Afghanistan Has Only One Hope: Lithium

A variety of commercial batteries. Pixlr/Public domain

While Goldman Sachs predicts a tripling of the lithium market by 2025, a race to secure supplies is taking place in Afghanistan.

Also, if a continuation of the upward trend of lithium prices is likely to surge, it should not obscure a key question and yet often overlooked when treating raw material: that of price volatility. Possible financializing of the lithium market run, fueled by investors seeking higher returns and uncorrelated to traditional financial assets, may likely exacerbate price movements, which inevitably penalize the real economy. Yet there is, to date, no financial market to manage risks associated with them.

Looking East: Afghanistan’s Perilous Potential

According to the New York Times, a memo from the Pentagon predicted that Afghanistan will be the "Saudi Arabia of Lithium," a way to assert that Afghanistan is able to exceed Bolivia as the first world producer of lithium. The economic impact of this mining discovery is simply enormous: the total reserves represent about 1,000 billion. The two main sources of lithium are hard rock sources in pegmatites and in solution within continental brines, both of which are present in Afghanistan. This might become the backbone of the Afghan economy. Although Afghanistan is recognized as a strategic hub in Central Asia, at the borders of the former Soviet Union, China and Iran at the crossroads of routes for pipelines and significant reserves of oil and gas natural, its enormous mineral wealth and its untapped natural gas reserves have remained completely unknown.

If Afghanistan engages further in the lithium sector, it would also create jobs in a region plagued by unemployment which, according to the World Bank, increased to 40 percent in 2015 from 25 percent in 2014. The value of newly discovered mineral deposits would exceed the size of the current Afghan economy, undermined by the parallel economy coming from opium production and trafficking of narcotics, and based primarily today on the assistance of foreign government and other industrialized countries. The gross domestic product of Afghanistan would be only 12 billion dollars.

It is a double-edged situation though, as the lust of the mines could indeed motivate the Taliban to regain control of the country and the expected peace would give way to the redoubled strength of fighting.

The corruption that already plagues the government could also be amplified by the lure of gain,. Resource curse and mismanagement goes pair to pair. One method that may prove successful to guard against Afghanistan becoming resource cursed is the use of the Extractive Industries Transparency Initiative (EITI), a global coalition of governments, companies and civil society based in Norway who are working together to improve transparent and accountable management of revenues from natural resources. Afghanistan’s EITI application has been a fair success and funded by the World Bank with so far two reports filed.

 The battle is far from being won between lack of security, government uncertainty and the Taliban in the background. The deposits are scattered throughout the country, where there is no infrastructure to exploit them. Many are in areas still controlled by the Taliban. China state owned mining giant, Metallurgical Corporation of China Limited (MCC) has already managed to take control of the huge copper deposit Mes Aynak, which means “little copper well” in Pashto, right in the Taliban country, and plans to build an industrial site. Despite security concerns — the mine is located on a transit route for Taliban fighters coming from Pakistan — MCC is not in a hurry as they hold a 30-year lease for the site.

The next few years look like a dicey rock climb for Afghanistan as it has no industry or mining infrastructure. Only one road is connecting north to south. According to U.S. officials, it would thus take decades before the country can actually use these resources. The war — and the fragility of the Afghan institutions — also make it difficult to implement a successful mining policy in the long term. But such discovery could affect conflicts: the neighboring regional powers in Afghanistan — China, India, Russia — could suddenly see a strategic interest.

Patricia Schouker is an energy analyst based in Washington DC and an Associate Member of New College at Oxford University. Twitter: @Patricia_Energy.

Image: A variety of commercial batteries. Pixlr/Public domain