Foreign Policy Blogs

China Wins Afghan Oil Contract

China Wins Afghan Oil Contract

Afghanistan's Ghazni Province is believed to contain large deposits of lithium

Any suspicions that the US went into Afghanistan to secure access to resources went out the window last week. On Wednesday, Tom A. Peter over at the Christian Science Monitor reported, “China’s National Petroleum Corporation became the first foreign company to tap into Afghanistan’s oil and gas reserves. Chinese officials have estimated that the deal could be worth at least $700 million, but some say China could earn up to 10 times that.”

That foreign companies would exploit Afghanistan’s natural resources was inevitable. After 30 years of war, local firms just don’t have the ability in terms of talent or money to do the job themselves. Abdul Rahim Hashami, CEO of the New Afghan Petroleum Company told Mr. Peter, “I don’t think any Afghan companies have the business background or experience related to this…. The only thing that I can hope, is that Afghans are in some way a part of it, as partners or used in one way or another so Afghans can be a part of the project.” I am old enough to remember when that was called “neo-colonialism.”

However, when your country’s GDP (excluding the opium trade, of course) is 97% foreign aid, neo-colonialism may not look that bad. Foreign aid is helpful, but a local mining industry that generates jobs and that may retain some of the profits is much better. The China National Petroleum Company has agreed to pay as much as 70% of the profits to the Kabul government, in addition to a 15% royalty on oil production as well as paying a corporate tax of 20%.

Much has been written about the $1 trillion worth of natural resources in Afghanistan, not just oil but also iron, copper and so on. Missing from this has been a discussion of extraction costs, and they render the exploitation of a lot of the nation’s underground wealth uneconomic. Energy, in the form of oil and natural gas, is a big exception to this equation. Given its proximity and its thirst for oil, China is a logical partner for the Afghans. And for America, not being first is a boost to its reputation.

Photo Credit: Tyler Hicks/The New York Times



Jeff Myhre

Jeff Myhre is a graduate of the University of Colorado where he double majored in history and international affairs. He earned his PhD at the London School of Economics in international relations, and his dissertation was published by Westview Press under the title The Antarctic Treaty System: Politics, Law and Diplomacy. He is the founder of The Kensington Review, an online journal of commentary launched in 2002 which discusses politics, economics and social developments. He has written on European politics, international finance, and energy and resource issues in numerous publications and for such private entities as Lloyd's of London Press and Moody's Investors Service. He is a member of both the Foreign Policy Association and the World Policy Institute.

Great Decisions Discussion group