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Good oil article - 20 guys in speedboats


Blood Oil
Could a bunch of Nigerian militants in speedboats bring about a U.S. recession? Blowing up facilities and taking hostages, they are wreaking havoc on the oil production of America's fifth-largest supplier. Deep in the Niger-delta swamps, the author meets the nightmarish result of four decades of corruption.
by Sebastian Junger February 2007

On June 23, 2005, a group of high-ranking government officials were convened in a ballroom of the Four Seasons Hotel in Washington, D.C., to respond to a simulated crisis in the global oil supply. The event was called "Oil ShockWave," and it was organized by public-interest groups concerned with energy policy and national security. Among those seated beneath a wall-size map of the world were two former heads of the C.I.A., the president of the Council on Foreign Relations, and a member of the Joint Chiefs of Staff. The scenario they were handed was this:

Civil conflict breaks out in northern Nigeria—an area rife with Islamic militancy and religious violence—and the Nigerian Army is forced to intervene. The situation deteriorates, and international oil companies decide to end operations in the oil-rich Niger River delta, resulting in a loss of 800,000 barrels a day on the world market. Since Nigerian oil is classified as "light sweet crude," meaning that it requires very little refining, this makes it a particularly painful loss to the American market. Concurrently, in this scenario, a cold wave sweeping across the Northern Hemisphere boosts global demand by 800,000 barrels a day. Because global oil production is already functioning at close to maximum capacity (around 84 million barrels a day), small disruptions in supply shudder through the system very quickly. A net deficit of almost two million barrels a day is a significant shock to the market, and the price of a barrel of oil rapidly goes to more than $80.

The United States could absorb $80 oil almost indefinitely—people would drive less, for example, so demand would decline—but the country would find itself in an extremely vulnerable position. Not only does the American economy rely on access to vast amounts of cheap oil, but the American military—heavily mechanized and tactically dependent on air power—literally runs on oil. Eighty-dollar oil would mean that there was virtually no cushion in the world market and that any other disruption—a terrorist attack in Saudi Arabia, for example—would spike prices through the roof.

According to the Oil ShockWave panel, near-simultaneous terrorist attacks on oil infrastructure around the world could easily send prices to $120 a barrel, and those prices, if sustained for more than a few weeks, would cascade disastrously through the American economy.

Gasoline and heating oil would rise to nearly $5 a gallon, which would force the median American family to spend 16 percent of its income on gas and oil—more than double the current amount. Transportation costs would rise to the point where many freight companies would have to raise prices dramatically, cancel services, or declare bankruptcy. Fewer goods would be transported to fewer buyers—who would have less money anyway—so the economy would start to slow down. A slow economy would, in turn, force yet more industries to lay off workers or shut their doors. All this could easily trigger a recession.

The last two major recessions in this country were triggered by a spike in oil prices, and a crisis in Nigeria—America's fifth-largest oil supplier—could well be the next great triggering event. "The economic and national security risks of our dependence on oil—and especially on foreign oil—have reached unprecedented levels," former C.I.A. director Robert Gates (now secretary of defense) warned in his introduction to the Oil ShockWave–study report. "To protect ourselves, we must transcend the narrow interests that have historically stood in the way of a coherent oil security strategy."

In January 2006, less than seven months after the first Oil ShockWave conference—almost as if they'd been given walk-on parts in the simulation—several boatloads of heavily armed Ijaw militants overran a Shell oil facility in the Niger delta and seized four Western oil workers. The militants called themselves the Movement for the Emancipation of the Niger Delta and said they were protesting the environmental devastation caused by the oil industry, as well as the appalling conditions in which most delta inhabitants live. There are no schools, medical clinics, or social services in most delta villages. There is no clean drinking water in delta villages. There are almost no paying jobs in delta villages. People eke out a living by fishing while, all around them, oil wells owned by foreign companies pump billions of dollars' worth of oil a year. It was time, according to MEND, for this injustice to stop.

The immediate effect of the attack was a roughly 250,000-barrel-a-day drop in Nigerian oil production and a temporary bump in world oil prices. MEND released the hostages a few weeks later, but the problems were far from over. MEND's demands included the release of two Ijaw leaders who were being held in prison, $1.5 billion in restitution for damage to the delicate delta environment, a 50 percent claim on all oil pumped out of the creeks, and development aid to the desperately poor villages of the delta. MEND threatened that, if these demands were not met—which they weren't—it would wage war on the foreign oil companies in Nigeria.

"Leave our land while you can or die in it," a MEND spokesman warned in an e-mail statement after the attack. "Our aim is to totally destroy the capacity of the Nigerian government to export oil."

Because Nigerian oil is so vital to the American economy, President Bush's State Department declared in 2002 that—along with all other African oil imports—it was to be considered a "strategic national interest." That essentially meant that the president could send in the U.S. military to protect our access to it. After the first MEND attack, events in the Niger delta unfolded almost as if they had been scripted by alarmist Pentagon planners. In mid-February, MEND struck again, seizing a barge operated by the American oil-services company Willbros and grabbing nine more hostages. Elsewhere on the same day, other MEND fighters blew up an oil pipeline, a gas pipeline, and a tanker-loading terminal, forcing Shell to suspend 477,000 barrels a day in exports. The nine hostages were released after a reportedly huge ransom was paid, but oil prices on the world market again started to climb. MEND had shown that 20 guys in speedboats could affect oil prices around the world.

http://www.vanityfair.com/politics/features/2007/02/junger200702