(Bloomberg) --The Taliban-led administration in Afghanistan signed its first international contract on Jan. 5 to extract oil from the northern Amu Darya basin as the group seeks to increase revenue.
oil rig for oil production
Xinjiang Central Asia Petroleum and Gas Co. will invest as much as $150 million in the first year and $540 million over the subsequent three years to explore five oil and gas blocks, said Shahabuddin Delawar, the acting minister of mines and petroleum. The blocks are in a 4,500 km2 (1,737.5 mile2) area in northern Afghanistan.
The militant group will earn 15% royalty fees from the 25-year contract. Daily oil production will start at 200 tons and gradually rise to 1,000 tons. The five blocks are estimated to hold 87 million barrels of crude oil, according to a previous survey.
The company, known as CAPEIC, will also build Afghanistan’s first crude oil refinery, Delawar said. If it failed to meet all the contractual obligations within a year, the contract would be terminated, he added.
The agreement was inked in Kabul in the presence of the Chinese Ambassador to Afghanistan, Wang Yu, and the Taliban’s Deputy Prime Minister for Economic Affairs Mullah Abdul Ghani Baradar
The pact will “strengthen Afghanistan’s economy and increase its level of oil independence,” Baradar said at the signing. Wang, whose country does not recognize the Taliban government, said the 25-year contract will support Afghanistan’s push for self-sufficiency.
CAPEIC’s parent CNPC was awarded the same projects in 2011 by the previous U.S.-backed government, but the deal was scrapped years later by former president Ashraf Ghani due to delays and lack of progress in work.
The Taliban have regarded the restart of this project as significant as so far investments have been coming from private or individual entrepreneurs, said Raffaello Pantucci, a senior associate fellow at the Royal United Services Institute in the UK.
“This contract is clearly quite significant for the cash-strapped Taliban because they’ve been desperate for this kind of investment,” he said. “Strategically, this isn’t going to be a game-changing oil commitment for China as it’s a relatively limited opportunity.”
The Taliban have harbored hopes for China to boost investments in the country’s rich resources, estimated to be $1 trillion. The militant group sees the investments as a way to fix an economy that’s nearly collapsed after international aid, accounting for 40% of the nation’s gross domestic product, was halted following the chaotic withdrawal of U.S. troops in 2021.
However, attacks by the Islamic State group in Afghanistan, such as the one that targeted Chinese businessmen and executives in a hotel last month, have made China wary on investing. Then there’s also the presence of the East Turkistan Islamic Movement, a Xinjiang-based separatist group, that’s kept Beijing rather cautious.
Although no nation has officially recognized the Taliban government, China, Russia, and Pakistan have maintained close political and economic ties. Afghanistan consumes 1.3 million tons of fuel annually, imported mostly from Uzbekistan, Turkmenistan and Iran.