Nigerian Politics Explained; Oil Supply At Risk

The report posted below from the political consulting firm Stratfor provides context for the conflicting reports I recently posted - one saying MEND (the Delta rebel army) is happy with economic reforms aimed at helping the Delta region being proposed and will therefore cooperate with the government;  the other, a few days later, declaring out and out war on the government and on oil production after MEND forces were attacked.   Apparently the government was sending mixed signals.  The complexity of this situation is explored below by Stratfor.

Note Stratfor’s prediction that if the government has in fact determined to end its pretense of bipartisanship with the southern delta tribe - the ljaw - and to take a hard military line toward MEND at this point, the entire 1.9 mb/d day of easily shipped light sweet crude output of Nigeria could be at risk.  This possibility seems like the only vector toward higher oil prices that might be on the horizon.  Driving oil prices lower is a combination of economic weakness, an expectation of further economic weakness globally spurred by the implosion of financial asset prices, and the recently discussed expansion of Saudi oil production from 7.5 mb/d last year to 9.5 mb/d now.

Apparently the crude market has eyes only for the downside oil price risk, but markets never move only in one direction.  Perhaps the risk of lower Nigerian production will fuel the next counter-move to higher oil prices that is becoming overdue and could bring the price back to the $100 level before it finds its final bottom of this pullback from $147.  Given that real economic weakness (not just the fear of it) will probably become the dominant backdrop to all markets over the next year or two, I suspect the price of oil may have a good deal further to drop before it hits bottom unless the Saudis reverse course again (probably after the U.S. election) and reduce their production significantly from the current level.

Geopolitical Diary: Nigerian Politics and Global Oil Prices

September 15, 2008

The Nigerian militant group Movement for the Emancipation of the Niger Delta (MEND) on Sunday declared an “oil war” against the Nigerian government. MEND is already responsible for shuttering a quarter of the oil output in Nigeria — Africa’s leading oil-producing state and the United States’ fifth-largest supplier of crude. MEND attacks contributed to rising oil prices, and its threat of renewed attacks alone will be enough to trigger oil prices to climb again.

MEND’s declaration comes a day after Nigerian armed forces launched a combined-arms assault involving warplanes, helicopters and gunboats against MEND positions in the Niger Delta. The assault might have been meant to recover a barge full of oil-industry workers kidnapped Sept. 9 and held by MEND as a bargaining chip to negotiate the release of Henry Okah, a MEND leader facing trial for treason based on allegations of arms smuggling.

This is just the latest in a string of violent incidents centered on Nigerian politics and the distribution of oil wealth. MEND was the creation of ethnic Ijaw politicians. The Ijaw had never held power in Abuja, even though their region produced 95 percent of Nigeria’s oil and natural gas, the country’s only meaningful natural resources. The politicians used MEND and its attacks on the oil industry to hold Nigeria’s economy hostage until the Ijaw were able to secure a stake in Abjua that let them take the lead in managing the resources in their region.

In order to appease two critical interests in Nigeria, outgoing Nigerian President Olusegun Obasanjo handpicked the ruling People’s Democratic Party candidates for 2007 elections: current President Umaru Yaradua and Vice President Goodluck Jonathan. Yaradua was chosen in order to put the presidency back in the hands of northern factions led by the Hausa tribe, absent from power since 1999. Jonathan, an ethnic Ijaw politician who had been governor of Bayelsa state in the Niger Delta region, was selected to represent Niger Delta interests and the region’s dominant Ijaw tribe. After the Ijaw were given a voice in Abuja, MEND dialed back its attacks on oil infrastructure, despite the group’s demonstrated ability to attack pipelines and flow stations and kidnap oil workers.
The oil war declaration signals, therefore, a much bigger struggle going on in Nigeria than a mere attack and counterattack.

The northerners in Nigeria believed their return to the presidency in 2007 gave them predominance in decision-making. And in Nigeria, no decisions are more important than energy issues — without its oil and gas wealth, Nigeria would be an impoverished state of 140 million people rather than a regional power broker. Nigeria is a major global oil and gas supplier, having recently regained from Angola its status as Africa’s leading producer. Its production of light sweet crude oil is extraordinarily valued, and its location in the Gulf of Guinea gives it an additional advantage over supplies from the Middle East (which face several maritime choke points in addition to the threat a U.S.-Iranian war). Nigeria and the Gulf of Guinea play a major role in boosting energy supplies for global consumers from the U.S. to Europe to China, but that demand also means that control over the Niger Delta region is a major point of contention between MEND and its political patrons on the one hand and Nigeria’s northern bloc anxious for a return to power on the other.

Recently, Nigerian northerners have made several moves that could have provoked Ijaw fears of Hausa encroachment: A northerner was made chairman of the ill-fated Niger Delta Summit, an Ijaw chief of defense staff was fired, a Hausa chief of the army staff was installed, and a northerner was made secretary to the government of the federation (a position that acts as presidential gatekeeper and coordinator of Cabinet business). MEND’s declaration of an oil war could therefore signal that the tenuous peace deal between the Ijaw and Hausa might be unraveling.

The Sept. 13 assault by the Nigerian armed forces on MEND positions may be an overzealous move by new service commanders anxious to try to demonstrate their abilities to secure the conflict-ridden Niger Delta. It is highly unlikely, though, that the commanders would not know their attack would trigger an almost certain reprisal.

So the Sept. 14 declaration of an oil war must be seen in light of a Yaradua-Jonathan (read: Hausa-Ijaw) peace deal in tatters. The Nigerian military may be able to sustain a campaign in the Niger Delta, but it will be extremely difficult for it to combat MEND guerrilla tactics targeting oil and natural gas sites. MEND has already taken 600,000 barrels per day (bpd) of production off line, and if the Yaradua-Jonathan deal has collapsed completely, there is no reason why Nigeria’s remaining 1.9 million bpd will not be attacked and disrupted, triggering a certain climb in global energy prices. Consumers from the U.S. to Europe to China will be paying more for their gasoline because of today’s declaration of an oil war in the Niger Delta.

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