• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 1 hour GREEN NEW DEAL = BLIZZARD OF LIES
  • 7 days If hydrogen is the answer, you're asking the wrong question
  • 19 hours How Far Have We Really Gotten With Alternative Energy
  • 11 days Biden's $2 trillion Plan for Insfrastructure and Jobs

Breaking News:

Oil Prices Gain 2% on Tightening Supply

Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

More Info

Premium Content

What Does The Return Of The Taliban Mean For Oil Markets?

Afghanistan

In a stunning turn of events, the Taliban swept across Afghanistan seizing the capital Kabul nearly three weeks ago and taking control of the country in a campaign that lasted little more than a week. The Taliban leadership regained power after being driven from Kabul by U.S. troops who invaded Afghanistan as part of the war on terror declared in the wake of the September 11, 2001, terrorist attacks. Regardless of negotiations with the U.S., the Taliban stepped up its campaign to seize government territory after President Biden’s April 2021 announcement of an 11 September 2021 deadline for the withdrawal of U.S. forces. This was the longest war fought by the U.S. as it engaged in flawed nation-building efforts to rebuild the resource-rich war-torn Central Asian country, which became a refuge for terrorists after being ravaged by more than four decades of war. 

The rapid collapse of the U.S.-installed Afghan government in the face of a renewed Taliban campaign along with the radical Islamic movement’s lightning seizure of power took many observers by surprise. These developments are stoking fears of greater regional insecurity and the potential for Afghanistan to slip into civil war while becoming a sanctuary for terrorists as occurred after the Soviet 1989 withdrawal. While Afghanistan is not a major hydrocarbon producer, its proximity to the Middle East, the world’s largest oil-producing region, and China, the world’s second-largest petroleum consumer means greater instability could impact oil prices. 

According to the U.S. Geological Survey, Afghanistan’s mean undiscovered oil resources total around 1.6 billion barrels of crude oil, 562 million barrels of natural gas liquids, and 15.7 trillion cubic feet of natural gas. Those numbers pale in comparison to neighboring Iran which has proven oil reserves of 208.6 billion barrels and, despite U.S. sanctions, is OPEC’s fourth-largest producer, pumping on average over 2.4 million barrels per day during July 2021. The Taliban have long held considerable enmity toward Iran. The radical Sunni Islamic insurgents view Shiite Muslims as heretics and have actively persecuted Afghanistan’s minority Hazara community who are Shiite Muslims and the Central Asian country’s third-largest ethnic group. That stance combined with the long-running schism between the Sunni and Shiite branches of Islam makes Iran a natural enemy for the Taliban. In fact, during their last stint in power, from 1996 to 2001, the Taliban murdered 9 Iranian diplomats at Tehran’s diplomatic mission in the city of Mazar-i-Sharaf. That nearly sparked a war between the radical Sunni Islamic movement and OPEC’s fourth-largest oil producer, the region’s leading Shiite nation.

The Taliban’s unexpected victory will add further political turmoil to the long-running rivalry between Iran and Saudi Arabia for control of the Middle East. Both regional powers have been locked in a series of lengthy proxy wars as the battle for regional supremacy with conflict-riven Yemen a top hotspot. The rise of a Shiite-led Iraq after the U.S. invasion tipped the scales firmly in the favor of Iran with the two countries, which combined are responsible for 6.5 million barrels of crude oil per day or 24% of OPEC’s total output, becoming closely allied. 

Saudi Arabia and its key regional ally, the United Arab Emirates, have contributed military forces and sizable funds to an anti-Houthi collation in Yemen but appear incapable of winning the war, with the Iran-backed Houthi’s steadily gaining ground since the conflict began. Events in Yemen, including the Houthi’s ability to grind down the Saudi led coalition, which saw Riyadh develop an exit strategy and propose a peace deal, further strengthened Teheran’s regional standing. 

The rapid victory of the autocratic and extremist Taliban in Afghanistan sent a clear message to various Islamist movements on both sides of the Sunni-Shiite divide, proving that they can defeat secular governments and install favorable authoritarian regimes. It makes the U.S. appear impotent and unable to protect its Middle East interests, nor regional allies such as Lebanon where a fragile Washington supported government is in power. This will likely embolden Iran-backed Shiite militant group Hezbollah to sweep aside Lebanon’s secular administration and replace it with an internationally recognized pro-Hezbollah government. It will also encourage the Houthi rebels in their fight for complete control of Yemen, further adding to regional instability. If Saudi Arabia fails to effectively broker a peace deal in Yemen, there is every likelihood that a resurgent Houthi movement will continue attacking the Kingdom’s energy and transport infrastructure, including Red Sea shipping lanes. That has the potential to disrupt the operations of the world’s largest oil producer Saudi Aramco, although most Houthi attacks have had little if any material impact on global oil supplies.

Another notable development is that the rapid collapse of the U.S.-backed government in Kabul and Washington’s shambolic withdrawal has strengthened Russia and China’s positions in Central Asia. This is important for both powers because the region which is comprised of Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan, and Afghanistan as of 2019 had estimated proven reserves of 31 billion barrels of oil and 826 trillion cubic feet of natural gas. 

An expansionist Kremlin fixated on restoring Russia’s global power status has for some time has been eying the potential of rebuilding its Central Asian empire. That, along with sharply diminished U.S. regional prestige and the threat posed by a radical Islamic Afghanistan, will provide the Kremlin with the political leverage required to consolidate its relationships with neighboring Turkmenistan, Uzbekistan, and Kyrgyzstan. This will not only give Moscow greater political hegemony but also boost access to the vast oil and natural gas resources of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The Kremlin believes this will strengthen its hand when dealing with OPEC, China, and the European Union while bolstering Russia’s access to vital oil and natural gas resources.

By mid-2021, China appeared to be betting on a Taliban victory and had established a working relationship with the radical Sunni militants. Not only do the latest events bolster Beijing’s standing in Central Asia but they also give the energy-hungry economy greater access to regional energy resources, which in recent years have come under greater Chinese control. China is believed to control nearly a third of Kazakhstan’s oil production, while Turkmenistan and Uzbekistan supply large volumes of gas to the world’s second-largest economy. It is thought that up to half of Central Asia’s oil and natural gas production is exported to China, with the East Asian economic giant controlling many of the pipelines in the area. Beijing’s growing regional influence and ability to lever political leaders for its own ends will reduce China’s dependence on Middle East oil imports, thereby enhancing its energy security.

While these developments are a blow for Washington and key regional ally Saudi Arabia, a Taliban-ruled Afghanistan will act as a counterweight to Iran’s growing regional influence. That is a particularly important development with the Biden administration weighing up whether to reinstate the nuclear deal with Teheran and roll back sanctions which would strengthen Iran’s regional position.

The Taliban swept to victory and imposed its rule over a shell-shocked and war-weary Afghanistan which has been locked in a grinding never-ending conflict that started with the Saur Revolution in 1978. It is Pakistan and Iran which face the greatest threat from a resurgent Taliban-controlled Afghanistan, although it could also impact India, China, and Russia.

ADVERTISEMENT

While the direct impact of a resurgent Taliban on global oil production is negligible, with Afghanistan possessing estimated recoverable oil resources of 1.8 billion barrels and negligible petroleum production, it will further destabilize a volatile region that is at the center of world oil production.

By Matthew Smith for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on September 07 2021 said:
    It means nothing to oil markets. But it does mean a lot to global geopolitics. The real winners geopolitically are Russia and China.

    With the US withdrawal from Afghanistan the geopolitical landscape of today seems to have abruptly changed reflecting the rising influence of China-Russia-Iran alliance.

    For Russia, the US withdrawal debacle is a powerful blow to the global reputation of the United States. Moreover, it means one less location close to Russia where Washington had a formidable military deployment. It also enhances Russia’s military presence in Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan and Kyrgyzstan as their defender against any attempts by Taliban to stir up trouble among the Muslim majority among the populations of these Central Asian Republics. For this reason, Russia has been establishing a strong working relationship with Taliban.

    For China, Afghanistan will soon come under its thump via aid and soft loans provided under the Belt and the Road Initiative (BRI). By mid-2021, China appeared to be betting on a Taliban victory and had established a working relationship with the radical Sunni militants. But more important is the impact of the US chaotic withdrawal on Taiwan.

    Seizing the opportunity presented by the Biden administration’s abandonment of Afghanistan to the Taliban following the fall of Kabul, China is taunting Taiwan that in the event of a confrontation with China, the U.S. would similarly abandon its long-time ally. It warned the Taiwan leadership that once a cross-Straits war breaks out, the island’s defences will collapse in hours and the U.S. military won’t come to help. As a result, the Taiwan leadership will quickly surrender, while some high-level officials may flee by plane. China advised the Taiwan authorities to avoid pushing the situation toward war and to keep cross-Straits peace with political means, rather than acting as strategic pawns of the US and bear the bitter fruits of a war.

    And contrary to claims by the author, neither Pakistan nor Iran face any threat from a resurgent Taliban-controlled Afghanistan. Pakistan’s military intelligence has always had the strongest relations with Taliban and Iran and Taliban share enmity against the United States

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News