Afghanistan: Coffins for the U.S. & NATO; contracts for China

Some bitter ironies in Afghanistan these days: U.S. and French soldiers gunned down by the very Afghan troops they work with. America and its NATO allies, facing huge budget problems themselves, persist in squandering billions in Afghanistan, to defeat Islamic radicals and create a propitious climate for growth and investment. Right now, the largest investments so safe guarded are Chinese.  

Another paradox, it was American engineers who, in the summer of 2010, completed a survey concluding that Afghanistan sits atop one trillion dollars of untapped copper, iron and lithium deposits. If it could just get its act together, the country had a promising future. Skeptics immediately claimed that rosy estimate didn’t take account Afghanistan’s woeful infrastructure: it could cost more to mine those resources than they were worth.

But that’s not how the Chinese see it. A few weeks ago, China’s National Petroleum Corporation became the first foreign company to be allowed to explore Afghanistan’s oil and gas reserves in the Amu Darya Basin. The deal is estimated to be worth more than $700 million. Some speculate it could ultimately be worth ten times that amount to China.

Even before that deal, however, China was already the largest foreign investor in Afghanistan. In 2007 Beijing signed a $3 billion agreement to explore huge copper deposits in Mes Aynak, south of Kabul.

India is the only other country to go after Afghan minerals. Last November a deal was signed giving Indian firms the rights to 1.8 billion tons on iron-ore, one of the largest untapped deposits in Asia.

It’s very unlikely that the Chinese [and Indians] would be making such risky bets without the security provided by the U.S. and its allies. After the copper deal was inked,  2,000 U.S. troops were deployed to provide general security in Logar Province where the Mes Aynak mine is located. They also protected the projected routes of the road and railway which will service the huge development. Another 1,500 Afghan National Police, presumably paid and trained by the U.S. and its allies, were sent to guard the mine itself.

In addition, facing restless Muslim groups in their own country, the Chinese are not at all unhappy about the U.S. and Nato taking on Islamic militants in Afghanistan.

Yet, all the while, China has consistently refused to contribute to the joint Western military force. They even turned down a request to permit NATO to ship non-lethal supplies via China to Afghanistan. 

So why aren’t the U.S. and its allies screaming about the situation?  Because, if they are to have a face-saving way out of Afghanistan that doesn’t disintegrate into chaos, they desperately need China’s huge new investments to continue and prosper.

As things now stand, once the income from opium production is deducted, 97% of Afghanistan’s GNP comes from foreign aid.  A whole new economy is needed.

After China’s National Petroleum Council signed its recent oil agreement with Kabul, experts warned that success was far from a sure thing: it could take five to ten years of expensive exploration to see if the oil fields are really worth developing.

But the Chinese are after more than oil and copper. They see each deal as another foot in the door. The are also determined to reap huge potential profits to come from rebuilding Afghanistan’s shattered infrastructure and economy, among such projects, a high-speed rail system.  In this way, without massive military deployments, China has already become a major player throughout the region. [I’ve written about China’s activities in Pakistan, Iran, Iraq and the Gulf in other recent blogs]  

A particularly insightful comment on China’s tactics in Afghanistan followed an article in The Diplomat:

“Achieving a peace agreement is always the number one preference for Chinese government. By nature Chinese are not interested in “beating” other group of people, but are interested in “gaining” concrete benefits. This is due to the Chinese culture and history. In Chinese culture, people believe in “harmony brings wealth”. Therefore, when dealing with a dispute, a Chinese normally do not set his goal as completely beating the others, but rather sequence his goals according to priority, and try to achieve the goal with the highest priority first, and so on. Each disputant may achieve some goal upon settlement of the dispute.”


Case in point: thanks to the Chinese, the Afghans may benefit from a real high-speed rail system before the United States.

China and the Gulf: Learning from a Lab Rat: Part Two

In my previous blog, I cited the old chestnut: What’s the difference between a laboratory rat and a human being? Answer: The lab rat finally ceases scurrying through a maze when he realizes there is no cheese at the end. Human beings, on the other hand, never stop trying.

Confronted with the maze that is the Arabian Gulf, the Chinese are the lab rats. To make that point, in the previous blog, I discussed how China, while resisting calls for sanctions against Iran for its alleged nuclear weapons program, has actually benefited from those sanctions: Iranian oil becoming more important to China than Saudi’s oil is to the United States.

China’s activities in the Gulf, however, are not restricted to Iran. Just as American troops and bases have spread along the Gulf, so have China’s businessmen, eager to exploit the vital resources that the U.S. military is thoughtfully protecting.

The surprising twist is that the Gulf is far more vital to China than to the United States. China gets 58% of its oil from the region. Estimates are that by 2015, that dependence will soar to 70% .  [By comparison, the U.S. gets only18.2% from the Gulf. ]

Another irony: while China has developed close ties with America’s prime enemy in the region, Iran, Beijing has been even more successful in wooing Washington’s major Arab ally in the Gulf , the Saudis.

Mao’s revolutionary China decried the Saudis and the feudal sheikdoms of the Gulf. But that’s then and now’s now. The Saudis currently provide China with 20% of its crude oil imports—and Saudi leaders have assured Beijing they will furnish all the crude China will need over the coming decades.

China has also offered to sell the Saudis intercontinental ballistic missiles. But in deference to Washington, the Saudis have so far turned down such proposals. Meanwhile, business is booming: China’s annual trade with Saudi Arabia totals $60 billion, the Saudis selling not just petroleum but chemicals for China’s surging manufacturing sector.

The Saudi’s new found ties with China, also enable Riyadh to pay less heed to  annoying calls out of Washington for democratic reforms—an issue that never bothers the Chinese.

Iraq’s relations with China represent another bitter paradox: You’d think that America’s huge sacrifice of treasure and blood in Iraq would have brought the U.S. some benefit--the inside track, for instance on the development of Iraq’s massive petroleum reserves. That’s what Dick Cheney and his friends were supposedly after. But in Iraq, as in Iran, the Chinese have been willing to take risks few American firms were willing or able to take.

As a result, China winds up as one of the largest oil beneficiaries of the Iraq War.

In fact, the first major deal for oil exploration signed by the new Iraqi government with foreigners  was with a couple of Chinese companies: a 23 year agreement for $3 billion in 2008 to pump oil from the Al Adhab field.  In 2009 PetroChina teamed up with Britain’s BP to win a 20 year contract to boost output from Iraq’s largest oil field, Rumaila—the only contract awarded in Iraq’s first post Saddam auction of oil licenses.

Earlier this year, Iraq President Maliki journeyed to China hoping to convince  more Chinese companies to invest in Iraq—in everything from energy, oil, transport, housing, telecommunication and agriculture.  He even welcomed Chinese military aid.

With China’s commercial successes in mind, it might be instructive to compare the size of China’s Embassy in Baghdad with the sprawling American compound, the largest U.S. Embassy in the world, staffed by 16,000 employees,  protected in turn by an army of  5,000 “independent contractors”. 

Beijing however, would probably favor a continued U.S. combat presence in Iraq. Many of the Chinese companies now operating there are afraid to expand further because of the on-going danger of terrorist attacks.

Not that the Chinese are uninterested in strategic facilities of their own.

China has contributed $200 million to construct a deep-sea port in the Baluchistan Province of Pakistan, only 250 miles from the key Strait of Hormuz.  Nearby is the port of Salalah in Oman, where Chinese navy escort force now dock to resupply; not to mention the Chinese warships that have docked in Abu Dhabi.                                            

But there’s no way the Chinese military presence will ever challenge the U.S. in the Gulf. Nor is there any evidence they want to. The hulking American bases have their own obvious downside: Remember, it was the huge inflow of American “infidel” troops into Saudi Arabia in 1990 following Saddam’s invasion of Kuwait, that provoked Osama Bin Laden’s outrage and provided him with thousands of similarly inflamed recruits.

Concern about continued opposition to U.S. troops in Saudi lay behind the decision to move the American centre of operations to nearby Qatar. As a result, since the drawdown in Iraq, the vast new air base of Al Udeid in Qatar has become a lynchpin for the U.S. buildup in the Gulf. 

But Qatar also boasts the third-largest reserves of gas in the world, and the Chinese are thus very present. 

In May 2010, CNPC  (the China National Petroleum Corporation) signed a 30-year deal for gas exploration and production in Qatar. That was just for starters. CNPC, Shell and Qatar have also put together a joint venture to build a 10 billion dollar petrochemical complex in Eastern China.

Nearby Abu Dhabi also has huge oil reserves, and in 2009 a Chinese firm for the first time won a service contract to supply oil rigs for onshore drilling. The deal came after a visit to China by Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi. The goal: to foster strategic co-operation with Beijing. The Crown Prince was also Deputy Supreme Commander of the UAE Armed Forces.

Oil-rich Kuwait, of course, was the country that the U.S. went to war to “save” in 1991 after Saddam’s troops invaded. In 2009, a Chinese state-controlled oil company, Sinopec, won a $140m contract to supply drilling rigs to the Kuwait Oil Company after Kuwait promised to export 500,000 barrels per day of oil to China by 2015. Kuwait Oil and Sinopec have also agreed to build a $9 billion oil refinery in China.

But it’s not just oil. Trade between China and the Gulf is a two-way affair. In 2009, the same year that China became the largest importer of oil from the Gulf, it also passed the United as the largest single importer to the region.

Remarkably, there are now more Middle Eastern visitors to Yiwu, a city in China that houses tens of thousands of retailers, than there are to the entire United States. Cross-border investment from the Middle East in Chinese financial institutions also represents a new mode of exchange. By 2020 annual trade between China and the Gulf will top $350 billion,

And perhaps that’s how things will continue to go: a strange symbiosis: American bases and Chinese markets.

Or maybe not. As  Jon B. Alterman at the Centre for Strategic and International Studies observes  “there is something inherently unstable about a region that relies on the West for security and the East for prosperity.”

China and Iran. Lessons from a Lab Rat

Remember the old chestnut? What’s the difference between a laboratory rat and a human being? The lab rat finally ceases scurrying through a maze when it realizes there is no cheese at the end. Human beings, on the other hand, never stop trying.

Confronted with the maze that is the Middle East and Central Asia these days, the Chinese are the lab rats. Take Iran, for instance.

Though careful not to directly challenge the Americans, China’s diplomats and businessmen have followed a sinuous route, publicly urging Iran to back away from plans to produce nuclear weapons, but refusing to support American and European calls for tougher sanctions.

True to form, the Americans have been pushing trade sanctions in various degrees of severity ever since American diplomats were taken hostage in Tehran back in 1979.

The Chinese argue the current stiff sanctions won’t convince the Iranians to stop their nuclear program. However, those sanctions have certainly helped the Chinese gain a remarkable foothold in Iran.

So much so, that today 15% of China’s petroleum and gas imports come from Iran, which makes Iran more vital to China than Saudi Arabia is to the United States [the Saudis provide 11% of U..S. petroleum imports].

At one time or another, all the great powers have had their eyes on Iran’s oil and gas reserves, the second largest in the world. But, because of the U.S. embargo, Iran suffered from a woeful lack of modern technology, engineering expertise, and capital.

The Chinese, however, have been willing to offer Iran much of what it needs to develop--as well as sophisticated arms, anti ship-missiles and nuclear technology.

In return, of course the Chinese obtained access to Iran’s massive energy reserves. In 2004, for instance, Iran signed a $100 billion dollar deal for a Chinese company to develop Yadavaran, Iran’s largest undeveloped oil field. That concession in exchange for China’s receiving 10 million tons of Iranian liquified natural gas annually for a period of 25 years.

 That deal was followed by other huge gas and oil exploration contracts, as well as a plan to deliver Iranian oil from the Caspian Sea, through a pipeline from Kazakhstan to China.
 In another convoluted agreement, a Chinese company CNPC bought the Iranian subsidiary of Sheer Energy in Calgary, Alberta, thus winding up with a 49 percent stake in another Iranian oil field.

The flourishing Chinese-Iranian trade is not restricted to the energy sector.
Chinese companies have won contracts to build everything from broadband fiber optics, to television sets, to automobiles, not to mention a $680 million contract to expand the Tehran subway system.
 And all the while, Washington has continued to view Iran as THE menace looming over the Gulf.

Thus the Americans made an ally out of Saddam Hussein after he invaded Iran, and continued to back him despite his use of nerve gas and long range rockets against civilian targets.

Again, in 1991 when Iraq’s Shiites and Kurds rose against the Iraqi tyrant following the first Gulf War, the United States stood by as tens of thousands of Iraqis were slaughtered by Saddam—despite the fact that George W. Bush had himself called for the uprising. The reason for the betrayal:  Washington was afraid that an Iraq governed by its Shiite majority would open the doors to an Iranian takeover of Iraq.

Fast forward twenty years. After having spent literally trillions of dollars to oust Saddam, U.S. troops are withdrawing from Iraq, leaving the shattered country governed by---a Shiite majority. Many of those Shiites sympathetic to Iran and still deeply embittered by America’s betrayal in 1991.

But even as they withdraw from Iraq, America has been pouring hundreds of billions of dollars into Iraq’s neighbors to ensure a massive and enduring military presence in the oil-rich Gulf. Their major purpose again, a bulwark against Iran.

In addition, Washington has reportedly been funding and training opposition groups in Iran to carry out activities that, were they directed against American targets, would certainly be labeled as “terrorist.”

That American military build-up in the Gulf has long provided Iran’s leaders with a rationale for developing nuclear weapons: not to incinerate Israel, but to defend Iran against an American/Israel attack. For years now, American officials have calmly and openly discussed such military action as an on-going and viable option.

What American officials don’t like to discuss is the fact—repeatedly cited by Iran’s leaders hard-line and moderate --that Israel, which clamors most shrilly about the Iranian nuclear threat, possesses an “illegal” nuclear arsenal that American has never been officially willing to deal with.

However, despite enduring U.S. hostility, the regime in Tehran is still very much in place, its nuclear weapons program still apparently active. And while revolts are still roiling much of the Arab world, the iron-fisted mullahs in Tehran have managed to squelch internal opposition. Indeed, there are those who argue that the embargo and constant threat of an American cum Israel military attack have in fact strengthened the hands of Tehran’s often feckless and feuding leadership.

And as all this has been going on, the Chinese have been prospering.  Chinese/Iranian trade has mushroomed from $3.3 billion in 2001 to $30 billion in 2010, and is expected to hit $50 billion by 2015.  The prize, though is the gas and petroleum.

No wonder, then, that the Chinese are as solicitous of Tehran’s interests as the folks in Washington are of the Saudis.

Their interest is not just economic.

Like Russia, China views Iran as a quasi-ally in their effort to check American power and influence in the Middle East and Central Asia.  One particularly ironic blow came in July 2005, when Iran (along with India and Pakistan) was granted observer status in the Shanghai Co-operation Organization, a regional-security arrangement—established to combat separatism, extremism and terrorism.

China’s activities in the Gulf, however, are not restricted to Iran. While the U.S. continues its huge military expenditures, the Chinese are making impressive inroads throughout the region—which, ironically, in the end, may cause them to back off their stubborn support of Iran.

More of that in my next blog.