China-Taliban Oil Deal- Highlights, Significance and Purpose

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The recent signing of the oil extraction contract between China and Taliban is creating a lot of noise as the 1^st international contract for the crisis-ridden Afghanistan since 2021.

Contents

What is the deal about?

It is a 25-year agreement for exploration of oil and gas blocks in northern Amu Darya basin in Afghanistan.
The deal was finalized, in Kabul, between Xinjiang Central Asia Petroleum and Gas Co. (a subsidiary of China National Petroleum Corporation) and the Taliban government.
The Chinese entity is to invest $150 million in the 1^st year and $540 million over the next 3 years for exploring oil and gas in 5 blocks.
The daily oil production is to start at 200 tonnes. This would be gradually increased to 1,000 tonnes.
The firm will also be building the country’s 1^st crude oil refinery.
Notably, the agreement will be terminated if it fails to fulfil all the contractual obligations within 1 year.
The Taliban is to earn 15% royalty fees through this deal.

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Why is it significant?

This agreement marks Taliban’s 1^st major economic win since its return in August 2021.
This development comes amid the Taliban government seeking investments to save the collapsing economy. International aid accounts for 40% of Afghanistan’s GDP. This aid was cut off in 2021, following USA’s withdrawal. This greatly destabilized the economy.
Taliban haven’t been seeing much success in attracting investments from international companies, despite the vast mineral wealth in the country. This is understandable given the widespread international criticism of its policies.
It also comes at a time when many neighboring states, except Tajikistan, have accepted the Taliban government, at least for the sake of maintaining status quo at their borders.
China has been one of the few countries that have been receptive of the Taliban government in Afghanistan. Is has been one of the most visible players in Kabul since 2021. For instance, Beijing hosted several Taliban delegations, even before the fall of Kabul.

What do the parties seek to achieve?

For China’s part:

China has a strategic interest in keeping Afghanistan and the larger Central Asian region out of the West’s reach.
This move is timely, especially given the space provided by Russia’s invasion of Ukraine for USA to re-engage in the Central Asian region.
Cooperating with Taliban is also useful for China with respect to its larger projects like BRI and CPEC.
China has been attempting to rope in the Taliban to target Uyghur-led militant groups, such as the Turkistan Islamic Party, that are operating from within Afghanistan and have been especially active in the Xinjiang region.

For Taliban’s part:

The Taliban have been attempting to establish an Islamic Emirate, bringing together the multiple factions under the Taliban movement. For this to be successful, they require at least a functional economy.
The current economic conditions cannot generate sufficient funds for the state, let alone the multiple factions under the interim government.
Adding to the disquiet created by regressive policies (like barring women from higher education), a lengthy economic depression will breed dissatisfaction with the new government.
Though a challenge from the public is less likely, resistance may arise from within the movement itself.
Even some of the Talibani leadership are attempting to avoid further alienation from the global community.

What is the way ahead?

Afghanistan has a number of mineral and oil fields, most of which are still unexplored and with high economic potential. The Taliban has been dangling this potential in front of countries to attract much needed investments.
While the new deal is creating a lot of buzz, it isn’t unexpected for the basin had been earmarked for China over a decade ago.
Also, with regards to its larger infrastructural plans like the CPEC and BRI, the rising frictions between Pakistan and Afghanistan may throw a spanner in the works.
Though Beijing may hope to take Taliban’s aid in addressing its security concerns in Xinjiang, the extent of Taliban’s cooperation is doubtful.
While the Taliban leadership are hard pressed for funds and economic rejuvenation, it is unlikely that ideological concessions would be made for the sake of economic gains.
Given all these challenges, the outcome of this oil deal would have much implications for China-Afghanistan ties going ahead.

Conclusion:

Beijing’s recent attempts to start economic ties with the Taliban government is ridden with challenges, especially given the changing dynamics between Pakistan and Afghanistan, infamous ‘the graveyard of empires’. The future of China-Afghanistan ties, and possibly Taliban’s future interactions with other countries in the neighbourhood, rests on the success of this deal.