‘Blood oil’: Exploring the illegitimate oil trade in Nigeria

by Katharine Dennys

e Speaking at a G8 summit in 2008, the late Nigerian president, Umaru Musa Yar’Adua, first used the term ‘blood oil’ to describe the illegal oil trade in Nigeria, calling on the international community to bring it to an end.(2) Four years later, the illegal oil trade, known as bunkering, is at an all-time high. Nigeria is estimated to lose US$ 24.64 billion (N 3.7 trillion) in revenue to illegal bunkering per year.(3) This activity is focussed on the Niger Delta, a historic centre for oil related gang violence and crime, where it is estimated that 150,000 barrels of crude oil are stolen daily.(4) As well as presenting a pervasive threat to oil and gas investment in Nigeria, oil theft serves to exacerbate social tensions and preserve the status quo of clan violence in the region. Due to the complex web of inter-related parties currently promoting the continuation of oil theft, a pragmatic and efficient response to the problem has not yet materialised. This point was made clear in a BBC report, in which a source close to  Nigeria’s former president, Olusegun Obasanjo, stated: “This is an industry that makes £30 million (US$ 60 million) a day, they'd kill you, me, anyone, in order to protect it…they could bring the state down.”(5) This paper examines the nature of and motivations behind this illegal oil trade in Nigeria, and analyses the economic and social implications of its continuation. Method and motives Oil bunkering is the process whereby crude oil is illegally siphoned straight from the pipeline onto barges, which transfer the load onto ships waiting offshore. This oil is then sold without a licence or authorisation from the state-run Nigerian National Petroleum Corporation (NNPC), and without payment of taxes, levies, and dues to the Nigeria Government.(6) Illegal bunkering is a response to the inequality of wealth in Nigeria, both an economic and social condition whereby great wealth is accrued by a marginal elite within the oil and gas industry. This is made possible due the Nigerian Government‘s inability to control corruption within the oil and gas sector. Many of the oil thieves operating in the Niger Delta believe they are taking oil that is rightfully theirs, but which has been denied them by the corrupt elite of the Nigerian oil industry. Thieves are able to access the crude oil due to exposed pipelines, the source of stolen crude oil. A leaked copy of a confidential report by Shell describes a method known as ‘hot tapping’, also known as ‘under pressure drilling’, whereby thieves use hacksaws to damage pipelines, forcing oil companies to shut down oil flow on the affected pipeline.(7) Once this is done, the oil thieves install bunkering points on the hacked portion of the exposed pipes and attach hoses and suction instruments to the pipes. Once oil starts flowing through the pipelines again, they are able to siphon the flowing crude to locally made barges or large canoes named Cotonu boats. These barges are said to be able to store up to 40,000 barrels of crude oil at a time.(8) The alternate method, known as ‘cold-tapping’, is the process whereby oil bunkering gangs blow up a pipeline, using dynamite or any other available explosive, putting it out of use long enough for them to attach their spur pipeline. This method requires prior knowledge of the oil companies’ operational hours, so that they can target at an opportune moment.(9) The oil thieves sell their stolen oil both on the domestic and international markets. The oil is either sold to local refineries in the creeks or to large offshore tankers waiting to transport the cargoes to the international markets.The leaked Shell report confirms that the portion that is sold to the local refineries in the creeks is refined into diesel, transferred to a storage depot and then sold in the local Nigerian market. The stolen and locally refined diesel is sold at about N150 (US$ 00.95) per litre compared to the official price of N190 (US$ 1.20) per litre.(10) The illegal oil has also been known to be traded in international waters. Once it reaches international waters via boat, illegal oil receives a “stamp of legitimacy” from international corporations, thereby transforming it into a legal commodity.(11) The proceeds of the crude oil are then able to be legitimately transferred back to Nigerian banks disguised as the proceeds of a legal transaction. The perpetrators of oil theft in the Niger Delta are expert in navigating the creeks of the Delta, making their activities virtually undetectable. Benefitting from the complex networks of creeks, the thieves operate at night to further disguise their activities. Mpaka Jack, head of surveillance for Shell pipelines in the area has stated that “They are quite brilliant at it. They are hard to detect because there are so many creeks, you can’t block all of them and these guys are native to the area - they know all the creeks.”(12) Krakrama-Bille community located in the Rivers State part of the Niger Delta is a well-known host of illegal oil refineries, as are Bodo in Ogoniland, Awoba Riser, and Ekulama, also located in Rivers State.(13) Effects on social welfare Aside from the obvious impact the illegal oil trade is having on the Nigerian economy and the resulting rising cost of production, the illegal trade has also had a negative impact on those who feel forced to partake in the theft as well as on people living in the areas where bunkering takes place. High unemployment and a lack of alternative employment opportunities have meant that individuals often partake in the illegal oil trade despite the significant risks involved. The illegal oil trade is extremely dangerous, particularly for those utilising the ‘cold-tapping’ method which involves the use of explosives. While the explosions themselves can cause injury, those involved are also vulnerable to injury from a gas explosion, a common result of the practice, and from rashes due to contact with the harsh chemicals. Furthermore, people living around busted pipelines are also susceptible to disease and rashes from benzene contamination of the surrounding water for example.(14) The oil trade also has the effect of fuelling conflict and violence in the Niger Delta. The area has had a violent history due to warring factions fighting over the resources in the oil rich region. Sabotage, and kidnappings have long been perpetrated by criminal gangs and militants who claim to be fighting to gain the local population a greater share of the country's oil wealth.(15) This resource-fuelled violence has decreased dramatically since the amnesty deal for militants in the Niger Delta by the Nigerian Government aimed at reducing unrest was implemented in 2009. However, since then a precarious peace has resided in the Niger Delta, which the illegal oil trade threatens to upset. It has been estimated that the majority of the illegal bunkering, perhaps 80%, is organised and controlled by local warlords.(16) These warlords each exert control over their specific territory and buyers, dissuading other warlords from entering their territory through bribery and force. Further to this, ‘passage communities’, villages on the route to the offshore tankers must be ‘settled’. This results in thieves hiring boys from the local villages to carry out the bunkering work, including the hiring of local armed boys to provide ‘security’.(17) Who is to blame? The illegal oil trade is made possible by an intricate and complex web of relationships, which span all levels of society and which often result from political, ethnic or cult relationships. As a result, accountability for the crime is difficult to ascertain.When asked if local people, security forces or Government officials were responsible for the oil theft, Brigadier General Elias Zamani, the general once leading Nigeria's fight against rebels in the Niger Delta, simply stated, “All.”(18) It has been suggested that the syndicate making the illegal trade possible consists of “powerful and well-connected Nigerians many of whom are capable of destabilising the country if a serious attempt is made to stop the trade.”(19) Furthermore, it is claimed that militants have threatened to blow up pipelines if their lucrative business is threatened. “It is not unusual to hear militants in the Niger Delta boast that they will make the [G]overnment uncomfortable if they are prevented from stealing crude oil.”(20) Due to the Nigerian Government’s reliance on crude oil exports for 90% of its overall revenue, it is reluctant to take this risk.(21) These factors have resulted in a lack of intervention and the continuation of the illegal oil trade. Many parties benefit from preserving the status quo, and the illegal oil trade has been described as “a business in the community.”(22) The Trade Union Congress (TUC) and the Joint Task Force (JTF) in the Niger Delta have both received accusations for their involvement in illegal oil bunkering and the vandalising of petroleum pipelines in the region. Hyginus Onuegbu, Chairman of the TUC in Rivers State, points the finger squarely at the JTF: "any helicopter overfly of the Niger Delta waterways will clearly show that those involved in illegal oil bunkering are not hiding. They are in active partnership with members of the JTF."(23) However, a source from within the JTF has claimed that some of the barges and other sea-going vessels used in the illegal bunkering business belong to some members of the TUC, stating that “they are shouting now so that they can divert the attention of the federal [G]overnment from knowing what they are doing."(24) Although it is not possible to place the blame solely on one organisation, what these accusations and counter-accusations show is the scale of the illegal oil theft and the widespread involvement of elements of regulatory bodies in the crime. Due to the fact that people higher up the chain of command are protected by people ‘on the ground’, it is currently impossible to stop the crime at its source. As Sola Owoeye, an economist and former lecturer at Lagos State University maintains, “It is only the people on the field that are caught and not the financiers of the crime. And if they are not caught, we can’t end the crime.”(25) Conclusion Due to the reasons put forward in this paper, the illegal oil trade in the Niger Delta will continue into the future with a disproportionate level of opposition from both the Nigerian Federal Government and security forces. This is due to the fact that the perpetrators of illegal bunkering are spread throughout society, and exist on many social levels. While there is a wealthy elite profiting from the actions of local communities within the Niger Delta, the illegal trade will continue. This problem is not just confined to Nigeria but also involves international partners, further embedding the crime in an international web of benefitting parties. Due to this fact, and the fact that illegal oil trade is rooted in the social and economic conditions from which it was created, an effective solution seems an improbable goal at present. Aside from the financial loss felt by investors in the region, the long term effect will be felt by the local populations of the Niger Delta, due to the “culture of armed insecurity” being nurtured through this illegal trade.(26) Although the financial losses to companies are widely documented, what should not be forgotten are the social effects of this widespread crime. Consultancy Africa Intelligence (CAI)