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Friday, September 24, 2004

A LITTLE SHOOTING GOES A LONG WAY: NIGERIA'S REBELS RATTLE THE MARKET

Royal Dutch/Shell, Nigeria's largest oil producer, has evacuated all non-essential personnel from two of its production sites as skirmishes between the government and rebel gangs intensified. Yesterday the leader of the rebel Niger Delta People's Volunteer Force, Moujahid Dokubo-Asari, said that oil facilities would be the focus of attacks if the government did not stand down in its two week old operation to flush out the rebel forces from their hideouts in the rivers and marshlands nearby. Dokubo-Asari claims to be fighting for self-determination for an estimated 8 million ethnic Ijaws, the largest tribe in the impoverished Niger delta oil region.

The Ijaws and other tribes have long accused the government and oil companies of cheating them out of wealth produced from their land. However, the most recent crackdown on the Ijaws was precipitated by escalating violence between Ijaw and Itsekiri oil bandits, who have long battled over the oil they pilfer from the regions river transports and pipelines. The oil thefts, called "bunkering", are run by large networks of organized gangs, loosely tied through complicity and corruption to state and local governments.

Shell evacuated the Soku gas platform and the Ekulama oil pumping station as a precaution because of violence nearby, although it said there had been no attacks on the facilities themselves. The company accounts for about half of Nigeria's daily exports of 2.5 million barrels. Although Shell says the evacuations will not affect its production -Shell accounts for half of Nigeria’s 2.5 million bbl/d in crude exports- the news helped push the price of oil over $48 per barrel for only the second time ever. Analysts estimate that Nigerian oil production is already down 5% this year because of gang related violence. Similar violence caused a 40% shutdown of Nigerian oil production in 2003.

The violence of the past several weeks has been in the state of Rivers, near the oil city of Port Harcourt. However, it is not likely that the violence this time will overflow and further affect crude exports. The army announced earlier this month that it was taking over security in Rivers state from the police in order to bring the situation under control. Hundreds of extra troops have been moved to places that have seen regular violence. In addition, Nigerian troops have been undertaking joint training exercises with U.S. Special Forces units in order to help the Nigerians better protect oil infrastructure and shipments.

So why the upward affect today on world oil prices? Simple. Any threat during these tight times to oil exports -be they real, small, or imagined- will increase the upward pressure on prices.

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