Five years after the Islamic Emirate of Afghanistan (IEA) returned to power in Kabul, Afghanistan’s economic relationship with Pakistan is undergoing a structural shift. For Khyber-Pakhtunkhwa, particularly Peshawar, the issue is increasingly one of industrial resilience and competitiveness.

The clearest evidence is Afghanistan’s transit trade through Pakistan. Container traffic reached a record 102,886 containers worth $6.7 billion in Fiscal Year 2023 (FY23), but fell to 54,114 in FY24 and 42,959 in FY25. In FY26, it collapsed to just 11,592 containers valued at $367 million, according to customs data cited by Dawn.

The figures indicate that Pakistan’s October 2025 border restrictions accelerated a decline that had already begun.

Afghanistan has increasingly diversified its trade routes, with Iran emerging as a major alternative. The World Bank’s Afghanistan Economic Monitor says the Iranian corridor has become a key part of the country’s import supply chain.

In FY25, Iran accounted for 31.3 percent of Afghan imports, while direct imports from Iran and goods transiting through Iran together represented 48.6 percent. Central Asian routes are also gaining importance.

For Pakistan, the loss extends beyond transit fees. It risks losing its traditional position as Afghanistan’s principal gateway to international markets.

The decline is also hitting businesses in Khyber-Pakhtunkhwa. For decades, Afghan demand supported manufacturers, wholesalers, transporters, clearing agents and warehouses linking Karachi’s ports with Peshawar and the border markets.

Cement, construction materials, food products, pharmaceuticals, textiles and consumer goods have traditionally found markets in Afghanistan. As Afghan orders decline, manufacturers face lower demand while already dealing with high energy, financing and transport costs, Dawn reported.

Agriculture is particularly vulnerable because fruits and vegetables cannot withstand prolonged border delays. In 2025, five southern Afghan provinces exported 44,225 tonnes of grapes worth $13.8 million, with nearly 43,000 tonnes going to Pakistan. So far in 2026, exports have fallen to just 256 tonnes valued at about $100,000, according to the Associated Press.

The disruption affects both sides of the border, including farmers, transporters, commission agents, wholesalers and retailers.

At the centre of the issue is the Afghanistan-Pakistan Transit Trade Agreement, designed to give Afghanistan access to Pakistani seaports while offering Pakistan a potential trade corridor to Central Asia. But security concerns, smuggling, regulatory disputes and political tensions have steadily weakened the arrangement.

Pakistan has legitimate concerns about transit cargo being diverted into its domestic market, while Afghan traders face higher costs and uncertainty from additional requirements, inspections and border delays.

If alternative routes through Iran and Central Asia become commercially viable, traders have an incentive to establish new supply chains – and winning that business back could prove difficult.

The consequences are particularly serious for Khyber-Pakhtunkhwa, where Peshawar’s commercial ecosystem has long depended on trade with Afghanistan and Central Asia.

The Pak-Afghan Joint Chamber of Commerce and Industry estimates Pakistani exporters suffered around $225 million in losses over eight months this year because of restrictions and blockades. It puts annual Pakistani exports to Afghanistan at around $1.5 billion and exports to Central Asian markets through Afghanistan at about $800 million.

Pakistan therefore cannot treat the decline in Afghan transit trade solely as a security or diplomatic issue.

A total of 89 traders and industrialists have transferred capital to Afghanistan over the past two years, investing $68 million and directly creating more than 4,000 jobs, the Islamic Emirate said.

Hamdullah Fitrat, deputy spokesperson for the Islamic Emirate, said the investors had received the necessary facilities and support to establish and expand businesses in the country.

Fitrat said the group includes one large-scale investor, 74 medium-scale investors and 14 small-scale investors.

He added that 288 jeribs of land had been allocated to the investors in industrial parks across Afghanistan.

According to Fitrat, the investments have so far generated direct employment for more than 4,000 people.

He said the documents of a further 15 traders and investors are currently under review. Once the legal procedures are completed, they will also be eligible to receive similar facilities and incentives.

Entrepreneurs from Afghanistan and the United Arab Emirates have purchased desulfurized diesel products worth a combined $1.44 million through Turkmenistan’s State Commodity and Raw Materials Exchange, according to Turkmen media reports.

The two contracts were concluded on Friday on the exchange’s external market, Arzuw.news reported, citing information from the state commodity exchange.

The buyers were entrepreneurs from Afghanistan and the UAE, while the seller was the state-owned Turkmenhimiya concern.

The agreements cover desulfurized diesel fraction, a petroleum product produced by Turkmenistan’s petrochemical industry.

The combined value of the two transactions was reported at $1.44 million. However, no details were provided regarding the volume of diesel sold or the individual value of each contract.

Turkmenistan’s State Commodity and Raw Materials Exchange regularly facilitates the sale and export of the country’s petroleum and petrochemical products to international buyers.

The latest transactions highlight continuing commercial ties between Turkmenistan, Afghanistan and the UAE, particularly in the trade of energy and petroleum products.