Tuesday, May 3, 2005

Most heroin sold in Europe comes from Afghanistan’s poppies. This past week, the 2005 opium harvest was in full view and going full speed in Afghanistan. The cultivators gathering resin from the crop are operating even near the main road through Kandahar and the farmers are out gathering resin from opium poppies in full view.

Last year 80% of the world’s opium came from Afghanistan and production is up over 239% since 2003, according to U.S. government estimates. Afghanistan is the world’s largest producer of illegal drugs.

In 2002 Super Bowl ads, the White House sent out the message that “drugs fund terrorists”. Doug Wankel, a former U.S. Drug Enforcement Administration (DEA) official, says the opium industry is “financing terrorism. It’s financing subversive activities. It’s financing warlordism… And if it’s a threat to the government of Afghanistan, it’s a direct threat to the national security interests of the United States.”

“The Bush administration has decided not to destroy the opium crop in Afghanistan,” stated a U.S. intelligence official returning from Afghanistan in relation to the 60% smaller 2002 crop. The source, who requested that he not be identified, noted “U.S. forces could destroy the crops using aerial spraying techniques, but no such actions are planned.”

U.S. plans to spray the crops were canceled at the request of Afghan President Hamid Karzai, who has called for jihad or “holy war”, but is concerned that aerial spraying could be harmful to the health of Afghan villagers. The U.S. claims that the spraying would be safe, but is granting Karzai’s request.

Karzai has indicated that he may change his mind if other U.S. strategies fail to halt the opium. Congress budgeted $774 million for anti-drug operations in Afghanistan just this year.

The CIA reports in From Flowers to Heroin that it takes 10 kg of opium to make 1 kg of 90% pure heroin. The CIA states that impurities are introduced into the processed heroin before it hits the street, making the purity of the end consumer product about 40%. That implies that 10 kg of opium makes about 2.25 kg of 40% pure heroin.

The Guardian reports that the 2002 opium harvest was 3400 metric tons. Using the conversion supplied by the CIA, 2002’s 3400 opium harvest could be converted into 765 metric tons of heroin. According to the International Narcotics Control Board, the 2003 opium harvest was 3600 metric tons. Using the estimated 239% increase of the present harvast over 2003, it means that the 2005 harvest is about 8600 metric tons.

The 2002 street price of heroin in the UK was about 60 £ per GRAM, or (assuming the present 1.89 USD to 1 £ exchange) 113.40 USD per GRAM. As the supply goes up the price will come down some, so for this calculation only the 2002 figures will be used. If all the opium harvest is converted into heroin and all of it is sold at the UK street price, the total street value of the harvest is 86.7 billion USD. (765 metric tons x 1000 kg/metric ton x 1000 grams/kg x 113.4 USD/gram = about 86.7 billion USD.) To the extent the 2002 numbers are valid today, the street value of the 2005 harvest should be roughly twice the street value of the 2002 harvest, about 173 billion USD.

To put these numbers in perspective, the total market capitalization of Ford, General Motors and Daimler Chrysler combined is about 76 billion USD. The total market capitalization of Toyota and Honda combined is about 167 billion USD.

The Financial Action Task Force (FATF) was formed to promote harmonization of international antimoney laundering (AML) laws. Despite the fact that tens of billions of USDs are generated from the Afgan opium harvest alone, the FATF has not added Afghanistan to its blacklist of uncooperative nations. One has to wonder, therefore, what the poppy farmers are doing with their share of the money that escapes the notice of the banking system and the FATF.