Opinio Juris

When armed rebels from the Movement for the Emancipation of the Niger Delta attacked an enormous oil facility 75 miles off the swampy West African coast on June 19, traveling hours by speedboat under cover of darkness and kidnapping an oil worker, their brazen assault underlined the perhaps underappreciated dependence of the United States — and the world — on oil from Nigeria.

Three days afterward, Nigerian officials said at a hastily arranged global energy summit in Jidda, Saudi Arabia, that recent attacks had cut Nigeria’s oil production to its lowest level in nearly two decades, giving oil markets the jitters and helping to send prices higher…

“We always focus on the Persian Gulf but this is one of the key oil security issues in the world today,” said Daniel Yergin, one of the nation’s best-known energy experts and chairman of Cambridge Energy Research Associates, a consulting firm. “It’s tied up with Nigerian politics, regional and national battles for power, and criminality.” When Mr. Yergin spoke to lawmakers at a hearing in Congress last week, he was asked what would most help stabilize world markets. “Helping bring peace to the Niger Delta would be a major contribution,” he responded.

According to J. Stephen Morrison, director of the Africa program at the Center for Strategic and International Studies in Washington, the government led by Nigeria’s new president, Umaru Yar’Adua, must break with decades of neglect and pay attention to the troubles of the southern delta region by promoting development but also cracking down on the rebels and “demonstrating that these guys cannot operate with impunity.”

He’s not very optimistic, however. “When you look at the delta, the overwhelming picture is that the situation has very little promise of being fixed,” he said.

So, given production limitations and strong/concentrated demand, even small disruptions by guerrilla groups on light sweet crude production is likely to have a direct influence on global oil pricing (in contrast, disruptions aimed at heavy crude production should have little impact on global pricing). Further, there are already active groups in many of the most critical production areas.

Fortunately, from the demonstrated behavior of these groups it doesn't appear that guerrilla/terrorist groups have fully grasped their potential market power with small attacks (despite aspirational pronouncements from al Qaeda and large scale attacks in 2005/2006). Once they do, as bad as disruption is today, it could get MUCH worse.

Why? A direct connection to scalable profits...

As we saw with e-mail spam/phishing, even the faintest whiff of profits can turn a loose collection of individuals/groups into a torrential crime-fueled marketplace generated billions and attracting tens of thousands of participants. Are we about to see the same occur with oil?

Disruption isn't limited to Nigeria. A remote control bomb by the FARC on Occidental Petroleum's pipeline in Colombia just knocked out 100,000 barrels a day. It's also interesting to note how irrelevant the US military/national security system has become in regards to global energy security. The entire paradigm of warfare has changed but the $1 Trillion behemoth has barely budged.