Somalia is open for business. This is the message that Somali President Hassan Sheikh Mohamoud has been conveying since August’s US-Africa Leaders Summit in Washington. Monday’s Somalia Oil and Gas Summit saw this message further articulated upon with Somalia’s Petroleum Minister pledging to have oil production starting by 2020. This would be a major boost for the Somali economy as there has not been significant foreign investment in the country since civil war broke out in 1991. On the surface this investment would be wonderful for the Somalia as the revenues that the projects could generate could be used to rebuild infrastructure and provide security to attract foreign capital to land based projects rather than just off shore hydrocarbon extraction. Hopefully, this will be the case, however, more money means more resources to fight over. Though there are signs of improved relations between Mogadishu and the autonomous region of Puntland it is too early to tell how long these improvements will last. Meanwhile, relations with the self-declared (though not formally recognized) country of Somaliland remain as contentious as ever.
On October 14 the Mogadishu based Federal Government of Somalia (FGS) signed an agreement with Puntland that promised that the FGS would not seize land controlled by Puntland in order to create new states. Puntland had cut ties with Mogadishu in August over this concern. The agreement between the FGS and Puntland highlights the fact that these entities can work together as Puntland merely wants autonomy unlike Somaliland which declared itself an independent state in 1991. Despite the agreement there is no guarantee that improved relations between Puntland and the FGS will hold out. There is an estimated 10 billion barrels of oil off the Puntland coast. It is not realistic to think that the FGS will allow to Puntland the keep all revenues nor is likely that Puntland will allow Mogadishu to take the majority of the profits. For this reason the question of how profits from potential deals are divided must be monitored closely as terms deemed unfair to either side heighten tensions, diminish trust, and create a situation in which conflict is far more likely. If there is conflict the diversion of resources to fight rivals could lead to a rise in piracy and serve as a boon to al-Shabaab both of which could impact shipping through the Suez canal.
Somali Piracy had dropped 40% since its peak in 2011 however a resurgence could be possible if the limited military resources of Somali states were used to fight amongst themselves. The reality is that fisherman might resent oil companies if their operation were perceived as impacting the fishermens’ livelihood. This could drive them to protect their interest through force which could pave the way for an increase in piracy. If the FGS, Puntland, and/or Somaliland were busy fighting themselves stopping a rise in piracy could prove problematic. Though it is not impossible that Somalia would welcome foreign assistance in containing piracy it is also important to note that this request could be perceived as an incursion on Somali sovereignty. Some might see such assistance as Somali leadership admitting that it is weak. From a political perspective this is hardly the image that leaders want to project even at the best of times. A rise in piracy would not be cheap. The London School of Economics Cost has projected that for every $120 million seized by pirates customers and affected industries (e.g. Shipping) have lost between 0.9 and 3.3 billion dollar.
Al-Shabaab has been weekend in recent years with the September killing of its former leader Ahmed Abdi Godane being just the latest in a series of blows which have dramatically weakened al-Shabaab’s influence in the country. If competition over oil and natural gas led Mogadishu to concentrate its limited resources on expanding the FGS’s influence into Puntland and/or Somaliland it would be a welcome respite for the al-Shabaab as it would afford the organization time to regroup. Preventing the development of extra sources of revenue for the FGS is also a key incentive for al-Shabaab as additional funding for Mogadishu would give the FGS more tools to further weaken if not totally eradicate al-Shabaab. Though there may be internal division within al-Shabaab’s ranks it is important to note that existential threats can turn rivals into allies. A resurgence of al-Shabaab would not just threaten Somalia. It could also threaten other regional countries, such as Kenya, which are currently seeing a great deal of investment.
By its very nature more conflicts in Somalia would increase instability in the country. If this were to lead to a resurgence of piracy shipments through the Suez Canal could be adversely affected. These events are playing out at a time when crises such as ISIS and Ukraine are commanding much of the international community's attention and while internal conflicts in the European Union and the United States over economic policy is influencing how much of an appetite these countries have in becoming overly involved in another part of the world. If Puntland and the FGS can agree on profit sharing from oil and natural gas projects and if credible policies for addressing security concerns related to Somaliland, al-Shabaab, and piracy are put into place we could be looking at the beginning of a more stable and prosperous Somalia. That said, achieving all of these prerequisites is easier said than done and potential conflicts over oil and natural gas revenues could undo all the progress that Somalia has made in recent years.
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