance for the modern, technological world economy. For example, neodymium and cobalt are used in magnets and special alloys, and niobium in supercapacitors and superconductors, which are used to create microprocessors and microchips.
There is currently a severe shortage of commodities in the market that are involved in the development of batteries and microprocessors. The demand for raw materials is very high, as is the demand for products. Is Afghanistan able to solve this problem? Yes, but not now and not in the coming years. The development of rich deposits requires billions of dollars of international investment and reconstruction of the country after the war. Since the "Taliban" movement is considered a terrorist organization in many States, it is possible to impose various sanctions and prohibitions on the part of the United States that have failed in the military conflict in Afghanistan.
What will happen to the prices of raw materials?
Most likely, the shortage of raw materials on the market will continue, which in turn will continue to contribute to an increase in prices for platinum, palladium, lithium, as well as for manufactured products: batteries, semiconductors, processors and other components. Oil and natural gas prices will also behave within the framework of global demand, which now exceeds market supply. The end of the war in Afghanistan is a good event, but the state has a long, long way to go before entering the commodity markets and exerting any influence on prices.
Since the demand for the above products still exceeds the supply, shares of semiconductor companies such as Nvidia, Micron, Intel, AMD, NXP Semiconductors and others remain promising for investment. It is possible to include platinum and palladium, as well as oil and gas corporations: Chevron, ExxonMobil, Gazprom and others in the investment portfolio.
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This content comes from KT Engage, the brand marketing unit of Khaleej Times.