Energy

Terrorism, Militancy, and Oil

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Oil prices are collapsing while bloody militancy and terrorism ravage three important members of OPEC, indicating a swing towards the dominance of market fundamentals over geopolitical worry.

In Libya, a civil war rages, crippling crude oil production, with the destruction of pipelines and other facilities.

In Iraq, another near civil war rages with the incursion of the Islamic State. In Iraq, the losses are smaller than that of Libya, mainly because the main producing areas in the south remain safe from Islamic State aggression.

In the third affected OPEC country, Nigeria, as in Iraq, instability is fuelled by Jihadist violence. The Jihadist group active in Nigeria, Boko Haram, terrorizes the impoverished North.

Oil supply in Nigeria, comes entirely from the South, a region untouched by the activities of Boko Haram.

In Nigeria, disruptions to crude oil production are mainly from the vandalism of onshore pipelines in the oil-producing south and the activities of Militants in the Niger Delta. The most recognized of which is the Movement for the Emancipation of the Niger Delta (MEND).

Between 2007-2009, MEND crippled Nigeria’s oil production from a peak production of 2.6 Million bpd to as low as 0.7 Million bpd. The loss of millions of barrels of crude oil supply contributed at the time, to drive crude oil prices to $148/bbl at its peak.

International outrage and the economic impact on the Nigerian Federal Government’s rapidly declining revenues led to negotiations between the government and the Niger Delta Militants.

MEND agreed to a cease-fire with the Federal Government of Nigeria granting the militants Amnesty in 2009. The program came along with several concessions, which included; financial compensation, contracts for the militants, large control over multi-million dollar pipeline- security and production facilities contracts, as well as the promise of more transparent government management of oil revenues.

To better manage oil revenues and reduce agitation in the Niger Delta, Oil Industry reforms were proposed.  Proposed reforms included provision of enabling laws to deregulate the petroleum downstream sector and provision of funds for community development

The existing Petroleum Acts were proposed to be replaced with a new Petroleum Industry Bill (PIB) with provisions for a Petroleum Host Community Fund (PHCF), which is to be utilized for the development of the economic and social infrastructure of the communities within petroleum producing communities.

In the proposed bill, every upstream petroleum producing company is required to remit on a monthly basis, ten percent (10%) of its net profit directly to the PHCF for profits derived from onshore and shallow areas. For profits derived from deep-water areas, all remittances are to be made to the fund for the benefit of producing littoral states.

So far, the amnesty program has been perverted, and the PIB abandoned in the Nigerian National House of Assembly as the violent agitation, which necessitated the proposals in the first place had ceased.

 

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