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World: Nigerian Threat Highlights Fragility Of World Oil Market

  • Mark Baker

The world's oil supply has never seemed so precarious. The war in Iraq has cast a shadow over that country's ability to export crude. The possibility of an Al-Qaeda attack in Saudi Arabia is an ever-present fear there. In Russia, the country's biggest oil exporter -- Yukos -- is threatened by bankruptcy. Now, conditions in Nigeria -- Africa's biggest oil producer -- are deteriorating. Local militiamen have said they will wage war against foreign oil interests unless they're given a bigger share of the country's oil revenue. That warning sent world oil prices to $50 a barrel -- their highest ever.

Prague, 30 September 2004 (RFE/RL) -- As if the Iraq war, Al-Qaeda, and Yukos weren't bad enough for world oil markets -- this week brought some alarming news from Nigeria.

It's the world's seventh-biggest producer of oil, and one of the most important suppliers to the United States.

This week, a local militia leader -- Mujahid Dokubo Asari -- threatened to wage what he called "all-out war" against oil interests in the country unless revenue from oil sales is not more broadly shared among Nigeria's people. Most of Nigeria's oil is controlled by international companies like Britain's Royal Dutch Shell Group and Italy's Agip.

News of the threat sent oil prices this week to more than $50 a barrel. Prices have eased a little since, but the situation remains precarious.

Michael Peel, the West Africa correspondent for the British newspaper "The Financial Times," took time out to speak to RFE/RL by telephone from the Nigerian capital, Lagos.

"[Asari] is essentially a militia leader who is quite a senior figure in the politics of the Ijaw people -- the largest ethnic group in the [Niger River] delta," Peel said. "The delta area produces [most of] Nigeria's oil. There's been oil taken there for many decades now -- large-scale production began in the 1950s. But local people -- among them the Ijaw and many other people -- are deeply unhappy about the fact that the delta is polluted and that they've seen very little economic development, despite the fact that the oil companies and the government have been benefiting to the tune of many billions of dollars from oil that's been taken from their land."
So far, Nigeria's oil output has not been greatly affected -- though oil companies say they take the threat seriously.


So far, Nigeria's oil output has not been greatly affected -- though oil companies say they take the threat seriously.

Simon Buerk, a spokesman for Shell in London, told RFE/RL that his company is concerned for the safety of its 5,000 employees in Nigeria, but considers the matter one for the Nigerian government.

Peel said the situation appears to be improving following talks over the past two days between Asari and high-ranking officials of the Nigerian government -- including, possibly, President Olusegun Obasanjo.

"[Asari] was in Abuja, the capital," Peel said. "He says he met the president and had talks that went quite well and that he announced a cease-fire as a result, pending further talks and a more substantive peace deal."

The initial reports of threats against Western-owned oil installations in Nigeria immediately raised concern that terrorist groups might be behind the action. Asari is an Islamic convert and is said to be an admirer of Al-Qaeda leader Osama bin Laden.

Peel said, however, that it would be a mistake to view the situation as part of any radical Islamic movement. Asari's demands appear limited to political autonomy for the delta region and money for local people.

"[Asari] is an interesting and complex character who converted to Islam. He says he admires the revolutionary spirit of Islam. He says he admires Osama bin Laden," Peel said. "But I think it would be a great mistake to see this as some kind of Islamic revolution. Largely, because he is one of a very small number of Muslims among the Ijaw people. He himself admits that most of his men follow traditional religions in the delta."

The situation in Nigeria underscores the extreme volatility of world oil markets. Oil prices have risen some 50 percent this year -- driven partly by rising demand from China, but also by concerns over possible disruptions to the oil supply.

Last year's U.S.-led invasion of Iraq and the ensuing insurgency have raised questions about Iraq's ability to export large amounts of oil. Recent terrorist attacks in Saudi Arabia -- the world's biggest oil exporter -- highlight that country's vulnerability.

Earlier, it was hoped Russia could make up for any shortfall -- but its largest oil export company, Yukos, faces possible bankruptcy over unpaid taxes.

David Fyfe analyzes oil supplies at the Paris-based International Energy Agency. He told RFE/RL that oil markets are nervous because there's little spare capacity at the moment.

"We have a market right now that is fairly volatile. Although inventory levels in consuming countries is increasing, we've come through a period in the middle of the year when inventories were very low," Fyfe said. "We are currently in a situation where spare capacity worldwide is very low. And in that situation, where you have fairly well-balanced inventories but very tight spare capacities in the world production system, really any sort of risks on the supply side...[can have a disproportionate impact on prices]."

All eyes are on Nigeria this week to see if it can resolve its problems. Meanwhile, oil traders -- and consumers -- are awaiting the next trouble spot that could send prices rising again.
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