Posts Tagged with Oil

Conflict Minerals are the new Blood Diamonds. The term refers mainly to three metals, tantalum, tungsten and tin, originating in Eastern Congo. Advocacy groups like the ENOUGH Project have pushed hard to put the contribution that the mining and export of these metals make to the war chest of Congolese rebel groups on the international agenda and have had some success. As part of the Dodd-Frank Wall Street reform act, the U.S. has put in place regulation that forces U.S. listed companies to disclose if they are using any of these metals from Congo or its neighbouring countries in their products and if yes, what they are doing to keep them "conflict free".

The Dodd-Frank act doesn't force companies to actually do something, if they find out that money from the mineral trade in their value chain benefits armed groups. It just provides the disclosure that advocacy groups like ENOUGH need to put public pressure on these companies.

Dodd-Frank has been quite successful in a sense: Out of fear of bad publicity, most Western companies simply switched to other sources for the metals, sending the economy of Eastern Congo into a crash. As many experts have cautioned before the law was enacted, violence didn't subside - the armed groups just switched to other modes of financing themselves.

Now the European Union discusses a similar legislation and it will be interesting to see if any lessons from Dodd-Frank will make it over the Atlantic. So far, the debate in Europe has mainly revolved around the question, which part of the supply chain will be covered by the proposed legislation. In its broadest version, every European-registered company would have to publish similar information to the U.S. Dodd-Frank act, including retailers. But this doesn't play well with European industry interest groups, which fear an increase in bureaucracy and negative publicity for their members, reports Politico:

European Trade Commissioner Karel De Gucht said last month that he wants to be sure any EU policy builds on the U.S. mandate and encourages broader action. However, in recent days, EU trade officials have also begun considering a less stringent proposal that would apply only to European-owned metal processors, a lobbyist close to the discussions said. That proposal would exempt most of Germany’s manufacturing companies, which largely import their minerals from non-European processors.

The problem: European smelting companies process only a small part of the world's tantalum, tungsten and tin. The market is dominated by smelters in China and Malaysia, who wouldn't necessarily fall under the proposed E.U. regulation. This would render the law ineffective, because metals from conflict regions would just be processed in smelters without reporting obligations and could then be imported to the E.U. as finished products without a declaration of origin. To be effective, the E.U. regulation would need to cover at least one stage of the value chain above the smelting level.

But the E.U. faces another obstacle, as has become apparent with the application of Dodd-Frank: stopping armed groups from profiting of the minerals trade doesn't necessarily stop conflicts. Just take the example of the Democratic Republic of the Congo:

As a result of the steps being taken, militias have seen their prices for the minerals drop by more than 55 percent, reports Sasha Lezhnev, Enough’s senior policy analyst.

But even with reduced income from mineral sources, the last year has seen an incredibly high level of violence in the DRC, with the rebel group M23 even taking control of the regional capital Goma for a few weeks. The reason is simple: conflict is born out of political confrontation, not greed, and the Congo offers many more means to finance an armed struggle than minerals. Considering this, Dodd-Frank and the proposed E.U. legislation should be sold as conflict reducing mechanisms, but measures to increase general transparency along mineral supply chains, which would be a perfectly valid reason to enact these kind of laws.

This post is part of my ongoing obsession with the relation between natural resources and conflict on the African continent. Read on to find further insights on this topic and be sure to check back regularly! I will update this article frequently with long and short posts in the manner of a slow live blog.

When oil companies become advocates for peace

Commonly, oil companies are associated with less than benign influence on conflicts. This reputation is well earned: oil money financed a whole chain of Nigerian military rulers, kept the Sudanese regime afloat during the worst massacres in Darfur and continues to play a dubious role in filling the coffers of authoritarian regimes, like in Angola and Equatorial Guinea.

But this interpretation overlooks the potential -- and in some cases actual -- positive impact that oil companies can have on political and violent conflicts. Arguably, the Chinese government is one of the lynchpins of keeping the peace between Sudan and South Sudan. The interest of China is clear: keep the oil flowing. But the net effect on this particular aspect of the region's many overlapping conflicts has been positive.

A recent article on the blog African Arguments is another example of the positive influence oil companies can have on active conflicts. Written by a consultancy, it reports on an ongoing diplomatic push to finally resolve the dispute over Western Sahara -- spearheaded by French energy giant Total.

There is even talk of Kosmos lobbying the US administration and Total the French government to support a major new diplomatic initiative.

Of course, other parties are interested in a resolution as well, not least because the United Nation voiced fears that Sahrawi youth living in refugee camps are easy pickings for recruiting agents of regional Islamist groups. But with oil prices set to rise and promising geological structures present off the Sahrawi coast, interest in exploration and exploitation will rise. As the article notes, international companies are unlikely to take the risk of acting in the current legal limbo:

Oil exploration permits have been issued by both Morocco’s state Office National des Hydrocarbures et des Mines (Onhym) and Polisario’s government-in-exile, the Saharan Arab Democratic Republic (SADR), but the international consensus is that no significant exploration can be undertaken until the dispute is settled.  This follows a legal opinion by the UN General Counsel that stated that exploration and extraction of mineral resources in Western Sahara would be illegal “only if conducted in disregard of the needs and interests of the people of that territory”.  It has generally been viewed that exploration for reserves of oil and gas would run counter to this; thus they should stay in the ground pending a definitive resolution.

What do you think, do commercial interests of oil companies offer the chance to positively influence conflicts in Western Sahara and elsewhere in Africa?