In 1997, Trillium Asset Management was alarmed to learn that Unocal Corporation, an international energy company, was actively exploring the construction of oil and gas pipelines through Afghanistan that might have resulted in as much as $100 million in yearly revenues for the Taliban regime. Clearly Afghanistan, devastated by years of civil war exacerbated by foreign interference, desperately needed the cash income. But the prospect of abetting the oppressive and brutal Taliban with a commercial project of that magnitude was outrageous, and we joined a growing international movement opposing the deal. Feminist opposition to the pipeline deal is widely credited with bringing about its collapse.
For more information on our work fighting the Unocal pipeline project, visit our Afghanistan web page.
September 11 reopened the question of Afghanistan’s future. An ironic result of the terrorist attacks is the international community’s interest in reconstructing a country that had seemed doomed to subsist forever on international handouts. With the Taliban now out of the way, will the pipeline deals be revived? Should socially concerned investors welcome and encourage pipeline deals and other direct foreign investments with a reconstructed Afghanistan? Can Afghanistan have an economic future without pipeline revenue?
Oil and Its DiscontentsIt is fashionable in many circles to assert that the U.S. military campaign against the Taliban is driven by the Bush Administration’s alliance with Big Oil. The Caspian Sea region is home to 18-34 billion barrels in proven oil reserves, and as much as 235 billion more; possible gas reserves could go as high as 328 billion cubic feet if proven. The challenge is to export these vast reserves to foreign markets, especially to growing markets in Asia and the Pacific. Historically, the region’s fuel export routes have been controlled by the Soviet Union, but since its breakup, international oil companies have been champing for a piece of the business. The geopolitics of putting together deals in this region are so complex that only one of seven new pipelines proposed since 1996 has been built. For a period in the mid- to late- 90’s, a trans-Afghan route was favored by the U.S. government and pursued by Unocal Corporation, which sought to build a nearly 900-mile gas pipeline from Turkmenistan to Pakistan through Afghanistan, to be followed in subsequent years by an oil pipeline.
While the current political climate in the U.S. has inhibited debate, the conviction that U.S. objectives have been driven by dependence on foreign oil is not limited to the far left. Even some energy executives have expressed privately their belief that the U.S. military campaign, while necessarily addressing terrorism, could be traced to Western petroleum addiction and the need to protect important fuel sources.
U.S. policy toward Afghanistan in the last decade certainly has provided rich fodder for this speculation. Following the withdrawal of the Soviet Union in 1992, the U.S. stopped funding the anti-Soviet mujahideen forces from whom today’s Northern Alliance and some Taliban forces soon emerged. The Taliban movement, which took root in Afghan refugee encampments in Pakistan, gained popular support by promising to end the anarchy, plunder and widespread rape propagated by mujahideen forces.
No hard evidence has emerged that the U.S. directly supported the Taliban’s ascendance. But during the critical period throughout 1996 in which the group secured its final hold on Afghanistan, the State Department openly supported the pipeline project and sent signals indicating that the Taliban offered the best prospects for its fruition. On trips throughout the region that spring, U.S. Assistant Secretary of State for South Asia Robin Raphel spoke on behalf of the pipeline. In April, Raphel stated, “This pipeline will be very good for Turkmenistan, for Pakistan and for Afghanistan.”(1) A month earlier, U.S. Ambassador to Pakistan Tom Simmons deeply offended Pakistani Prime Minister Benazir Bhutto by demanding her support for Unocal’s proposal over one from its rival, the Argentinean firm Bridas. (Bhutto demanded, and received, a written apology.) Within hours of the Taliban capture of Kabul in September 1996, Washington announced that it would establish diplomatic relations, a statement that was quickly retracted. (2)
The company’s hiring of prominent ex-statesmen such as former secretary of state Henry Kissinger, and former ambassador to Pakistan Robert Oakley enhanced perceptions of coziness between Unocal and the U.S. government as lobbyists for the deal. As noted in the current bestseller Taliban: Militant Islam, Oil and Fundamentalism in Central Asia by journalist Ahmed Rashid, while such consultancies are not unusual in the U.S. context, overseas the relationships suggested that the U.S. government and Unocal’s interests were wholly aligned.
Rashid separates U.S. policy toward the Taliban into several phases. Between 1994 and 1996, the U.S. supported the Taliban, viewing them as anti-Iranian, anti-Shia and pro-Western. From 1995 through most of 1997, this support intensified due to Washington’s support for the Unocal project. In 1997, based on growing skepticism that the Taliban and its state sponsor Pakistan could deliver a unified Afghanistan, the US reversed its policy against accepting an alternative pipeline route that would flow through Iran. At the same time, mounting feminist opposition to the regime and new Secretary of State Madeleine Albright’s condemnation of its treatment of women made diplomatic recognition of the Taliban a domestic political impossibility. These developments were major blows to the Unocal project. In the next two years, the unfavorable environment for the proposal was solidified by the Taliban’s support for Osama bin Laden, and its intransigence to foreign pressure on the questions of power sharing, women’s and minority rights, and the drug trade.
Unocal’s withdrawal from the pipeline consortium was complete by December 1998. But new research indicates that the Bush Administration came to office with an interest in reviving it. According to an Inter Press Service wire report, a new French book, Bin Laden: The Forbidden Truth, by Jean-Charles Brisard and Guillaume Dasquie, alleges that FBI deputy director John O’Neill resigned last July to protest the hold that U.S. oil companies and Saudi Arabia had over US policy towards the Taliban. The authors say that the Bush administration secretly negotiated with the Taliban in Washington from February through August 2001. In addition the authors say that former Pakistani Minister for Foreign Affairs Naif Naik told the Taliban in July that if they accepted a “coalition government of national unity,” they would be rewarded with economic aid and energy pipelines originating from Kazakhstan and Uzbekistan. Naik says Tom Simmons openly threatened the Taliban and Pakistan at these meetings with a military operation if they did not comply. (3)
In the wake of September 11, the regional oil geopolitics have shifted yet again. Russian President Vladimir Putin’s previously unimaginable decision to allow U.S. forces to operate from the Central Asian Republics reveals how deeply Moscow shares Washington’s urgency to replace the Taliban. Yet, writes Ahmed Rashid, Russia is still so nervous about the U.S.’s designs on the region that National Security Advisor Condoleezza Rice felt impelled to write in a recent article, “I want to stress this: our policy is not aimed against the interests of Russia. We do not harbour any plans aimed at squeezing Russia out of there.” Rashid speculates that when a stable government is established in Afghanistan, the U.S. will reconsider a trans-Afghan pipeline project, on account of the $30 billion already invested by U.S. oil companies to develop oil and gas fields in Kazakhstan, Turkmenistan, Uzbekistan, and Azerbaijan. The Afghan route would cost one-half the amount of the other alternative proposed by Washington, which would run through Georgia to Turkey’s Mediterranean coast.
While there has been other such speculation in the media concerning a possible revival of interest in the pipeline after the Taliban have been removed from power, industry analysts are skeptical. According to Cambridge Energy Research Associates (CERA), a consulting firm that advised Unocal when it was considering the Afghan pipeline route: (4)
Changes in the Caspian pipeline picture in the past five years have rendered this concept unrealistic for the foreseeable future…[because] there is no longer a shortage of oil export capacity in Kazakhstan; the need for a major new oil pipeline via Afghanistan or any other route will not reemerge until around 2010. Renewed opportunities for Central Asian gas to the north – to and through Russia – have removed the pressure that could have pushed gas from Turkmenistan to South Asian markets via Afghanistan. (5)
Yet given the long lead-time required for pipeline construction, CERA’s conclusion is puzzling. If market forces would support a pipeline in 2010, the time to begin construction would be now. Unfortunately, CERA declined to be interviewed for this article.
Another skeptic is Stephen O’Sullivan, head of research for United Financial Group, who told the Moscow Times in November, “I’d be surprised if after 20 years of war the U.S. would want to build a pipeline in Afghanistan,” adding that Washington is unlikely to want to disrupt its increasingly close relationship with Moscow.
One thing is certain, regardless of the timeline: as long as security remains an issue, there will be no prospect of financing pipelines through Afghanistan.
Will Unocal be back? “Not us,” a company spokesman emphatically told Reuters in November. Since September 11, the company’s web site has posted an announcement denying any involvement in Afghanistan. Unocal contributed $100,000 to the World Trade Center relief fund.
Starting From ScratchDuring the last week of November, a conference in Islamabad co-sponsored by the United Nations Development Program, the World Bank, and the Asian Development Bank examined Afghanistan’s prospects. Just prior to the gathering the World Bank released its “Afghanistan Approach” paper, which states in its introduction, “Merely restoring the pre-1978 economic situation would still leave the country one of the poorest in the world in terms of both incomes and social indicators…. [R]econstruction will need to be combined with a massive development effort….” (6)
By every measurable social indicator, Afghanistan leads the world in suffering and deprivation. Seventy percent of the population is malnourished (including one half of all children), and most of the urban population is dependent upon foreign food assistance. Access to potable water is rare. Nearly half of all men are illiterate, as are 80% of women. In 1999 only one-third of all children were enrolled in school – and only 3% of all girls. Average life expectancy is 40 years, and over 25% of all children do not live to the age of five. An estimated six million refugees have fled the country since the Soviet invasion in 1979, including most of the professional class.
On September 27, UN Secretary General Kofi Annan appealed to donor countries for $584 million in aid to Afghanistan (to which the U.S. has pledged $320 million). But rebuilding will require much more than humanitarian aid. “Relief and recovery must go hand in hand,” warms David Lockwood, UNDP deputy Regional Director for Asia and Pacific. “We have to avoid getting trapped into a relief operation only.”
Afghan’s physical infrastructure has been equally battered by decades of war and underinvestment. Basics such as schools, roads and rail transport, mail delivery and power generation and distribution barely exist. Consider for example, that there are currently only 9,000 telephone service subscribers of a total population of 26 million. The drug trade and landmine situation provide unique challenges. Clearing the 10 million buried landmines that kill and maim thousands each year and inhibit agricultural development could cost $500 million over the next decade. The wildly profitable opium trade was the economy’s leading agricultural commodity under the Taliban, who benefited from a 20% excise tax on the crop. Yet it will have to be wiped out, which will impoverish its cultivators.
All told, World Bank President James D. Wolfensohn has estimated that Afghanistan’s reconstruction will require at least $1-2 billion of aid per year for the next decade. To put that price tag into perspective, consider the recent disclosure that the U.K. intends to propose a new $50 billion international fund as a sort of “Marshall Plan” for the entire Third World.
To prosper, Afghanistan will need to open up its economy to foreign investors. The new Afghan government will need to chart a careful course between immediate and full adoption of a Western-style economic system, which would give foreign investors a totally free reign, and total isolationism, barring all foreign investment. Sadly, after years of war, little appears to remain of the Afghani economy that could serve as the basis for economic reconstruction. Significant challenges include high rates of illiteracy, the dependency of two-thirds of the population on the agricultural sector for employment and a reliance on commodity exports, which are more vulnerable to price fluctuations and import tarriff restrictions. At the same time, reducing reliance upon commodity-oriented exports will require a more educated labor force.
Afghanistan has unexploited mineral resources (including copper, iron, emeralds, zinc,and silver). It also has modest underdeveloped oil reserves (est. 95 million barrels), natural gas (est. 5 trillion cubic feet), coal (est. 400 million tons) and hydroelectric capacity. But development of these resources will be slow until the basic infrastructure needed to bring goods to market, (such as roads, worker training, power generation and security) can be put in place. Needless to say, tourism has been stagnant in recent years and will only reemerge from a lasting peace.
Afghanistan’s best hope is to focus reconstruction spending on reviving its human capital – establishing schools, literacy programs, and health care, while working to repair basic infrastructure necessary to commerce, such as roads, sewers, and communications. Additionally, the new government will need to quickly establish clear and uniformly applied commercial and legal codes establishing both basic human rights and the framework under which local (and foreign) enterprises will operate. The Chinese and Taiwanese examples indicate how quickly commerce and individual skills of entrepreneurship can develop once the framework is clear and non-confiscatory.
In our view, if a government that is multiethnic and inclusive of women can be established and demonstrate staying power, social investors should encourage any emerging interest in Afghanistan by socially responsible corporations. Social investors can play a key role in monitoring corporate activities in Afghanistan to encourage appropriate community involvement and respect for human rights and the environment. We would encourage corporations to abide by the “Declaration of the Essential Rights of Afghan Women,” drafted and adopted by Afghan women in Dushanbe, Tajikistan, in June 2000, among other codes of conduct developed for corporations doing business in developing nations. Our community must also be alert for opportunities to fund microenterprise and small business development opportunities.
Oxfam has called for international lenders to cancel the $48 million Afghanistan owes to the World Bank, the Asian Development Bank, and the International Monetary Fund. “Wiping out Afghanistan’s debt would be a fraction of what the war has cost us so far. And it would be a welcome gesture of commitment to the development of Afghanistan,” said Oxfam spokesperson David Earnshaw.” To talk about how to best help Afghanistan economically but not act to write-off its debt would be, at best, a wasted opportunity, and at worst, hypocritical,” he said. The debt write-off should be linked, Oxfam says, to Afghanistan’s commitment to a poverty-reduction strategy run by a broad-based interim government.
The world has learned its lesson that an Afghanistan divided is a threat to all. Surely the costs of rebuilding Afghanistan are small in comparison to the costs of continued social and military instability in a country devastated in the crossfire of global cold war interests. If only the lesson would be applied to every impoverished nation.
Footnotes1. Taliban: Militant Islam, Oil and Fundamentalism in Central Asia, Ahmed Rashid, p. 165.
2. Ibid. Oakley consulted to both Unocal and the State Department during the same time period, as did one of President Bush’s current top advisors on Afghanistan, Zalmay Khalilzad, an Afghan-born former State Department advisor in the Reagan Administration.
3. “U.S. Policy Towards Taliban Influenced by Oil,” by Julio Godoy, Inter Press Service, November 15, 2001.
4. “Afghan Roots Keep Adviser Firmly in the Inner Circle; Consultant’s Policy Influence Goes Back to the Reagan Era,” by Joe Stephens and David B. Ottaway, Washington Post, November 23, 2001.
5. Cambridge Energy Research Associates’ web site, www.cera.com.
6. “Afghanistan World Bank Approach”, p. ii.