Chinese firm to extract crude oil in Afghanistan under new deal

A spokesperson of Afghanistan's Taliban-led administration said it signed on Thursday a contract with a Chinese company to extract oil from the Amu Darya basin in the country's north.

Signed between Xinjiang Central Asia Petroleum and Gas Co (CAPEIC) and the Taliban authorities, the contract is the first major public commodities extraction deal the Taliban has struck with a foreign company since taking power in 2021

1/10: A contract to extract oil from the Amu River basin was signed by the Ministry of Mines and Petroleum and the Chinese company (CPEIC) in the existence of Mullah Abdul Ghani Baradar Akhund, the Deputy Prime Minister for Economic Affairs. pic.twitter.com/aFz03qknuw

— د ریاست الوزراء اقتصادي معاونیت (@FDPM_AFG) January 5, 2023

“Today, a contract was signed with a Chinese company for the extraction of oil in the Amo River basin. According to this contract, the oil will be extracted from an area of 4500 square [kilo]meters, which covers Sarpul, Jawzjan and Faryab in the northern provinces,” Zabiullah Mujahid, the Taliban spokesperson tweeted on Thursday.

The daily rate of oil extraction, according to the official, “will range from 1,000 to 23,000 tons.”

The deal secures yearly investment of USD 150 mln by the CAPEIC in Afghanistan and USD 540 mln in three years, the spokesperson tweeted, adding that under the contract Afghanistan would initially enjoy a 20 percent partnership – a value that “will increase to 75 percent”.

“About 3,000 Afghan jobs will be created in this project,” Zabibullah Mujahid tweeted.

1/2: The contract for the extraction of oil in the field of Amu River has been signed with a Chinese company (CPEIC).
For more details, watch the video report below:�� pic.twitter.com/kqh0ItgYSo

— د ریاست الوزراء اقتصادي معاونیت (@FDPM_AFG) January 5, 2023

A safety valve was included in the agreement, namely, that should the CAPEIC “not deliver all the materials and items mentioned in the contract within one year, the contract will be automatically terminated.” “The total term of this contract will be up to 25 years,” the spokesperson tweeted. Closing the deal is evidence of neighbouring China's growing economic involvement in the region even though the Islamic State militant group has targeted its citizens in Afghanistan. The Islamic State attacked a hotel in Kabul in December – one frequented by the Chinese. Five Chinese nationals were killed.

2/2:�� pic.twitter.com/D39xV82EuQ

— د ریاست الوزراء اقتصادي معاونیت (@FDPM_AFG) January 5, 2023

Chinese inroads

“An important project between China and Afghanistan,” is how China’s ambassador Wang Yu described the signing of the Amu Darya contract to a news conference.

Although China has not formally recognised the Taliban administration, it has significant interests in a country at the centre of a region crucial for its Belt and Road infrastructure initiative.

China's state-owned company National Petroleum Corp (CNPC) signed a contract with Afghanistan's previous, U.S.-backed government in 2012 to extract oil at the Amu Darya basin in the northern provinces of Faryab and Sar-e Pul, Reuters reported.

Up to 87 million barrels of crude oil were estimated to be in Amu Darya at the time.

As another Chinese company, which acting Deputy Prime Minister Mullah Baradar refrained from identifying for the news conference, had not continued extraction after the fall of the previous government, the deal had been struck with CAPEIC.

“We ask the company to continue the procedure according to international standards, also we ask them to provide for the interest of the people of Sar-e Pul,” he said.

The mining minister said a condition of the deal was that the oil is processed in Afghanistan.

Afghanistan’s untapped resources are pegged at over USD 1 trillion. This has worked as a lure for some foreign investors, although decades of turmoil have prevented any significant exploitation.

But the Chinese’s appetite is not limited to oil alone, as a Chinese state-owned company is reported to also be in talks with the Taliban-led administration, this time over the operation of a copper mine in eastern Logar province. Another exploitation deal was signed in that regard under the previous government.