Up to $100 Million Up in Smoke with Further Losses Downwind
The economic effects of the fire at Islam Qala
The massive explosions and fire at the Afghan/Iranian border at Islam Qala on 13 February 2021 was a terrible tragedy. It is hard to believe that, given the intensity and location of the blast, there were no reported deaths. Media outlets report up to 60 people being injured, with 17 hospitalised and estimated the economic cost of the blast could be around $50 million. However, our recent research and analysis of high-resolution imagery of the blast area and other key locations along the cross-border value chains for fuel and transit goods, assesses that $50 million would be at the low end of any estimate of the losses from the blast and that the damages could be up to US$100 Million. Our analysis also suggests that the wider economic effect will be felt far beyond Islam Qala, with significant repercussions for the revenues of both the Afghan government and the Taliban.
Our research method synthesises high resolution imagery and well-focused fieldwork to assess socio-economic, political and environmental change in fragile and conflict affected states. Developed over two decades through research on licit and illicit rural livelihoods in some of the most remote and insecure parts of Afghanistan, this method has further matured and used to evaluate development programme delivery, the aerial bombing of heroin labs, the emergence of methamphetamine production and the cross border trade in fuel, minerals and transit goods. By combining in-depth fieldwork and high resolution imagery we produce robust and verifiable research findings that can be extrapolated over a wide geographical area, as well as visual products that support outreach to a variety of audiences, including the busy policy maker. Our research team consists of Dr David Mansfield, OSDR and Alcis. We are hugely grateful to the wonderful team at Planet who have been able to rapidly supply us the essential imagery.
A Critical Choke Point in Cross Border Trade
Islam Qala is one of Afghanistan’s busiest border crossings and, in 2019, generated $98 million in customs duty. This was almost a quarter of all duties collected by the Afghan government that year, second only to Torkham in the eastern province of Nangarhar.
Officials, interviewed in November 2020, reported that approximately 250 trucks cross this border from Iran, every day, with 10 per cent of these trucks laden with fuel. Traders, transporters and local residents disagree, arguing that more than twice the number of trucks crossed the border at Islam Qala, with up to 100 carrying fuel and with 10 to 15 crossing the border under the cover of night. This latter claim is backed up by analysis of very high resolution satellite imagery at Figure 1 below which shows the flow and count of both fuel and TIR trucks into Afghanistan from Iran and vice versa. Either way, as one of the three official border crossings with Iran - and by far the most important - Islam Qala is a critical choke point in cross border trade, which was worth over $1.3 billion in 2019, more than the entire value of Afghanistan's trade with Pakistan or China.
Figure 1. The flow and count of fuel and TIR trucks at Islam Qala
The fuel trade though Islam Qala is particularly important. Officially, Afghanistan imports 77% of its diesel from Iran, a value of US$119.6 million, and almost half of its petrol; making a combined value of US$ 174 million in 2019. Unofficially, considerably more fuel is smuggled in through the official borders of Islam Qala, Mile 78 in Farah, and Milak/Ziranj in Nimroz and a number of unofficial crossing points along the Iran/Afghan border, shown at Figure 2 below.
Figure 2.Official border crossing points between Iran and Afghanistan, alternative routes in Iran and Taliban check points in Afghanistan
While fuel trucks make up a sizeable share of the trucks crossing from Iran at Islam Qala, see Figure 3 below, on any given day there can also be 1,400 container trucks or more crossing or awaiting processing. These trucks carry a wide range of imports, including construction material, food and high value transit goods such as electrical items, cars (often labelled as “spare parts” to avoid duty), cigarettes, tyres and other goods, from all over the Gulf, Asia and Australia. As such, Islam Qala is not only a major crossing point for trade from Iran into Afghanistan but a key entrepôt of the transit trade on which many on Afghanistan’s borders - and plenty in its interior - derive a livelihood.
Figure 3. Fuel trucks queuing at Islam Qala, December 2020 (OSDR).
Traders in major trading hubs, such as Spin Boldak in the southern province of Kandahar, Jalalabad, Goroko and Dakah, in the eastern province of Nangarhar, argue that many more transit goods are travelling via the ports of Chabahar and Bandar Abbas in Iran rather than through Pakistan. Lower transport costs, and more favourable treatment by the Iranian authorities, especially following the outbreak of COVID-19 and the decision by Pakistan’s government to close the official border crossings in early 2020, favour trade via Iran.
And although by August 2020 most official borders with Pakistan had reopened, some unofficial crossings, which were tolerated - even supported - by the Pakistan authorities, remain closed to this day. The most notable example is Sasobai in the district of Durbaba in Nangarhar; a well-trodden route taken by hundreds of pack animals over the mountains into Tirah in Pakistan every day. The vast majority carry transit goods, including tyres, cigarettes, electrical goods as well as cars and car engines (often labeled as “spare parts” to avoid duty). Much of this traffic - particularly the heavier items such as cars, car parts and fridges - were rerouted through Islam Qala, and increasingly Ziranj, and onto Spin Boldak. The uptick in the number of trucks observed in high resolution satellite imagery at Islam Qala between March 2020 and December 2020 attests to this shift in trading patterns and the growing importance of Iran to Afghan trade.
A Flammable Mix
With so much fuel in one place, Islam Qala was always going to be a point of vulnerability. The border crossing does not have the kind of permanent fuel storage that can be found in places like Mile 78 in Farah. The backlog of trucks at Islam Qala - with over 500 fuel tankers parked close together and waiting to be processed by Afghan customs - was always a significant risk to life and property.
Figure 4. Burning fuel trucks at Islam Qala (AP)
Photographs and video footage from the scene show the extent of the damage in Islam Qala and scale of the destruction with regard to both fuel tankers and transit containers. Reports in the media suggest "more than 500 trucks" were destroyed.
However, high resolution satellite imagery, as shown at Figure 5 below, allows a much more detailed assessment of a blast that covered an area of 26 hectares and was concentrated in the immediate vicinity of the Customs office for those entering Afghanistan, where there are often a large number of fuel trucks parked, as well as container traffic. Unfortunately, on 13 February 2021 there were even more fuel tankers and trucks in the area - a growing back log due to a dispute between truck drivers and Customs officials over a hike in taxes.
Figure 5. The location of the blast and Fires at Islam Qala
Analysis of high resolution satellite imagery from Planet taken the day after the blast has identified a total of 986 trucks, (513 fuel and 473 TIR trucks) destroyed in the parking areas around the customs office, as well as along the exit route out of the main customs area, before onward travel to Herat. We estimate that over half of these were fuel trucks, explaining the ferocity of the explosions and subsequent fire, as shown at Figure 6 below. The remains of a two further trucks are strewn to the south of the Islam Qala to Herat highway, thrown 500 metres by the force of the explosion. Another can be seen to the east of the blast area. As a consequence of this event, the electricity supply to the city of Herat from Iran, which runs through Islam Qala, as shown in Figures 1,2,5 above and figure 6 below, was shut down, leaving the residents of Herat city without electricity.
Figure 6. Identification of destroyed TIR and fuel trucks at Islam Qala
With an empty twenty-five metric ton fuel tanker valued at anything from US$25,000 to US$50,000 and a rig for a 40 metric ton TIR container truck costing between US$50,000 and US$100,000, the immediate losses incurred by the fuel and TIR truck owners alone could be up to US$73 million. Once the value of the goods being transported are included - and these were fully laden trucks entering Afghanistan - the estimated losses increase further. For example, with the contents of an inbound fuel tanker valued at around US$10,000, and the majority of transit goods worth between US$10,000 to US$50,000 per TIR container on entry, the total losses incurred by traders and transporters on the day could be up to US$ 102 million. Further downstream, where many of the transit goods are actually sold, perhaps in Spin Boldak or Torkham - or even smuggled across the border into Pakistan, where a container of cigarettes might earn anything from US$120,000 to US$ 180,000 - the losses to traders would be significantly higher.
Where the Government Loses, the Taliban Gains
Beyond the immediate losses, the second order economic effects of the explosion at Islam Qala are likely to be much more significant over time. For example, aside from the destruction of property of those who owned the trucks and goods being carried, the most obvious economic cost is the loss in taxes to the Afghan government and to other powerholders that extract revenue on the movement of goods along the main Herat to Kabul highway, most notably the Taliban. This research concludes that were the destruction of Islam Qala to result in the rerouting of trade - be it temporary or permanent - it would be to the Taliban's advantage.
Based on Afghan government statistics, the large scale movement of fuel and transit goods through Islam Qala was worth approximately US$270,000 per day in customs duty in 2019. Unofficially, revenues are likely to have been markedly higher given that imagery shows around 500 to 600 trucks passing through Islam Qala per day. In fact, the revenue generated on the likely fuel trucks destroyed would have been worth up to US$ 1.3 million, given a customs duty of US$100 per metric ton.
For the Taliban, the lost revenue on all the trucks destroyed on 13 February 2021 would be between US$430,000 and US$550,000, assuming that the vast majority of these goods entering Afghanistan via Islam Qala - be it fuel or transit goods - would have travelled the main Herat to Kandahar highway and been subject to a tax of between US$440 and US$560 per truck and paid at either Farah Rud or Delaram, where the Taliban have checkpoints, as shown in Figure 2 above.
However, it is likely that the longer the disruption at Islam Qala continues, the greater the costs borne by the Afghan government. First, there are the hundreds of thousands of dollars in duties that Kabul will lose for each day that Islam Qala is closed. Second, there is the economic impact of the rerouting of the cross border trade with Iran. For example, the most likely immediate response to any closure of Islam Qala is the rerouting of imported fuel and transit goods through Mile 78 and Ziranj, although there will be some challenges in the short term as neither border can currently cope with the amount of traffic that passed through Islam Qala each day.
Interviews with traders and transporters show that fuel is likely to take this route given that the profits earned on diesel transiting Mile 78 (US$105/MT to US$115/MT) or Milak/Ziranj (US$70/MT to US$95/MT) and sold in Kabul is currently markedly higher than through Islam Qala (US$ 25/MT to US$46/MT). This is largely due to the amount of undeclared fuel passing through both these borders and the larger number of unofficial checkpoints, where the Afghan security forces collect taxes, on the route from Herat to Kabul. Any redirection of trade to these two points of entry - be it temporary or permanent - would result in an inevitable fall in customs duties to the Afghan government, unless Kabul could impose closer supervision on the Mile 78 and Milak/Ziranj crossings and reduce the scale of the underreporting.
The Taliban will not suffer the same fallout. Here, a shift in the pattern of trade away from Islam Qala - temporary or otherwise - in favour of official crossings in Nimroz and Farah, would have little impact on their revenue from the transit and fuel trade. The location of the Taliban's checkpoints and the rules that govern collection (by truck and its contents rather than by weight or number of goods) mean that regardless of the route taken, almost all trucks entering Afghanistan from Iran end up paying their dues. In this particular case the government's loss is not the Taliban's gain per se, but any loss in revenue to the government is one that is celebrated by the Taliban leadership.
Ultimately, it will be the Afghan population that will bear the brunt of the explosion at Islam Qala. There are already signs of rising fuel prices in Kabul, partly due to the damages incurred at Islam Qala and the subsequent disruption it has caused to cross border trade with Iran, but also due to the growing unrest amongst drivers, traders and passengers at the number of illegal checkpoints manned by Afghan security forces, and collecting monies along the main highway. Any restrictions on the movement of food stuffs and consumer goods from Iran into Afghanistan will lead to further Increases in the cost of living and reductions in the number of transit goods - the mainstay of the economy in a multiplicity of trading hubs - will directly impact on employment. None of this bodes well for an economy and a population that is already struggling with growing levels of violence and corruption.