Year One of the Resource Wars?

By Daniel McGroarty

As the country toggles back and forth between World Cup updates and the latest live shots from the Gulf spill-cam, three recent stories suggest the shape of geo-conflicts to come, with access to increasingly scarce resources being the prize.

First, the story that seemingly came out of nowhere to land on the front page of the New York Times: "U.S. Identifies Vast Mineral Riches in Afghanistan." Quoting high-level sources in the U.S. military, the Times reported the war-ravaged country is home to vast stores of iron, gold, cobalt and copper, as well as tech-critical materials like lithium and rare earths.

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Blowback to the gray lady's venture into resource reporting was immediate and intense. The story, it turns out, wasn't nearly so new - McClatchy News Services beat the Times to it by more than a year - and the geological surveys had been around in one form or another since the Soviets invaded Afghanistan. Resource experts decried the Times' naivety on Mining 101 basics. Take the Times' same-day follow on, which giddily translated the "find" into cash-per-capita terms: "Assuming the $1 trillion valuation and Afghanistan's population of 29 million, that would give each Afghan man, woman and child $34,482.76."

And what's wrong with that assessment? Apart from small issues like who owns the resources, what's missing is an economic assessment of the cost to recover, refine and transport resources to the markets that need them. For Afghanistan - lacking basic infrastructure, ample sources of water and energy essential to mineral extraction and a ready pool of skilled labor - recovery costs will be monumental. Add the fact that the surface above Afghanistan's riches is all too often the scene of Taliban versus Special Ops skirmishes - the year-old McClatchy story noted that before mining could take place in many areas, developers would have to reckon with mining of a different sort: land-mines - and the level of political risk makes Congo's conflict mines a cake walk by comparison.

Yet not everyone is put off by the dangers of developing mines in today's Afghanistan. The Times' 12th paragraph makes passing mention that China put up $3 billion for a massive copper find south of Kabul and is busy building the infrastructure to develop it.

That makes for a troubling takeaway: U.S. and British geologists do the mapping, U.S. and British troops do the fighting - while China does the shopping. (The dangers aren't hypothetical: McClatchy's story noted that the Army's 10th Mountain Division suffered three casualties from an IED while patrolling a road being built to access China's Afghan copper holdings.) With so much American blood and toil expended in Afghanistan, that's a division of labor that should give the U.S. and its allies more than a little concern.

The second story comes out of Brussels, where a new EU Report warns of shortages of materials key to Europe's manufacturing industries; particularly its efforts to promote green technologies. The EU lists 14 materials subject to supply risk: antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, Platinum Group Metals, rare earths, tantalum and tungsten. For 10 of the 14, Europe depends on China as its prime supplier.

Useful as it is for Brussels to ring the bell on resource dependency, the report offers little in the way of remedies. Yes, it will help to recycle scrap, research substitutes for scarce materials, and push back against resource export restrictions. The one thing missing is for Europe to make "domestic" resource development a priority. There's no mention at all of resource-rich Greenland - the Afghanistan of the Arctic - nor of the mining sectors in Sweden, Finland, Poland and Romania, or even specialty metals mining in Ireland, Norway and Portugal.

Instead, the report makes a wan recommendation that member-states consider resource extraction in combination with "other competing land uses." But that half-measure misses a teachable-moment: It's one thing for the tech-challenged public to believe the gadgets we rely on work by magic; it's quite another, however, to believe the devices themselves - from smartphones and iPads to solar cells and electric cars - are made by magic, fashioned out of some sort of high-tech pixie dust. We may live virtually, but the devices we depend on have their origins in mud and rock, pulled up from beneath the surface of the earth.

The third story comes from East Asia: South Korea's Posco, the world's second largest steel manufacturer, has bought a 31 percent stake in a Chinese rare earths mine. Posco's partner in the venture? The state-owned Korea Resources Corporation.

The deal makes for an instructive case study in comparative economics. Sensing shortage, the EU and the U.S. government issue white papers. Sensing supply disruption, Posco enlists a government partner, marshals its capital and locks up surety of supply. Will other companies follow, and will their host governments view these deals as mere business tie-ups or geo-strategic alliances? Whatever other countries may do, South Korea - which recently expanded its government resource stockpile to 20 metals and minerals - is taking this seriously.

Meanwhile, the rest of us slouch toward a future in which the Demand Countries supplicate the Supply Countries, praying for raw materials at any price, while the Supply Countries use their Western-trained MBAs to jigger production to find the sweet spot: The highest possible price without triggering a rush to alternative resources R&D. With OPEC as a model on how to feed dependency, raw materials producers can look forward to decades of domination - particularly as developed nations believe, just as we no longer keep a chicken coop behind our kitchens, we've evolved past the need to dig up the materials we depend on.

In the U.S., 2010 seems destined to be remembered as the Summer of the Spill before the Fall of the House of Incumbents. Looking back years from now, will we remember things differently, instead marking 2010 as Year 1 in the Resource Wars?

Daniel McGroarty, principal of Carmot Strategic Group, an issues management firm in Washington, D.C., served in senior positions in the White House and at the Department of Defense.

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