Oil Theft is a Black Spot on Nigeria’s Economy

Oil Theft is a Black Spot on Nigeria’s Economy

As a major oil producer, Nigeria faces a serious problem with oil theft, as thieves siphon off oil from poorly maintained and under-guarded pipelines.

A report released last month by London-based think tank Chatham House quantified for the first time Nigeria’s production and revenue losses due to industrial-scale oil theft. Elaborate criminal networks stole an average of 100,000 barrels per day in the first part of 2013. Despite the sobering statistics of economic damage, it is unlikely Nigeria will be able to make any real headway in eliminating oil theft. There are simply far too many that benefit from this illicit activity.

The theft is carried out by a complex criminal network of foreign oil traders, shippers, refiners, international bankers, high-level politicians and military officials. Though oil is stolen at nearly every point in the production and export process, the majority disappears by a method called “bunkering:” thieves tap into pipelines and siphon the oil through long hoses onto small barges. Those small barges navigate the creeks of the swampy Niger Delta and transfer their cargo to offshore “mother-ships” in the Gulf of Guinea. These barges sail at night exporting the stolen oil to foreign refineries and storage facilities.

Countries in almost every part of the world are touched by either stolen oil or its dirty proceeds. Chatham House suspects the stolen oil is sold to buyers in West Africa, the U.S., Brazil, China, Singapore, Thailand, Indonesia, and the Balkans. Criminal networks launder the funds through a variety of financial transactions and channels in Dubai, Indonesia, Singapore, the US, the UK, Switzerland and other African countries.

The effect on Nigeria is profound. As the world’s 13th largest producer of oil, the Nigerian government relies on oil for 80 percent of its revenues and 95 percent of its foreign currency income. The Nigerian government estimates that thieves steal between 6 and 30 percent of the country’s daily production. At a benchmark of $100 per barrel, the estimated losses total $3.65 billion (14 percent of the annual budget). However, Chatham House estimates that losses may climb to a whopping $8 billion, when the potential profits from lost opportunities are also factored in. International oil companies have been forced to shut down major pipelines to repair the damage done by thieves. As a result, Nigeria is producing 400,000 barrels per day below its capacity of 2.5 million.

Due to these significant losses in actual and potential revenue, Nigeria’s House of Representatives has angrily charged that President Goodluck Jonathan’s inaction is tantamount to “economic sabotage.” The Nigerian security forces have so far made several small-scale arrests and the government recently pledged $93 million to fund and equip more security forces. However, the spokesperson of the House has called attention to the fact that the President has not yet made use of available technology to more aggressively combat oil theft. Tellingly, there is a conspicuous absence of investigations or convictions of high-level politicians and military officials.

As a type of transnational organized crime, Nigerian oil theft poses an indirect economic risk through regional security risks. The criminal networks involved in other West African crime, most notably piracy, drug and arms trafficking, are sometimes involved in oil theft. Although Chatham House downplays the amount of violence associated with oil theft, Nigerian Oil Minister Diezani Alison-Madueke has referred to stolen oil as “blood oil.” Drawing comparisons to mineral conflict zones such as Sierra Leone or Congo, she argues the security risks faced in Nigeria are significant. The operation of criminal networks makes it riskier to do business in Nigeria and more broadly, in West Africa.

Despite the current and potential long-term harm to Nigeria’s economic prospects, it is unlikely the Nigerian government can or will effectively reduce oil theft. The government faces significant challenges – especially the endemic corruption of the oil industry and Nigerian politics.

The oil industry in Nigeria is structured in a way that creates a blurry line between legitimate and illicit supplies. The government sells nearly all of its oil through traders, creating an unregulated space for middlemen engaged in legal and illegal transactions, thereby diminishing transparency and obscuring corruption.

Furthermore, there are simply too many people who gain from shady oil dealings for the government to have the political will or capacity to seriously address oil theft. Both the well-connected and the impoverished benefit from oil bunkering. As large chunks of revenue are lost to corrupt high-level officials, the poor in Nigeria go without basic social services, and turn to oil theft to provide for their families.

If the Nigerian government is to successfully attack oil theft, there must be a serious commitment to rooting out and holding accountable corrupt officials at the highest levels of government and security forces. The Nigerian government should restructure the system, where oil is sold through middlemen, to increase transparency. Oil revenues ought to be shared more equally, so that the poor do not have to resort to oil theft for subsistence. Finally, the international community must recognize that it, too, is affected and make a commitment to support Nigerian efforts to eradicate oil theft.

About Author

Marina Mellis

Marina currently works for an informations discovery company and was previously working as a research assistant at the Economics Department of Columbia University. She graduated with a BA First Class Honours in International Development Studies from McGill University.