Context:
The Taliban administration is in advanced discussions with Russia and China to settle trade transactions in local currencies. This move aligns with efforts by all three countries to reduce dependence on the U.S. dollar amid sanctions and geopolitical tensions.

More about the News:
Afghanistan’s financial sector has been largely cut off from global banking systems due to sanctions on Taliban leaders after their 2021 takeover. U.S. aid cuts have further reduced dollar inflows, much of which previously entered as cash for humanitarian aid.
At the same time, Russia and China are promoting trade in national currencies to circumvent Western sanctions and mitigate dollar-related vulnerabilities. In line with this strategy:

• Russia has publicly questioned the value of foreign currency reserves, citing political risks like asset freezes.
• Afghanistan sees these shifts as an opportunity to overcome its isolation and reduce dollar dependency.

Current Trade Volumes and Growth Outlook:

Afghanistan–Russia Trade:

Annual bilateral trade currently stands at around $300 million, with both sides expecting growth as infrastructure and investment improve.
Likely future imports from Russia include:

• Petroleum products – vital for Afghanistan’s energy security
• Plastics – essential for industrial and consumer sectors

Notably, Afghanistan’s first major trade agreement post-Taliban was signed in 2022 with Russia, involving imports of gas, oil, and wheat.

Afghanistan–China Trade:

Trade with China is more robust, estimated at $1 billion annually. Afghanistan has proposed a similar local currency settlement mechanism with China.
To support this, a joint working group has been set up, comprising:

• Afghanistan’s Ministry of Commerce
• Chinese Embassy in Kabul, which coordinates China’s regional economic initiatives

India’s Strategic Crossroads:

While China and Russia expand their economic and diplomatic footprint in Afghanistan, India has yet to articulate a coherent strategy. With China hosting regular trilateral meetings with the Taliban and Pakistan, and Russia reviving Soviet-era projects, India risks being sidelined unless it responds proactively.

Key Issues for India:

• Limited Engagement: India’s diplomatic and economic ties with Afghanistan remain minimal. The Ministry of External Affairs (MEA) should facilitate Indian private sector participation in mining, infrastructure, health, and housing projects.
• Regional Constraints: With India’s relations with both Russia and China cooling, Iran remains its only consistent partner. New Delhi has rightly sought to reinvigorate ties, highlighted by recent high-level meetings on Chabahar Port and the International North-South Transport Corridor (INSTC).
• Geopolitical Drift: The evolving political landscape in South Asia—Pakistan’s outreach to Afghanistan, shifts in Bangladesh, and renewed U.S.-Pakistan engagement—further limit India’s manoeuvrability unless it recalibrates its approach.

Conclusion:

Afghanistan’s push to use local currencies in trade with Russia and China reflects a broader geopolitical shift away from dollar-dominated systems. While Kabul aims to stabilise its economy under sanctions, its neighbours see economic engagement as a strategic imperative. India must urgently rethink its Afghan policy—focusing on regional partnerships, economic investment, and nuanced diplomacy—if it hopes to remain relevant in Central Asia’s changing landscape.