China's End Run to Goal of Somalia's Oil

The Puntland Post, writing about the political upheaval in Somalia, which has been commented upon in this blog and elsewhere, considers China's actions which won Somalia's oil resources. In earlier posts on this blog, I looked at China's growing influence in Africa.

Although the article quoted below is written in the first person, it is not signed.

". . .As the third act opened this year, the Islamists reemerged and, joining with clan rivals of the clans represented by the TFG, launched an increasingly effective insurgency. The tragedy, however, was that, having squandered considerable political capital on their misadventures and other quick fixes to date, U.S. policymakers not only failed to cut their losses, but exacerbated things by literally throwing more good money after bad in support of the TFG, which was just barely capable of maintaining a presence in Mogadishu thanks to the armed protection of the increasingly unpopular Ethiopian troops, and by refusing to recognize the reality that Somalia is unlikely to be reconstituted—much less by a “president” widely deemed as illegitimate, Abdullahi Yusuf Ahmed. This reality was driven home in the second scene when a “national reconciliation congress” convened at the behest of the U.S. and the international community came apart as it opened.

As if to complicate this narrative even further, a small item in the July 14 weekend edition of the Financial Times by Nairobi-based correspondent Barney Jopson unveiled a deus ex machina twist. It seems that while some U.S. officials were freely lavishing America’s material and diplomatic capital on the TFG and while Ethiopian troops and the personnel in the tiny African Union Mission in Somalia (AMISOM) were struggling to protect the interim “authorities” and restore a modicum of stability to Mogadishu, representatives of the People’s Republic of China (PRC) stepped onto the stage and, vaulting past all of the other actors, won exclusive access to Somalia’s oil.

While everyone was concerned about rescuing him, his “government,” and, more importantly, his long-suffering countrymen, from the rising Islamist tide last year, Abdullahi Yusuf Ahmed was busy negotiating a contract with the PRC’s state-owned China National Offshore Oil Corporation (CNOOC)—the same firm that one year earlier had been forced to back off a takeover of Unocal under pressure from a broad bipartisan group in the U.S. Congress—as well as the smaller China International Oil and Gas (CIOG) Group. In November 2006, while the TFG was besieged in its last redoubt at Baidoa and Ethiopia was preparing to intervene to rescue those members of the regime who had not fled or defected to the Islamists, the Somali “president” traveled to CNOOC headquarters in China to ratify the deal with the oil group’s chairman and chief executive officer, Fu Chengyu. And apparently in June of this year, while special envoys from the United Nations, the United States, the European Union, and Italy were shuttling around Somali territory trying to drum up support for ultimately-abortive national conference, TFG “energy minister” Abdullahi Yusuf Mohamad was meeting in Nairobi, Kenya, with Chen Zhuobiao, head of CNOOC operations in Africa, and Judah Jay, managing director of CIOG, to put the final touches on the technical details of the deal.

Up for grabs is what is believed to be a field located in the Mudug region of the semi-autonomous northwestern region of Puntland, traditional fief of Abdullahi Yusuf Ahmed’s Darod clan. In the 1980s, a number of Western firms—including Conoco-Phillips (then two separate enterprises), Chevron, British Petroleum, Royal Dutch Shell, and Italy’s Eni S.p.a.—held exploration concessions in Somalia and, according to some estimates, invested more than $150 million in onshore geological studies before they were forced to shut down operations with the collapse of the state. Now Range Resources Ltd., a mysterious oil group that has been suspended from listing on the Australian Stock Exchange five times in the last two years (its share price closed last Friday just shy of 70 U.S. cents), has concluded from data collected by earlier firms as well as field studies that it has managed to conduct in recent years thanks to its close ties with Puntland’s rulers that the potential yield may be as high as 10 billion barrels—making the Mudug field alone worth more than $700 billion at Friday’s $70.28 a barrel London Brent crude spot price.

The deal gives the Chinese firms 49 percent of the profits with the rest supposed to go to the TFG. In addition, according to a subsequent Financial Times report, the TFG will receive a bonus of $50 million for any wells which yield more than 200,000 barrels a day for seventy-five consecutive days. While the venture is clearly risky for the Chinese firms—recall that Somalia has been without an effective government for more than sixteen years—the real question is; in the event they should meet with success, whether Somalis in general will actually see any benefit from the natural resources under their feet. It seems that Abdullahi Yusuf Ahmed and Abdullahi Yusuf Mohamad, apparently with the collusion of their clansmen in Puntland, entered into the bargain without consulting TFG “prime minister” Ali Mohamed Gedi. In fact, as Voice of America’s Nick Wadhams reported last week, the deal was signed and sealed not only without Gedi’s knowledge, but before the transitional body’s rump parliament even had an opportunity to debate any legislation governing oil exploration. To add to the intrigue last week, Reuters reported that a deal was in the works to sell a 49 percent stake in the nascent Somali state petroleum firm that would be vested with the 51 percent share of the Chinese deal to Indonesia’s state-owned PT Medco Energi Internasional Tbk and Kuwait Energy Company (a.k.a. Zahra Oil and Gas KSCC), a privately-held enterprise.

Last year I argued in this column that the Beijing was engaged in a long-term pursuit aimed at securing Chinese access to Africa’s energy resources wherever they can find an opening, an observation confirmed by President Hu Jintao’s twelve-day, eight-nation tour of Africa this past February, the third since he took office in 2003, which I likewise commented on in this space. However, as I noted earlier this summer, “while the focus has largely been on what China has extracted from Africa, what Beijing brings to the regimes of the continent” needs to also be examined, particularly when it “appears that the PRC has progressively found that arms transfers can serve a wide array of Chinese foreign and even domestic policy purposes, including improving relations with particular countries” even as it “undermines what little leverage Western governments and international organizations have with recalcitrant regimes.”

All these concerns come together in the formerly secret deal that the TFG “president” struck with the Chinese firms. In Somalia, public unrest increases daily as a direct result of the heavy-handed actions of the TFG: last Friday, the popular Shabelle radio station in Mogadishu reported that it was shut down for several hours when the local police commander in the Holwadag quarter arrested nine staff members (all were eventually released); not surprisingly the same day, two TFG soldiers and two civilians were killed in fighting in the same neighborhood. The next day, the director of independent radio station Horn Afrik’s second FM station, Capital Voice, Mahad Ahmed Elmi, was shot dead by unknown assailants. But even as such tactics drive marginalized clans like the powerful Hawiye of Mogadishu into the arms of the Islamists, Abdullahi Yusuf Ahmed went ahead and signed, with no public consultation, what could be viewed as the most significant economic accord in Somali history, thus throwing additional fuel onto the flames.

The TFG head’s bet, of course, is that the deal will bring him resources that will enable him to safely ignore his critics or, if necessary, to suppress them. Certainly the record of Beijing’s other friends in Africa would lend credence to his calculus. As for ordinary Somalis, if TFG’s Chinese firms maintain the same modus operandi in Puntland as they have elsewhere across the continent (i.e., bringing in foreign workers and adding little to the local economy), they will receive little more for their inconvenience than the environmental degradation of their grazing lands and perhaps a little abuse by their own security forces working with the resource exploiters (see my report last year China’s hydrocarbon extraction in South Sudan).

And the greatest irony of it all is that if CNOOC, CIOG, and their partners strike it rich in Africa’s newest oilfield, it will be because U.S. diplomacy, money, intelligence, and arms provided the security and propped up the TFG political cover without which the Chinese consortium could not have gone prospecting in Somalia on behalf of the one country that, according to both the 2006 Quadrennial Defense Review and the 2007 Annual Report to Congress on the Military Power of the People’s Republic of China, “has the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional U.S. military advantages.” Were it not for the grand strategic stakes involved, this whole tale would actually be quite a comical (and just) comeuppance for the architects of the ill-considered policy of throwing America behind the corrupt and illegitimate TFG.