China wins $700 million Afghan oil and gas deal. Why didn't the US bid?

China’s National Petroleum Corporation became the first foreign company today to tap into Afghanistan’s oil and gas reserves. Officials estimate that the deal could be worth more than $700 million.

Jason Lee/Reuters/File
China’s National Petroleum Corporation secured the first deal to tap into Afghanistan's oil and gas reserves. The deal could be worth $700 million.

In a deal finalized on Wednesday, 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.

China has not participated in the war effort, but it has managed to gain the biggest stake in Afghan minerals. In 2007, China inked a $3 billion deal securing access to copper mines in Mes Aynak, south of Kabul.

The latest Sino-Afghan agreement strengthens the Asian nation’s foothold here and could benefit the economic development of Afghanistan. With few viable industries in Afghanistan, Western forces here looking for a way to restore economic independence and stability have long touted the country’s mineral resources.

The United States and other Western nations that have borne the brunt of the cost of the Afghan war have been conspicuously absent from the bidding process on Afghanistan’s mineral deposits, leaving it to mostly to regional powers. 

India is the only other nation to make a significant agreement to access Afghan minerals. In November, it won a bid granting Indian firms access to 1.8 billion metric tons of iron-ore, one of the largest untapped deposits in Asia.

US benefits?

While the US may not seek financial gains from Afghan minerals, it’s likely to reap political benefits from the creation of a more stable, less aid-dependent economy that could reduce the burden of America’s long-term commitments in Afghanistan. It also sidesteps many Afghans’ suspicion that the US is here to steal the country’s resources.

“Americans know that if we can create an environment for Afghanistan’s neighboring countries to have their economic benefits tied with the Afghans’ benefits, it will create a situation that stops the negative intervention of these neighbors and puts them in a better position to help create peace and stability in Afghanistan,” says Hamid Faroqi, a professor of economics at Kabul University. “The US and other Western countries also don’t want to get involved with this because they don’t want to get accused of being here just to take advantage of Afghanistan’s natural resources.”

In the summer of 2010, US and Afghan officials trumpeted survey findings that they claimed showed the nation was sitting on $1 trillion of untapped copper, iron, and lithium deposits. A number of mineral experts subsequently charged that the estimate was grossly inflated as the cost of extraction could in some cases exceed the value of the minerals.

Afghanistan's survival

Still, in a nation where 97 percent of the nation’s GDP, excluding opium production, is dependent on foreign aid, many see the development of the mineral industry, whatever it may be worth, as vital to the nation’s survival.

“For Afghanistan, it is very important to have our mines excavated. Surviving on only international assistance Afghanistan cannot develop. It must have its own mines and resources tapped,” says Mangal Sherzad, a law and political science professor at Nangarhar University in Jalalabad.

To access these deposits, Afghans are heavily dependent on foreign countries. Soviet geologists surveyed many of the country’s mineral resources back in the 1960s, but more than three decades of war and instability have hindered the development of an Afghan mining industry.

Speaking about Wednesday’s deal with China to extract oil from the northeastern provinces of Sari Pul and Faryab, Abdul Rahim Hashami, CEO of the New Afghan Petroleum Company says, “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.”

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