The ongoing unrest in Nigeria’s volatile delta region is having an inflationary impact on oil prices, with no resolution to the crisis in sight. The turmoil in the delta, the center of the country’s oil industry, is largely driven by poverty and corruption. This year has seen steadily increasing disturbances, forcing cuts of over 20% of the country’s daily output of oil (Terrorism Monitor, August 10). The effect of militant activity is exacerbated by ineptitude and corruption in the country’s oil industry. Despite being the world’s eighth largest oil exporter and fifth largest importer to the United States, Nigeria must re-import refined oil products—such as gasoline—because of decades of neglect of its own refineries. In January, Nigerian officials speaking on condition of anonymity acknowledged that rampant corruption meant that an estimated 10 percent of the country’s daily 2.5 million barrel exports were being purloined. World Bank President Paul Wolfowitz told reporters in October that “over the past 40 years, about US$300 billion in oil wealth has disappeared from the country.” The effect on government revenues is significant since Nigeria’s oil industry provides 20% of Nigeria’s GDP, 95% of the country’s foreign exchange earnings and nearly 65% of its budgetary revenues. In one of the most scandalous signs of the rampant graft in January, Nigeria’s Navy Command in Delta State confiscated a barge containing 250,000 tons of petroleum at Egborode, an amount equivalent to a Very Large Crude Carrier (Vanguard, January 12).
The frequency and the extent of attacks by rebel groups targeting oil production have increased significantly this year. Nearly 70 foreigners and many more Nigerians have been taken hostage since January. By April, the incessant attacks resulted in a 25% drop in Nigeria’s oil exports. The Movement for the Emancipation of the Niger Delta (MEND) militants demanded that Shell comply with a Nigerian court order and pay $1.5 billion in compensation for pollution in the Niger Delta. MEND guerrillas and federal government officials then negotiated a brittle truce, which lasted four months.
Yet the rising violence did not deter all potential investors. During a two-day visit in April, Chinese President Hu Jintao secured four oil-drilling licenses for China in return for $4 billion of investment in Nigeria. Following Hu’s visit, MEND on April 30 set off a car bomb near an oil refinery in Warri and subsequently issued a statement noting that the blast was “the last warning to oil industry workers. We wish to warn the Chinese government and its oil companies to steer well clear of the Niger Delta. The Chinese government, by investing in stolen crude, places its citizens in our line of fire” (BBC, April 30).
April’s fragile cease-fire was abruptly shattered on August 20 when Nigerian military units ambushed 15 MEND guerrillas who were on their way to negotiate the release of a kidnapped Shell worker. The militants were all killed. Ten days later, under the Gulf of Guinea Energy Security Strategy collaborative arrangement, established in 2005, the United States and Britain agreed to provide assistance to Nigerian security agencies to deal with the rising violence in the Niger Delta. U.S. Assistant Secretary of State for African Affairs Linda Thomas-Greenfield said that the U.S. military would provide Nigeria with a network of radar and communication facilities to assist Nigerian security forces in monitoring territorial waters. Nigerian National Petroleum Corp. Managing Director Funso Kupolokun told journalists, “The United States and the United Kingdom, as the inaugural international partners in this (GGESS) initiative, have reaffirmed their commitments to a range of significant steps designed to reduce oil thefts, money laundering and illegal small-arms trafficking that have fueled conflict in the Niger Delta” (This Day, August 31). U.S. and British instructors have also begun training Nigerian military personnel attending the Peacekeeping Training Wing at the Jaji Military College in Kaduna.
Continued Violence and Nigeria’s Response
Despite U.S. and British assistance, by October the situation in the delta had deteriorated to the point where the U.S. Consulate in Lagos issued a Warden message to all Americans to avoid traveling in the region (U.S. Consulate General, Lagos, Warden Message, October 19). On November 22, Nigeria’s state security forces attempted to free seven expatriate oil workers seized by militants kidnapped from an offshore Eni SpA FPSO production vessel at its Okono Okpoho field. Four people died in the incident—two militants, a Nigerian soldier and British expatriate David Hunt (BBC, November 23). Agip closed 50,000 bpd of production at Okono Okpoho as a result of the attack and declared force majeure (GAC Hot Port News, November 23). Earlier in the month, the U.S. Consulate in Lagos warned that militants were planning a wave of up to 20 simultaneous attacks and hostage takings against the delta’s oil facilities (Delta Region, U.S. Consulate General, Lagos, Warden Message, November 3).
The Eni SpA encounter marked the first time that the Nigerian government attempted to liberate hostages by force. President Olusegun Obasanjo described the hostage takings and Hunt’s death as “unfortunate and embarrassing,” even as he declared that the situation in the area “is becoming more controllable.” Navy spokesman Captain Obiora Medani echoed the government’s hard line, stating, “Yesterday’s operation is in line with the government’s directive to flush out criminals and terrorists from the Niger Delta. It is unfortunate that a foreigner was killed during the operation. We are not going to change our strategy. We will smoke out the militants until they desist from their criminal and deadly acts” (Oyibosonline, November 24).
By late November, violence and the threat of it had reduced Nigeria’s oil production by roughly 700,000 barrels a day, or about 39% of the country’s current total output. Oil operations by multinationals Royal Dutch Shell PLC, Exxon Mobil Corp., Total SA, Agip, Eni SpA and Chevron Corp. are now all potential targets (Oyibosonline, December 1). Since February, militant attacks have cost Shell, Nigeria’s biggest international operator, around 485,000 bpd of lost production. One weakness of the companies’ local security forces is that under Nigerian law, private security personnel are banned from carrying weapons. Despite the risk, following the hostage rescue attempt, Shell began moving personnel and equipment to its abandoned fields in the Niger Delta region under tight security cover provided by the Joint Military Task Force, Operation Restore Hope, which escorted oil workers and equipment from Warri to the various fields in Bayelsa and Delta states.
Implications for the Future
The chaos in Nigeria is occurring against a background of OPEC’s shrinking share of the global oil market. On December 1, OPEC said that its share of the global crude oil market has declined from 50% to 30%, in statistics from about 40 million bpd to 26 million bpd. The decline comes as two newly emerging African oil states, Angola and Sudan, seek to join OPEC at the December 14 meeting in Nigeria. OPEC’s President and Nigerian Minister of State for Petroleum Edmund Daukoru remarked that OPEC’s dwindling market share has resulted in declining revenues for member states and is a source of worry to their governments (This Day, December 2). The violence is costing the Nigerian economy and its joint venture partners an estimated $295 million daily as a result of the volume of crude oil being shut in when calculated at a rate of about $59 per barrel.
The perilous possibilities of African oil production have increasingly attracted the attention of the U.S. government and military. Africa currently is an “area of responsibility” for the U.S. European Command, which along with U.S. Naval Forces Europe, the Africa Center for Strategic Studies and the Department of State, sponsored a three day “Maritime Safety and Security in the Gulf of Guinea Ministerial Conference” in Benin last month. More than 90 specialists from Angola, Benin, Cameroon, Republic of the Congo, Democratic Republic of the Congo, Equatorial Guinea, Gabon, Ghana, Nigeria, São Tomé and Principe and Togo attended the event. U.S. European Command Deputy Commander General William E. “Kip” Ward told participants, “The threats in the Gulf of Guinea are real and the European Command is committed to help our partner nations bring peace, stability and economic opportunity here.”
In a tacit admission that the Nigerian government is unable to quell the ongoing turmoil in the delta region, Abuja recently requested “the presence of American Marines in the Niger Delta to counter growing threats by militants on vital oil facilities.” The request was denied; an administration official speaking on condition of anonymity said, “The administration would provide security assistance to Nigeria, but we do not want to be bogged down and be drawn into what is essentially an internal Nigerian issue” (Oyibosonline, December 1). In a telling incident about the ongoing level of corruption in the country, in late November the United States barred five Nigerian governors from entry following a request by Nigeria’s Economic and Financial Crimes Commission (EFCC), after earlier rejecting an EFCC request for a blanket entry ban on all serving state chief executives and some categories of senior government officials, individuals that the EFCC feared would flee possible arrest after the expiration of their tenure (Daily Sun, November 27).
Adding to the volatile mix of corruption and poverty are the presidential elections that are tentatively scheduled for next April. After failing to ram through constitutional amendments allowing him to seek a third term, incumbent President Olusegun Obasanjo and most of his governors must leave office next April, having served the maximum of two, four-year terms. As a result, political tensions have soared, with various interest groups pursuing often competing interests, including the delta militants. April’s elections will be the first time one democratically elected government hands power to another since independence. In Nigeria, political instability, corruption, petrodollars and violence have created a conundrum, which seems destined only to slide further into chaos.
Despite the uncertainty, there are still indigenous investors willing to gamble on the oil-rich region. Nigerian maritime firm Dersko Marine Limited has concluded arrangements to build a $25 billion port facility in the Niger Delta, which will include a modern deep water port, modular fabrication yard, container manufacturer and tubular steel mills as well as dry and graving docks (Daily Sun, November 23). At this stage, it is not certain whether the impoverished guerrillas in the delta region will allow this or any other significant investment project to come to fruition.