The Republic of Somalia is considered a poor ‘failed' state. News about Somalia is often full of violence and lawlessness, and in recent years, of acts of piracy in the Gulf of Aden and the western part of the Indian Ocean. Chaos and strife have been beleaguering the country since the overthrow of President Mohamed Siad Barre in 1991. In truth, the country is split into two main parts: northern Somalia, divided in turn into three relatively stable states – Somaliland, Puntland and Galmudug; and south Somalia, which is nominally ruled by the federal government, but is under the de facto rule of the Islamist groups and is plagued by widespread chaos and assassinations. At present, , African peacekeeping forces continue to be deployed in Somalia, especially in the southern part of the country. Somalia's economy depends on livestock, money transfer companies (thousands of Somalis in the diaspora regularly wire money to their relatives in the country) and telecom companies. The population of Somalia is more than 3.5 million. The country joined the Arab League in 1974. Recently, Turkish Airlines launched the first regular flights by an international airline to the volatile capital Mogadishu in 20 years. Lately, a new phase has begun in the history of the poorest Arab country. On the second of April, the Australian company Jacka Resources, a relatively unknown oil companies with oil stakes in Australia, Nigeria and Tunisia, announced that it has signed an agreement with the Somali company Petrosoma, whereby Jacka holds a 50 percent equity in block number 26 located in the south-west of Somaliland, which is believed to contain geological formations and basins similar to those in Yemen and Uganda – where oil reserves containing billions of barrels of oil have been discovered. Jacka Resources will conduct seismic surveys, exploration and drilling. In truth, the agreement with the company took place in light of three important events: First, many significant oil and gas discoveries have recently been made in East Africa, especially in the waters of the Indian Ocean adjacent to Mozambique and the eastern coast of the African countries overlooking the Indian Ocean. These discoveries, especially those involving gas fields, highlight large prospects for the production and export of natural gas from East Africa. As is known, oil production in Africa was previously limited to countries in North and West Africa, especially Nigeria. In fact, Jacka is not the first oil company to operate in Somalia. Before Jacka, the Canadian company Africa Oil began the first exploration operations earlier this year in Puntland, and drilled the first oil well in Somalia 21 years ago. There is also interest shown by Chinese companies, especially the China National Offshore Oil Corporation (CNOOC), to drill in Somali waters. Chinese companies have been trying for a while now to extend their presence to most African countries with oil potentials, with a view to secure energy resources from the largest possible number of countries, and through its own national companies rather than Western companies alone. Chinese companies, for instance, have played a crucial role in the development of the oil industry in Sudan. Secondly, there is growing interest in oil exploration in the country. The government of Somaliland signed agreements last November with Ophir Energy, a company registered in London, Asante Oil, and Prime Resources to conduct seismic surveys and exploration within 18 months. Interest by international oil companies in Somaliland is now poised to grow further, especially with the announcement of an oil discovery in Kenya and neighboring countries, despite the lack of estimates so far about the size of oil reserves discovered there. Thirdly, there has been growing international interest in the development of Somalia, because of the oil prospects there and the opportunities oil may bring to Somalia on the one hand, and to the companies of the countries concerned, on the other. This interest was underscored by the International Conference on Somalia recently held in London, which culminated in pledges for securing financial assistance and providing the necessary means for the development of the county and its efforts to combat terrorism, paving the way for the companies of the concerned countries to invest in Somalia. The British Foreign Secretary William Hague travelled to the Somali capital Mogadishu straight after the conference, where he spoke of ‘the beginning of an opportunity' for the redevelopment of the country. Britain is leading a campaign to explore oil in Somalia, and official talks were held between Somali officials in Puntland and the British government regarding collaboration in the oil sector. Puntland will in fact export the first shipment of Somali oil soon, and a pipeline has been built from the oil fields to the coast. The two mega corporations BP and Shell have also shown considerable interest in the conference's proceedings, and expressed their desire to launch economic programs along the Somali coast to help employ Somalis. Needless to say, a torn country beleaguered by chaos and lack of security, and subsequently an absence of transparency and financial accountability, raises the most important question in the event oil is discovered in Somalia: What financial and contractual regimes will be agreed on with the oil companies? Will a minister or two in the country, or a militia or militia leader, be the ones to solely benefit from this oil? Then there is the problem experienced by Somalia and other countries that are also newcomers to the oil industry, represented by the following question: How will the local technical team be assembled to negotiate with the international companies? Will the help of international civil society organizations specialized in the oil industry, such as the Extractive Industries Transparency Initiative (EITI) especially established for this purpose, be sought to verify the transparency of the oil industry later on? Or will the help of UN organizations be sought, as did Yemen in the mid-eighties with the discovery of the Marib field? The possibility of discovering oil in commercial quantities and achieving political stability in Somalia will provide an opportunity to change the situation in the country. However, these possibilities are essentially contingent upon the type of the contracts that will be agreed upon, and the extent at which they will safeguard the economic rights of the country. This is not to mention the readiness of the Somali politicians to shoulder their responsibilities in achieving transparency and a fair and fruitful distribution of the oil revenues, and lastly, the issue of how to deal with tribal conflicts and political divisions in the country. It is feared here that the failure to deal wisely with these factors would further inflame the conflicts in the country, rather than having the oil revenues become a means of reinforcing stability in Somalia. The calls for partitioning oil states are a very good example of what we are referring to here. International oil companies were interested in Somalia before the country was partitioned and before the outbreak of the wars there, where around one million people were killed as result of war and disease. Around 21 oil fields were drilled in the past. But at present, it seems that small oil companies have taken the initiative, taking up risks in their attempt to discover and prospect oil. It is expected, as is usually the case in the oil industry, that major companies would follow in the footsteps of smaller companies, should commercially viable quantities of oil be discovered. However, it is unlikely that these companies would expand their operations to the various parts of the Republic of Somalia if the volatile political situation in the country remains unchanged. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
