Welcome, electronic traveler!

What I plan to do: provide some commentary on interesting news items, as often as possible. Most will be news about technology, major scientific breakthroughs, or political issues from all around the world.

What I don't plan to do: be biased, prejudiced, focus on only one subject.

What I want: if you have something to say, please do! Comment the articles, email me if you have any observations, provide feedback! If you like something, tell all your friends! If you don't like something, tell ME!

Saturday, June 19, 2010

On Minerals, War, and Afghanistan

A geological survey in Afghanistan recently uncovered a great wealth in the country: approximately one trillion dollars worth of iron, cobalt, nickel, molybdenum, niobium, lithium and other rare earths. Enough, in fact, to transform the country into 'The Saudi Arabia of lithium', according to a Pentagon memo. But will this mineral wealth actually save the country, or plunge it further into war?

The minerals discovered are vital to the tech industry of the world, there's no denying that. Laptops and phones alike run on lithium polymer batteries, with cobalt, nickel and gold being crucial components in the circuit boards, and the prevalence of electronics in today's devices guarantee a high demand, while the other resources are important in the research and generation of  renewable energy. But can this demand actually make the extraction profitable?

There are a lot of factors to take into account here: first and foremost, even if operations are started now, it may be a decade or more before they actually return the initial investment, and start producing profits. This is the most crucial factor, as not many investors are willing to risk investments with such a long return.

The second most important factor is security. While analysts are adept at assessing and pricing the risk inherent in, say, an offshore oil platform in Brazil, or a mine in Nevada, neither investors, nor companies have a lot of experience or daring to start an operation in the middle of an active insurgency. After all, who can guarantee that the US Army in the area can secure their sites and supply lines, and that they will actually be there in ten years? While the US now has an interest in the country, in order to secure the sites for themselves, and enable their own industries ready and cheap access to the raw materials, the costs of extraction combined with stationing the troops there for another decade at the very least might seem a bit daunting a task, one that they are unwilling to undertake.
Just to put this into perspective: not only does the Army have to defend several scattered mining sites around the country, but also build, maintain, and defend a thousand-plus miles of road network, which has to cross borders that are being disputed and are anything, but sure to remain open and friendly even next year or five years from now.

Third, one must take into account that the Talibans are fighting for their country, and so far, even if they're not exactly winning, they certainly aren't losing. The Army is fighting a politically motivated enemy in unfamiliar terrain, and are undermanned and under-equipped for the job at hand, plus their hands are more or less tied: they can't go blasting the whole country to kingdom come, not only because it will lead to even more troubles and having to repopulate in addition to installing a new government and rebuilding, but also because of the backlash they would receive from the international community. Thus, they must take the slow road, slowly weeding out the insurgents, which is a hard task indeed.
Meanwhile, Mr. Karzai is receiving more and more heat from Washington because of his corrupt and favoritistic government, and becoming increasingly embittered. This might easily lead to him shutting out the investments that have the potential to shore up the Afghan economy (which is currently supported by opium trade and international aids) many times over.

And lastly, one must also look at the geopolitics of the area. Last year, Afghanistan was a backwater country with a lot of goats, terrorists and soldiers. Now, overnight, it transformed into the greatest deposit of rare minerals in sight. Suddenly, it's a valuable target. And its neighbors might not possess the restraint of the USA. Thus, what is currently set to save the country may end up dooming it just as easily.
Just to list a few ways this 'miracle' may backfire:

  • It may become another source of financing for the insurrection currently in progress, either in the form of them exploiting it themselves, charging protection fees for the caravans on their road networks, or through corruption.
  • The export routes will have to pass through several countries, which may be destabilized by the fact that this means the protection rackets currently only profitable in Afghanistan will suddenly become good business outside it too.
  • Chinese or Russian state-owned companies are more willing to tolerate the risks such an operation carries. This, combined with their propensity for locking down long-term supplies may lead to the escalation of the mercantilistic conflict between the US and China/Russia.
  • The Afghan government is, arguably, the most corrupt one in the world, and it won't be any less corrupt after finding out they're sitting on the biggest pile of resources the tech industry need anywhere in sight. This will render any incentive to stabilize the government insignificant compared to what officials may rake in by exploiting their power over these resources.
Of course, all these factors exist in a feedback loop, and not by themselves. Increasing security costs or lower production alters the global supply and demand picture, which increases prices, which in turn increases the incentive to further disrupt production, and the cycle begins anew. And there's a rather good chance that this development produces not one, but several interconnected feedback loops, each influencing the other, and if they are allowed to form, or not curbed fast, the situation, and with it, the (formerly) low price of the resources, may very well spiral out of hand.

In conclusion, the US may have to act fast, and Obama may have to forfeit his promise to withdraw, in order to secure a steady and cheap supply of raw materials for the American industries to work with. But will these resources really be that cheap, and will their extraction be worth the trouble companies have to go through to get at them? Only time will tell...

No comments:

Post a Comment