Summary: The ongoing temporary freezing of border trade between Pakistan and Afghanistan stems from deeply complex security and political issues. While Pakistan claims the closure stems militant movement, Afghanistan is actively rerouting its trade through alternative partners like Iran, raising concerns about Pakistan’s long-term economic ties and significant implications for regional economies, particularly Khyber Pakhtunkhwa.
The temporary freezing of border trade between Pakistan and Afghanistan has cast a shadow of uncertainty over the future of their economic relationship. What began as a security measure now risks evolving into a more permanent shift, as Kabul actively explores alternative trade routes and partners, reducing its historic reliance on Pakistan.
Last week, Afghanistan’s Deputy Prime Minister for Economic Affairs, Mulla Abdul Ghani Baradar, underscored this shift. He advised Afghan traders to settle existing contracts within three months and seek new markets. Baradar stated, “If Pakistan wants the routes to be opened, it will do so with firm and credible guarantees that they will not be closed again under any circumstances or conditions,” signaling Kabul’s firm stance.
The Standoff Behind Border Trade Suspensions
The current halt, with border trade remaining closed as of October 11, follows a series of collapsed peace talks between the two nations. These discussions broke down primarily due to the Taliban regime’s refusal to curb Pakistan-focused militant groups operating from Afghanistan. While a ceasefire is holding, Islamabad maintains that the closure is crucial for curbing militant infiltration, leaving thousands of cargo containers stranded.
Afghanistan, in response to these disruptions, is increasingly pivoting its trade. A Reuters report indicates a significant shift towards Iran’s Chabahar port. Afghan officials cite attractive incentives, including a 30% cut in port tariffs, 75% off storage fees, and 55% off docking charges, along with faster handling and updated equipment, as key drivers. Abdul Salam Jawad Akhundzada, a spokesman for Afghanistan’s commerce ministry, highlighted this trend, stating, “In the past six months, our trade with Iran has reached $1.6 billion, higher than the $1.1bn exchanged with Pakistan.”
Pakistani officials and traders acknowledge a substantial loss, estimating that Pakistan has ceded over 65% of the Afghan market to Iran, Central Asian states, Turkiye, and even India since August 2021. This reflects the impact of trade policies increasingly dictated by security concerns.
Economic Repercussions for Pakistan
While the JS Global report estimates the overall impact of a three-month trade suspension on Pakistan to be moderate—a loss of approximately $150-169 million in exports—the long-term implications are more concerning. SindhNews.com has observed that despite Defense Minister Khawaja Asif’s assertion that Afghanistan’s decision would cause “no economic harm” to Pakistan, regional economies face significant challenges.
Zahidullah Shinwari, former president of the Sarhad Chamber of Commerce and Industry, emphasized the critical role of Afghan trade for Khyber Pakhtunkhwa. He warned that if this market closes permanently, an estimated 90% of the province’s industry could cease operations, leading to widespread unemployment. In the merged tribal districts, up to 95% of livelihoods are intrinsically linked to this cross-border commerce.
Historically, bilateral trade peaked at $3 billion in 2014, making Afghanistan Pakistan’s third-largest export market. Post-NATO withdrawal, this plummeted to $600–700 million. Shinwari further noted that Peshawar’s service sector—including hospitals, hotels, and schools—has been severely hit by reduced Afghan visitors due to ongoing travel restrictions. The government also faces an annual loss of $1.2–1.3 billion in exports and daily tax revenues of around Rs300 million.
The temporary freezing of border trade has undoubtedly put Pakistan at a crossroads. As Afghanistan diversifies its economic partnerships, Pakistan risks losing a long-standing, crucial market and facing significant economic instability, particularly in its western provinces, unless diplomatic and trade relations are swiftly stabilized.