The Economic and Political Implications of Afghan Gold

Includes: BHP, RIO, VALE
by: Ketan Desai

The results of a survey conducted by the US (with help from Soviet data) was released this morning. Apparently, Afghanistan has gold. Not black gold, or white gold, but the real thing, along with copper, cobalt, lithium, iron, and niobium worth between $1 trillion and $3 trillion. Compare this with Afghanistan's GDP which presently is around $16 billion.

Needless to say, this has the potential to enrich the people of Afghanistan if developed properly. And that is where the problems begin. Many countries and parties will want to get their hands on these resources.

1. The Taliban and Al Queda. If simply re-asserting their brand of Islamic fundamentalism on the suffering people of Afghanistan was not enough, this will provide a huge boost to the Taliban. From a jihadist viewpoint, this has to be Allah's will. With $1 trillion to be spent on global jihad, the chances of them accepting any peace with Karzai has become that much slimmer.

2. President Karzai. The Afghan Government's writ runs only in Kabul and a few selected cities beyond. With the recent departure of the security chief, the schism between the Tajiks/Uzbeks and Pashtun's has widened. Now with $1 trillion thrown in, the power play between the Northern Alliance and Karzai will widen. Karzai will survive as long as the US supports him, but he will be caught between the Taliban and NA once the US and NATO. I don't expect him to outlast the US withdrawal. Which may make him crawl to Pakistan.

3. Pakistan. As a report in the BBC, Pakistan's ISI has been giving clandestine support to the Taliban in order to obtain strategic depth against India. With $1 trillion thrown in, they will re-double their efforts to double cross the US and NATO. Expect Pakistan to increase its support to the Taliban and undercut Karzai. This will leave Obama and India fuming and trying to devise a new strategy.

4. President Obama. Having rather foolishly given a timetable for withdrawal, Obama has placed himself and the US in a bit of a quandary. After all, the Talibs only need to sit quietly for a year and a half (but being Pashtuns, they won't do that; they have to show they are kicking the enemy out). He may have been under pressure from military and intelligence experts to modify his withdrawal pledge. Now expect him to come under pressure from mineral and mining companies as well, especially given China's expansion there. I expect him to modify his stance. But where to get troops from that will be willing to serve in Afghanistan? India?

5. India. After the experience in Sri Lanka, India is loath to send its troops abroad. Which is why India is one of the top 5 donors to Afghanistan, but partakes in only civilian activities. It is also one of the most admired countries in Afghanistan, with everything from Indian doctors to Mumbai films in great demand. India will be caught in a trap. It can't allow Pakistan and Taliban to take over Afghanistan, especially if they have $1 trillion to encourage terrorism in India. So it may have to bite the bullet and send troops to Afghanistan. This will of course concern China.

6. China. Unlike India, China actually shares a border with Afghanistan. Its mining companies have already started exploiting the mineral wealth there. It would not want the Taliban back, especially given the situation in Urumqi. The Taliban would have no qualms backing the freedom fighters or terrorists (depending on one's point of view) from Urumqi. China may use its influence with Pakistan to ensure preferential treatment of Chinese companies. But gold has a way of changing priorities, and the Pakistanis and Talibs may no longer play ball. China will not enjoy having India's troops in Afghanistan either. So it may continue its confused, vacillating, and self-destructive policy as it has in North Korea, urging "restraint on all sides."

7. Mining companies. Rio Tinto (RTP), Vale (NYSE:VALE) and BHP (NYSE:BHP) will be salivating to get into Afghanistan. They will prefer a government friendly to their business practices, and expect them to put their money to play. Mines take a long time to develop, so the groundwork will need to be laid now.

All in all, we live in interesting times. May the "Great Game" begin anew.

Disclosure: No positions