Exxon Mobil in Afghanistan: A shot in the arm for Kabul’s ailing economy?
Exxon Mobil confirmed on Monday, July 2 that it had submitted a formal expression of interest to participate in Afghanistan’s upcoming Afghan-Tajik Basin oil and gas tender. The tender will award four blocks near Mazar-i-Sharif that hold an estimated 1 billion barrels of oil in Afghanistan’s largest hydrocarbons basin. Exxon’s expression of interest is good news even though it does not necessarily mean the company will actually bid (which will depend on a variety of factors discussed below).
To date, Afghanistan’s natural resources — especially its oil and gas resources — have not attracted much interest from Western firms. Chinese and Indian companies dominate Afghanistan’s extractive industries: Chinese-led consortiums won the Aynak Copper Tender in 2008/2009 and the Amu Darya Oil Tender in 2011, and Indian firms won the majority of blocks in Hajigak Iron Tender in late 2011.
China’s involvement in Afghanistan’s economy is important because it gives a neighbor and world power a vested interest in the country’s future. However, some have taken this view to a ridiculous extreme that completely ignores the dangers posed to Afghan and US interests by Afghanistan’s overreliance on Chinese firms – to the exclusion of Western companies.
Chinese energy companies have earned a negative reputation throughout the developing world because of their poor environmental track record, ignorance of human rights norms, and penchant for welching on local infrastructure environments, among others. Already in Afghanistan, Chinese firms have allegedly engaged in corruption to win rights to the country’s copper and oil/gas resources. Their approach to business does little to promote governance, growth, and stability in Afghanistan.
I have written previously about why Afghanistan’s earlier oil bid round – the Amu Darya Oil Tender — failed to attract Western companies. To recap, the Government of Afghanistan offered lackluster commercial terms and structured the tender to favor state-owned enterprises. Exxon and other Western companies will not bid in the Afghan-Tajik tender if Kabul once again offers terms that do not account for Afghanistan’s massive political risk, challenging security situation, and nearly non-existent infrastructure (i.e. electricity, roads, pipelines, refineries, etc.). The Afghan Government must offer more sweeteners than last time because the Afghan-Tajik blocks are pure exploration blocks that have never commercially produced oil before.
U.S. oil and gas companies are not saints, but do generally respect the rule of law and transparency, two commodities that are in short supply in Afghanistan. They also tend to use better technology, invest in the local community, and honor their contractual commitments. Exxon or another Western company’s entry into Afghanistan would not only help strengthen U.S.-Afghan ties, but also spread respect for Western business values that are important to Afghanistan’s development.
According to the Afghan Ministry of Mines, seven companies besides Exxon expressed interest in the Afghan-Tajik Tender: Pakistan Petroleum, ONGC (India), TPAO (Turkey), Dragon Oil (UAE), Kuwait Energy, Petra Energia (Brazil), and PTT (Thailand). Somewhat surprisingly, no Chinese firms were included on the Ministry’s list. Even though Chinese state-owned firms are not competing, Exxon will face fierce competition, if it elects to bid.
The U.S. Government cannot remain passive while the highest levels of the Indian, Pakistani, Turkish, and other governments lobby Kabul on behalf of their firms. Washington should use its influence to help interested U.S. firms – such as Exxon — to compete, as dictated by Secretary Clinton’s vision for U.S. economic statecraft. Key to this effort is the U.S. Department of Defense Task Force on Business and Stability Operations – which serves as the primary advisor to the Afghan Government in this area. Exxon’s interest is a good opportunity for the Task Force’s new leadership team to engage in robust economic statecraft.
Hopefully, both Kabul and Washington will learn from the Amu Darya Tender and work together to ensure U.S. companies, such as Exxon Mobil, have a fair shot this time around. It would be a shame to squander one of the rare opportunities to forge stronger U.S.-Afghan economic ties and give Afghanistan’s weak economy a much-needed boost.
Eli Sugarman is a Truman Security Fellow.