Afghanistan is the world's first narco-state, with one-third its GDP dependent on narcotics sales.

Twenty years ago a heroin dealer going by the name of "Mr. E" exchanged a couple of keys of Pesharwar White in a room at the Caesar's Palace hotel in Las Vegas for $65,000 in cash. Unfortunately for Mr. E, the buyer was an undercover detective, and he spent the next four years in a Nevada state prison. Mr. E's real name is Izzatullah Wasifi, and he is now Afghanistan's anticorruption chief.

Wasifi leads a staff of 84 people in the fight against endemic graft, a sizeable portion of which is linked to the country's position as the world's largest producer of the opium poppy and its heroin by-product. He is fighting an uphill battle.

According to the United Nations Office for Drugs and Crime (UNODC), Afghanistan's 2007 opium harvest is set to be bigger than last year's record-shattering crop, and perhaps the only thing that will stunt further growth in supply is a glutted market. "I don't think anyone has a good model to predict what will happen next—the increase last year was totally unexpected," says Peter Reuter, professor of Public Policy at the University of Maryland.

Afghan farmers cultivated more than 6,000 tonnes (each tonne is 1,000 kilograms) of poppies in 2006, nearly 50 percent more than the previous year, producing an overhang of opium worth about $1 billion, according to UNODC director Antonio Maria Costa. The excess has not reached the market and depressed opium prices, meaning it is being held for future sales, he said. The UNODC notes that prices have been "conspicuously stable" even with the output jump.

Currently Afghanistan furnishes more than 90 percent of the world's heroin. Afghan narcotics are a $2.6-billion-a-year industry and make up about one-third of the country's gross domestic product (GDP). In comparison, when cocaine was king in Colombia in the 1980s, the drug trade made up a mere three percent of the South American nation's economy, says Alfred McCoy, a professor of history at the University of Wisconsin-Madison and author of the book The Politics of Heroin.

Afghanistan is the world's first drug-monocrop-dependent country, he says. Opium's significance in the economy washes over into the political sphere given Afghanistan's status as a "narco-state," or a nation in which narcotics have a disproportionate influence in shaping the character of the country's politics. "Everybody, right up to the prime minister, is implicated in the [Afghan drug] traffic. It's inescapable," McCoy says.

Afghan farmers turned to poppy cultivation after the 1979-1992 war with the Soviets and a succeeding civil conflict destroyed the country's bucolic chassis. The elaborate snow-melt irrigation systems were in shambles; the herds of sheep, goats, and cattle were victims of war; and the life-giving walnut and pistachio trees were razed by the Taliban.

Rather than rebuilding the centuries-old rural system, farmers turned to planting poppies for several reasons, according to Afghanistan's Drug Industry, a UNODC report. They included the collapse of any central government after the Soviet withdrawal; the fact that opium is relatively drought-resistant and requires less than half the water of mainstay wheat, making it convenient in a semiarid zone; and that it requires more labor than cereal crops, creating jobs for a largely unemployed, war-torn society.

Most important, opium poppies are much more lucrative than conventional crops. "For one hectare [100 acres] of opium poppy, farmers can earn nearly 10 times more than cereal crop," the UNODC said in its Afghanistan Annual Opium Survey 2006. The drugs and crime office estimates that farmers make $4,900 per hectare from opium. And Afghan opium has a higher morphine content than poppies from Southeast Asia and other areas, meaning less opium is needed to make more heroin.

Afghan farmers do very well planting opium, but the traffickers are the ones who get the biggest share of the money, according to the UNODC. About 76 percent of the total income from the 2006 Afghan "opium economy" was reaped by traffickers, including laboratory owners, while the rest went to the farmers, the World Bank said.

The supply chain is enormous: Afghanistan services a giant corridor of clients ranging from Dublin to Vladivostok. More than 90 percent of the illicit heroin in Britain alone is of Afghan origin. The American market is largely handled by Colombia and Mexico.

Diminishing such a dominant crop is a complicated matter. After the Taliban government fell in 2001, lingering insecurity and widespread corruption set the stage for Afghan opium's further upward trajectory. Drug money funds the violence in the south by nourishing the insurgency and corrupting local officials.

Now the country is dependent on opium as the main source of employment, foreign exchange, and tax revenue. "If you flew over Afghanistan and defoliated the crop right now, it would be a disaster. The government would fall, society would reel, and the Taliban would reemerge to take power. Nobody can actually do much about it; it's too dominant," says McCoy.

Hamidullah Tarzi, a former government cabinet minister and analyst who served or advised every Afghan government since the 1970s, agreed. "If you got rid of drugs overnight, the economy would collapse. It is like talking about a Gulf state without oil," Tarzi told the Financial Times. Gradually weaning Afghanistan off opium would take time: Thailand had an opium problem of much smaller dimensions, and the eradication process stretched over 20 years.