Regime change in Afghanistan increases investment risk for Russia, Central Asia

Investment opportunities will depend entirely on Taliban governance

Taliban’s takeover of Afghanistan has sparked fears of extremism, Chris Weafer, co-founder of Macro-Advisory in Moscow, wrote in a note to investors.

“Moscow’s long-standing fear of instability on its southern borders is the primary factor in its calculations with Kabul. That depends on the ability of the Central Asian nations bordering Afghanistan — Turkmenistan, Uzbekistan, and Tajikistan – to defend their borders and keep radical Islamic fighters, such as ISIL, and extremist ideology, from destabilizing their own societies,” Weafer said, adding that all three border states have had previous experience of extremist attacks and fear such episodes could be repeated if either the new government in Kabul is unwilling, or unable, to contain extremist groups.

Having met regularly with Taliban leaders since 2018, Russia is well prepared to deal with the impact of regime change in Afghanistan, Weafer said. “Most recently a senior delegation visited Moscow in July. Russian officials in Afghanistan have also been engaged with the Taliban for many years. Both sides say they will work together. Moscow will also use this as an opportunity to remind the Central Asian states that it is the only real power in the region, that it has been consistent and multilateral over the past twenty years, and, via the CSTO (Collective Security Treaty Organization), provides nuclear cover for member states,” Weafer argued.

Moscow will want to work with neighboring states, Weafer wrote, arguing that Russia will not officially recognize the new government or remove the Taliban from the list of proscribed terrorist organizations until the UN Security Council does so.

“Evidence of the new pragmatism with the White House. It is confirmed that the US-NATO withdrawal was discussed at the Biden-Putin summit in Geneva. But Congress may see this as evidence of Russia collusion. The danger for Russia is that engagement with the new government, and news of the various meetings since 2018, may be interpreted as evidence of collusion by US congress. Some members may use this in support of fresh sanctions, i.e. if any fresh catalyst arises,” Weafer argued.

Investment opportunities will depend entirely on Taliban governance, Weafer wrote, adding that Afghanistan’s major investment advantage is the estimated $3 trillion worth of minerals, including rare-earth minerals, which have hardly ever been developed. This will clearly be of interest to China, although criticism of Chinese actions against the Muslim Uighurs by the Taliban will be an obstacle initially.

Turkmenistan is best placed politically, Weafer argued, reminding that the government in Ashgabat has maintained frequent and direct contacts with the Taliban and, at a February meeting, secured an agreement to allow the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline and the Turkmenistan-Afghanistan-Pakistan (TAP) Power Interconnection projects to proceed.

Regarding Uzbekistan, Weafer said Tashkent’s hopes for greater connectivity may suffer. “Uzbekistan has been pushing for a direct transport link across Afghanistan to the Iranian port of Chabahar and to Gwadar in Pakistan. Tashkent has been dealing with the previous government rather than the Taliban. But, if the Taliban wants to develop the economy, then these routes will continue to be built, although later,” the Macro-Advisory expert wrote.

Tajikistan is most vulnerable, Weafer argued, noting that the country has the longest and most porous border with Afghanistan and is close to areas currently controlled by the more militant ISIL. Russia has 5,000 troops on the border but, still, investment risk will be higher here than for other countries.

According to Weafer, everything will depend on how the new government in Afghanistan acts and the control it can exercise. “It is far too early to be able to assess the impact on investment risk and opportunities in Afghanistan or concerning the major projects planned from neighboring states to export to Afghanistan or using the country as a conduit for, e.g. transport and power links. “All will be delayed for some time because of the suspension of funding by the World Bank and other IFIs and until the intentions and behavior of the new Kabul government are better known,” Weafer said.

Major projects in Central Asia are also dependent on what happens in Kabul, he noted. “If they are true to their word, then these projects will resume, and investment opportunities will be even more readily accessible by foreign investors and multinationals,” Weafer said, adding, “If not, then the development plans for neighboring countries in Central Asia will be negatively impacted and investment risk across the region will rise”.

The summit of leaders of the Shanghai Cooperation Organization (SCO) is set for September 16-17th in Dushanbe.