OIL AND CONFLICT SPELL RECESSION

As soaring oil prices bring recession closer to American consumers, the fact that much of our oil comes from unstable parts of the globe means things can only get worse in the months and years ahead.
A stark example of how conflict impacts the oil market and the US economy was the decline on Wall Street when oil recently jumped to $117 a barrel following an attack by rebels on two Shell pipelines in the Niger Delta. As a result, oil exports from Nigeria dropped by 162,000 barrels a day of light crude, the type most favored by US refineries.
Nigeria is the fourth largest exporter of light crude and petroleum to the US and each time rebels attack oil platforms, seize foreign workers or blow up pipelines, the international markets panic and prices increase. Conflict zones like Nigeria are now having a bigger impact on increasing oil prices because overall global demand has increased and the dollar is at an all time low. Therefore, when oil output from Iraq, Nigeria or Sudan is shut off or reduced by terrorism or internal civil strife the price of oil soars. Two factors that made oil costlier this past year were Russia’s decision to cut back because of a lack of investment and China’s massive increase in usage over the past 18 months with an 8% increase in March alone.
If one looks at the latest figures for US oil and petroleum imports, the top ten countries we rely on are as follows in order of importance:
1. Crude: Canada, Saudi Arabia, Mexico, Nigeria, Venezuela, Iraq, Angola, Kuwait, Columbia and Ecuador.
2. Petroleum: Canada, Saudi Arabia, Mexico, Nigeria, Venezuela, Iraq, Russia, Angola, Virgin Islands and Algeria.

NB: In February, 2008, the US imported from Nigeria and Iraq close to 2 million barrels a day of crude and 2 million barrels a day of petroleum.

When there is a stoppage in supplies from troubled countries like Nigeria, Iraq, Angola, Algeria or Columbia, the US is forced to seek other suppliers and inevitably pays higher prices that are then passed on to the consumer. This feature of the ongoing damage to the US economy from our reliance on foreign oil is nothing new. In his State of the Union speech in 2006, President Bush remarked that our dependence on foreign energy sources posed a major security challenge because oil was “often imported from unstable countries.” Before he made those remarks he was aware that Nigeria in particular was becoming increasingly violent due to endemic corruption that had led to the disappearance of almost one trillion dollars in oil revenues over several decades and the failure of major oil companies like Shell to treat the environment with respect. For example, National Geographic painted what has become one of the starkest portraits of Nigeria. The author was Tom O’Neill:
“Oil fouls everything in southern Nigeria. It spills from the pipelines, poisoning soil and water. It stains the hands of politicians and generals, who siphon off its profits. It taints the ambitions of the young, who will try anything to scoop up a share of the liquid riches—fire a gun, sabotage a pipeline, kidnap a foreigner……. Dense, garbage-heaped slums stretch for miles. Choking black smoke from an open-air slaughterhouse rolls over housetops. Streets are cratered with potholes and ruts. Vicious gangs roam school grounds. Peddlers and beggars rush up to vehicles stalled in gas lines. This is Port Harcourt, Nigeria's oil hub, capital of Rivers state, smack-dab in the middle of oil reserves bigger than the United States' and Mexico's combined.”
That description of Nigeria sitting atop massive reserves of oil and gas reserves and a human garbage heap points to a volatile future in which heavily armed gangs like MEND – Movement for the Emancipation of the Niger Delta - continue to attack oil facilities in the Niger Delta in order to force out foreign companies. When the West looks at countries like Nigeria, there must be military planners envisaging a scenario when it may be necessary for the US and its allies to send in troops to protect the oil supply as oil becomes a scarce commodity.
China’s role in the oil crisis is now clear but it has taken the Bush administration longer than some of its predecessors to recognize the growing role of China in Africa where some of the world’s largest gas and oil reserves are still waiting to be tapped. Beijing has demonstrated in its dealing with the Sudanese regime, which has overseen the genocide in Darfur, that it cares little about the nature of the regimes it does business with as long as those regimes cater for China’s insatiable appetite for energy, wood and minerals.
On the world stage, the major oil suppliers are not necessarily countries the US can rely on in the longer term and some are downright hostile towards America. According to BP Global the top ten oil reserves are in Saudi Arabia, Iran, Iraq, Kuwait, United Arab Emirates, Venezuela, Russia, Kazakhstan, Libya and Nigeria.
If Iraq, as now seems likely, becomes dominated by Shiites, who feel closer to their co-religionists in Iraq than their American liberators, the Bush Administration will effectively have created a major oil block that could at some time in the future shut off supplies to the United States. Then there is Russia that has begun to use its massive energy supplies in tandem with his foreign policy, a factor that could someday bring it into conflict with the US. Libya has recently become an ally on the war on terror and has signed deals with major US oil companies. It has even paid lobbyists in Washington to try to prevent Congress enacting laws that would give victims of terrorism the right to seize Libyan assets as compensation. Libya is, however, run by a fickle leader who could, at a whim, eject the American oil companies he is now courting. Like Libya, Venezuela, which holds massive oil reserves, also has a fickle leader who has helped generate anti-American sentiment through Latin America. And our reliance over decades on Arab, especially Saudi Arabia has come at a heavy price, leading to the fact that most of the hijackers of 9/11 were Saudis. They emerged from Wahabbism, the extreme form of Islam that wealthy, petrol dollar Saudis promoted throughout the Middle East, Pakistan and Indonesia.
All in all, our dependence on foreign oil will continue to be problematic for our economy and our national security. Some might argue that the time has come for the nation that put the first man on the moon to be the first to develop alternative energy sources that will eradicate our reliance on a black gold that is fuelling conflict across the globe. As gas prices rise higher than most Americans ever though they would there will be a clamor for change and this time Washington lawmakers may have to act rather than nod.