UNITED NATIONS (Reuters) - Afghanistan-grown poppies fuel a $65 billion heroin and opium market that feeds 15 million addicts, with Europe, Russia and Iran consuming half the supply, a U.N. report showed Wednesday.

Afghanistan produces 92 percent of the world's opium, a thick paste from poppy used to make heroin, and the equivalent of 3,500 tons of opium is trafficked out of Afghanistan every year, said the U.N. Office on Drugs and Crime report.

About two thirds of that is turned into heroin before it leaves the Central Asian country, while the rest is trafficked as opium, said the study.

Less than 2 percent of that opium and heroin is seized by authorities before it leaves Afghanistan, with 40 percent of the heroin trafficked out of the country through Pakistan, 30 percent into Iran and about 25 percent through Central Asia.

"The Afghanistan/Pakistan border region has turned into the world's largest free-trade zone in anything and everything that is illicit -- drugs of course, but also weapons, bombmaking equipment, chemical precursors, drug money, even people and migrants," said UNODC Executive Director Antonio Maria Costa.

"The perfect storm of drugs and terrorism ... may be heading toward Central Asia," warned Costa. "A big part of the region could be engulfed in large-scale terrorism, endangering its massive energy resources."

Worldwide, only 20 percent of Afghan opiates are intercepted before reaching addicts, while twice as much cocaine from South America is seized, the study said. The value of heroin also increases with each border crossing -- from about $3 a gram in Kabul to up to $100 on the streets in London, Milan or Moscow.

FUNDING TALIBAN "WAR MACHINE"

Europe accounts for 19 percent of the world's opiate consumption, Russia and Iran both use 15 percent each, China 12 percent, India 7 percent, and Pakistan, Africa and the Americas each account for 6 percent, said the report, "Addiction, Crime and Insurgency: The Transnational Threat of Afghan Opium."

The Afghan opiate trade also funds insurgents, Costa said.

Since 2005, the Taliban, who were overthrown in a U.S.-led invasion in 2001 but have come back with increased attacks, has made up to $160 million a year from taxing opium cultivation and trade in Afghanistan, it said. The Taliban and al Qaeda also share in Pakistan's $1 billion-a-year opiate market.

"The Taliban's direct involvement in the opium trade allows them to fund a war machine that is becoming technologically more complex and increasingly widespread," said Costa. "Some profiteers in the heroin trade wear suits and white collars, others wear black turbans."

"Many of these drug barons, with links to insurgency, are known to Afghan and foreign intelligence services," he said. But they had not been stopped from traveling and their assets seized as required by the U.N. Security Council.

The report said most of the $65 billion a year in opium and heroin sales is pocketed by criminals outside Afghanistan.

Of the 15.4 million opiate users worldwide, 11.3 million use heroin, while the rest use opium. Nearly half the world's heroin is consumed in Europe and Russia and 42 percent of the world's opium users are in Iran.

Heroin and opium cause up to 100,000 deaths a year and are helping spread HIV at an unprecedented rate, the report found.

It also said Afghanistan has a 12,000-ton stockpile of opium, enough to meet more than two years of global demand.

"With so much opium in evil hands, the need to locate and destroy these stocks is more urgent than ever," said Costa.

(Editing by Doina Chiacu)

www.reuters.com/article/gc05/idUSTRE59K58K20091021