Rallying the World against “Blood Oil”

Posted by Frederick Cedoz on Tuesday, December 8, 2009 at 8:59pm.

Nigerian President Umaru Yar Adua, who was elected on a platform of stamping out corruption, has recently undertaken a campaign to draw international attention to the issue of “Blood Oil” - the use of proceeds from stolen crude oil in financing international terror groups and domestic insurgents in Nigeria.

Understanding the Magnitude of the Problem

Oil is the lifeblood of Nigeria’s economy, but corruption and often violent supply disruptions caused daily production to fall from 2.5 to less than 1 million barrels per day earlier this year, preventing much of the benefits of oil revenues from reaching the people.  Recent amnesty agreements with militant groups in Nigeria have allowed much of this shut-in oil to be brought back on line with some analysts predicting that Nigerian output could eclipse the 2.5 million barrels per day mark in 2010.

According to independent and government estimates the theft of crude oil in Nigeria, commonly referred to as “bunkering”, ranges from 100,000 to 300,000 barrels per day.  At today’s price bunkering results in an annual loss of $2.8-$8.4 billion and lost royalty revenue of $100 - 300 million to the Nigerian government under the proposed new royalty framework included in the Petroleum Industry Bill moving through the Nigerian legislature now.

Regaining control over Nigeria’s oil production and drying up the funds that find their way into improper hands will require the mustering of political and economic will both at home and among international consumers as well as complex technical support.

Overcoming Corruption through “Oil Fingerprinting”

The technical process of marking and detecting legitimate shipments of crude oil is the easiest challenge to meet.
President Yar Adua believes it is possible to eliminate the corruption associated with the theft of “Blood Oil” through a technical process known “oil fingerprinting”.

There are several methods that are already being used commercially to mark crude oil before it is shipped and to detect whether that exact crude arrives in the specified quality and quantity.  The most accurate methodology uses a molecular marker that affixes itself to the oil prior to being loaded for shipment via pipeline or tanker.  This marker is invisible and cannot be removed.  Colored dyes, the other popular marking methodology, can be defeated with the proper reagent, introducing fraud into a system designed to eliminate it.

Solving the political challenges will be much more difficult as many local Nigerian leaders are thought to benefit from the sale of Blood Oil.
President Yar Adua’s early international lobbying efforts have proven effective as British Prime Minister Gordon Brown has already offered his country’s assistance.  The American government is also likely to lend its support through AFRICOM, the U.S. military structure tasked with thwarting the growth of terror organizations on the continent.

Attracting the support of the European Union and other major consuming nations like Japan, South Korea and China will be critical to the eventual implementation of an international political system recognizing the authenticity of purchases and sales of oil.

The economic case presents its own challenges.  There are many powerful people in Nigeria and throughout the world who stand to lose millions if President Yar Adua is successful in implementing an internationally recognized system of oil fingerprinting.  Eliminating the illicit trade of Blood Oil will require a public education effort similar to that associated with the Kimberly Process on the sale of blood diamonds so consumers will be able to demand that they are not buying products refined from stolen crude which benefits terror groups.

Political Reconciliation in Nigeria

To rally support at home President Yar Adua has already begun a robust program of political reconciliation with domestic groups linked to oil bunkering.

For decades the people who live in the areas where most of Nigeria’s onshore oil is produced have seen little in the way of profit from the sale of oil taken from under their soil.  As a result, bunkering has become a means to securing what many believe ought rightfully to be theirs.

Importantly, the proposed Petroleum Industry Bill would return as much as 10% of Nigeria’s royalty revenue to the local oil producing jurisdictions through trust accounts to fund vital community needs.  This is a critical step in rebuilding trust between the Nigerian people and their government.

President Yar Adua faces a tough challenge in reversing this political reality.  But he could realize some success by outlining a plan to:

·    Increase vital government services - greater political stability will  ensure as a result of legitimately sharing a greater percentage of oil royalty revenue with Nigeria’s oil producing states

·    Create jobs for the local population -a greater focus on developing local content provisions in new energy leases will help further develop in-country technical and production engineering expertise

·    Fund vital public infrastructure projects - to show a commitment to reconciliation it should be incumbent on the Nigerian federal leadership to undertake immediate infrastructure projects that could benefit the everyday lives of the local population

·    Enact a vigorous program of environmental remediation and protection - a portion of all oil sales and new lease bonuses should be set aside into a dedicated fund for environmental protection and remediation projects.

Overcoming these challenges to halt the trade of Blood Oil will not be easy.  Using the revenue generated from oil produced in Nigeria to foster multi-sector economic development will help insure that the future is brighter for Nigeria’s next generation.

If President Yar Adua is successful in his efforts Nigerians won’t be the only beneficiaries.