Highlights
– Nigerian military conducts raids on Niger Delta militants
– Retaliatory attacks cripple oil installations and negatively affect oil market
– Militants will carry out attacks against foreign oil workers and pipelines with potential to drive up oil prices in near to medium-term
Nigeria’s Joint Task Force (JTF) renewed military operations against militants in the Niger Delta in mid-May. Since May 13, the JTF’s assaults, including land, naval and air strikes, have killed thousands of civilians and destroyed entire villages. As a result, members from the Movement for the Emancipation of the Niger Delta (MEND) conducted retaliatory attacks, including kidnapping foreign oil works, sabotaging major pipelines in the region, and opening fire on Nigerian military soldiers. MEND has declared an “oil war” and threatened foreign oil industry vessels and workers with attacks if they do not leave the region. The group’s goal remains to win greater rations of the oil wealth for the poor in the Delta; however, its large-scale attacks and kidnappings have only added more injury to the devastated oil-rich Delta region.
As nearly 80 percent of Nigeria’s oil comes from the Niger Delta, with oil giants Shell and Chevron heavily involved, the lasted wave of violence has greatly affected oil exports and oil market pricing. Unrest in the region has reduced Nigeria’s daily output to roughly 1.8 million barrels compared with 2.6 million barrels in January 2006, prior to the emergence of MEND. With no end in sight, the fighting between MEND militants and Nigeria’s JFT will likely worsen oil production in the Delta. To safeguard their employees from ongoing attacks, foreign companies have invested millions of dollars in the security of their personnel.
We assess MEND will continue to conduct attacks against foreign installations in the near to medium-term. The JTF will also carryout operations against the militants, however, at the risk of causing retaliatory attacks and increasing the price of oil in the global market.
JTF Operations Cause More Harm Than Good
In almost 20 days, MEND has kidnapped 15 sailors, 18 soldiers, and hijacked a petrol tanker that belonged to the national oil company. The majority of attacks came days after the JTF launched a massive offensive against the militants. On May 26, MEND militants destroyed a Chevron flow station in the Niger Delta, disrupting the flow of oil . Chevron has cut production significantly amidst ongoing fighting in the Delta.
Although the Nigerian army believes it is “winning the fight” in the Delta region, the country has lost a significant portion of oil revenue, in addition to hundreds of lives. MEND, and other militant gangs angry over the disproportioned spread of oil wealth in the Delta, intensified their attack campaign in recent weeks in response to the JTF’s offensive. President Umaru Yar’Adua offered amnesty to rebel groups, which he has done in the past, but a vast majority of militants rejected the offer, vowing to continue fighting for the rights of the Delta people. While the JTF and MEND continue fighting, we expect oil production to drop in the Delta and lead to high market pricing in the near term.
Continued Unrest and Oil Disruptions in Near Future
The Nigerian Minister of Petroleum Resources estimates that the ongoing conflict has cut oil output by nearly one million barrels per day. Currently, Nigeria’s oil production is less than 50 percent of its capacity as fighting has greatly offset the country’s ability to operate its oil facilities. MEND’s recent threat to block ships carrying oil exports helped push crude prices above US$60 a barrel, the highest level in six months. Nigeria, the fifth-biggest source of oil imports for the United States (US), holds reserves of more than 36 billion barrels of crude and 187 trillion cubic feet of gas. With knowledge of the country’s oil wealth and reserves, MEND is unlikely to halt its operations until it possesses a greater share in the country’s oil wealth.
As unrest continues and the violence between JTF and MEND escalates, Nigeria’s oil industry will remain in flux for the near to medium-term. With over 1500 foreign oil workers in the Delta region, they will remain a primary target for the group. Oil firms spend an average of US$50 million a year on security for their workers, including private escorts to and from work. Such expenses will likely increase in the near-term, as foreign workers continue to face threats by rebel groups.