Nigerian Violence Remains Key Risk to Global Oil Markets

Nigeria inaugurated its new president, Umaru Musa Yar’Adua, in late May following national elections that were marked by irregularities and violence. Although the Nigerian elections set a democratic precedent—this is the first transfer of power from one elected administration to another—the structural political dynamics have not changed with new leadership, and the overall risk outlook has not improved.

Nigeria is the largest oil producer in Sub-Saharan Africa, with exports feeding key demand centers in North America and Asia. However, violence and unrest in the hydrocarbon-rich Niger Delta has resulted in over 700,000 barrels a day of production to be shut-in by operators. The Niger Delta groups demand that the new government address grievances around revenue-sharing, land and citizenship rights as well as improve socio-economic development. The Yar’Adua Administration has pledged to tackle these issues within the first 100 days in office, but in reality the Niger Delta demands require a difficult re-drafting of the Nigerian constitution and of the traditional balance of powers held by Northern interest groups.

For global oil markets, the tense political situation and lack of security for oil/gas companies means that production disruptions for Nigeria are likely to persist over the short and medium term, which will continue to act as a bullish pressure on global oil prices.

PFC Energy is currently advising clients on the Nigerian risk landscape, likely policies and outlook for stability under the Yar’Adua Administration. In addition, PFC Energy’s team of Africa experts advise companies and governments on African geopolitics, political risk to investments, market strategies and competitive positioning issues in the region.

Key Conclusions:

Violence and instability in Nigeria, the largest oil producer in Sub-Sahara Africa, continues to impact global oil prices.

Solving the structural issues in the restive Niger Delta will be difficult.

Production disruptions are likely to persist over short and medium term, acting as a bullish pressure on markets.

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Monica Enfield is a Manager in the Markets and Country Strategies practice, which houses PFC Energy's expertise in country risk and petroleum sector policy. For further information on this article contact Enews_menfield@pfcenergy.com.