China’s Play for Somalia’s Oil

As this column has chronicled over the past year and a half, United States policy toward the remnants of the former state of Somalia has evolved into a sort of dramatic farce played out in the following manner:

In the first act, set in the period up to the end of last summer, the opening scene was characterized by the reconstitution of al-Itihaad al-Islamiya (“Islamic Union”) militants with an infusion of al-Qaeda-linked radicals and resources, a development largely ignored in most of official Washington even after I and other analysts briefed Congress in the middle of 2005. In the second scene, the one positive development in the territory of the former Somali Democratic Republic, the restoration of the Republic of Somaliland as a democratic and secular state went – and continues to go – unrecognized. In the third scene, when it became apparent that the Islamists were on the verge of capturing the onetime capital of Somalia, Mogadishu, America tried to deal with the threat on the cheap by cobbling together a group of warlords who were promptly defeated by the Islamists. When that effort failed, the act concluded with the State Department threw American backing behind a self-appointed interim authority, the “Transitional Federal Government” (TFG), which had never governed more than a provincial outback, and hoping for the best as its policy drifts aimlessly.

The second act was set in the fall of 2006. In the act's opening scene, the Islamists continued racking up success after success, with the radicals among them gradually gaining ascendancy as they cornered the weak TFG and increasingly assumed the mantle of nationalist irredentism. The presumed climax of the drama came when, at the last minute, with U.S. support, the Ethiopian army rushed in to save the TFG and apparently routed the Islamists. The sweep-up – involving even a few U.S. air strikes against al-Qaeda-linked high-value targets – is somewhat desultory however, setting the stage for renewed conflict in the next act.

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 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.

J. Peter Pham is Director of the Nelson Institute for International and Public Affairs and a Research Fellow of the Institute for Infrastructure and Information Assurance at James Madison University in Harrisonburg, Virginia. He is also an adjunct fellow at the Foundation for the Defense of Democracies in Washington, D.C.