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Afghan Optimism Ignores History

International oil companies from the likes of Exxon Mobil and India's ONGC Videsh are among the majors setting their sights on an October deadline to submit bids to the Afghan government for oil and natural gas blocks in the country's north. Last year, regional powerhouse China National Petroleum Co. won a tender for contracts in the region. If reserve expectations prove commercially viable, the country could get more than $9 billion a year from future oil production. Historically, however, Afghanistan has featured large in a regional battleground where geopolitics, war and energy prove to be a volatile mix.

Exxon Mobil was one of the eight international companies expressing interest in six blocks in northern Afghanistan. CNPC already won a tender there last year in an area that the country's Mining Ministry estimates holds millions of barrels of oil equivalent. The U.S. Geological Survey estimates the country holds as much as 1.9 billion barrels of undiscovered technically recoverable crude oil reserves. If oil prices stay where they are, that means Afghanistan could eventually earn more than $9 billion per year -- half of the country's 2011 GDP -- from oil.

Violence, however, has overshadowed any significant development in the country. International forces, present in the country since late 2001, are looking to hand security responsibility over to the fledgling military by 2014 and violence is the worst it's been since the Taliban fell from power a decade ago. In the 1990s, international investors were looking at Afghanistan as part of a broader Caspian strategy to thwart Soviet dominance of the regional energy sector. Unocal, now a wholly-owned subsidiary of Chevron Corp., was in talks with the Taliban to build a natural gas pipeline from Turkmenistan through the Afghan north. During the Clinton administration, the regional policy was aimed at promoting the independence of former Soviet clients while at the same breaking the Russian "monopoly control over the transportation of oil" in the region. When members of the Taliban regime visited the Texas headquarters of Unocal in 1997, a pipeline through Afghanistan was seen as a "desperately-needed boost" for a country devastated by 20 years of civil war.

More than 15 years later, companies looking to gain a foothold in Afghanistan must face the same fractured political system that stymied investors in the 1990s. In a country notorious for corruption, supporters of warlord-turned army chief of staff Gen. Abdul Rashid Dostum are already allegedly seeking a kickback from CNPC.

Ryan Crocker, the retiring U.S. envoy to Afghanistan said the country is unlikely to descend into civil war by 2014 when international forces leave the country. Exxon, meanwhile, isn't a company known to enter into areas without promise. Global leaders have a history of bullish sentiments for Afghanistan, but the country, as it was in the 1990s, is likely to remain "a friggin' mess" given its bloody history.

By. Daniel Graeber of Oilprice.com




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