How Nigerian Rebels Can Raise Your Heating Oil Prices

Posted by Gregg Gethard on November 5, 2009 at 11:38 am

Members of the Nigerian rebel group MEND hide their faces from the photographer. (image: topnews.in)

Last November, Somali pirates captured a Saudi oil tanker. Shortly after, the price of one barrel of crude oil rose by $1. Was this a coincidence or a correlation?

According to Jennifer Giroux and Caroline Hilpert, a duo who published an article in October’s issue of the Journal of Energy and Security, there is a definite correlation between attacks on energy infrastructure and price increases. And, even more alarmingly, various militant groups—dubbed violent non-state actors (VNSAs)—know this and are prepared to use it to their advantage.

VNSAs around the globe have attacked pipelines, ports, tankers and other major components of energy infrastructure. From 2003 to 2008, many insurgent groups, including al-Qaeda, focused on attacking oil facilities throughout Iraq. The first major attack came in June 2003, when insurgents attacked a major pipeline running through Iraq. The next day, the price of one barrel of crude oil rose by over thirty cents. The next spring, a series of attacks—including some targeting Saudi property—contributed to a major drop in worldwide supply, and within one month crude oil prices rose by 10 percent, bringing the effects of these attacks home to individual consumers through higher heating oil and gasoline prices.

Rebel and militant groups noticed this and began to trumpet attacks on energy infrastructure as a major way to meet their goals. For instance, Islamist groups have touted “economic jihad” as a way to attack its enemies in the West. And this was made clear on one jihadist website, which wrote: “The killing of 10 American soldiers is nothing compared to the impact of the rise in oil prices on America and the disruption that it causes in the international economy.”

But it’s not just groups in the Middle East who have targeted energy infrastructure. Nigeria, home to Africa’s biggest known reserves of oil, has seen its installations repeatedly attacked by a group called the Movement for the Emancipation of the Niger Delta, better known as MEND. In February 2006, MEND attacked pipelines, an oil terminal, and kidnapped foreign nationals who worked in the oil industry. As a result, crude oil prices rose by 2.6 percent in a single day. Nigeria now ranks as the second leading producer of oil in Africa, proof positive of how disruptive MEND has been in is fight. However, recent reports, such as this one published in September here on HeatingOil.com, do suggest that there has been a bit of a thaw between the Nigerian government and the members of MEND.

Attacks on energy infrastructure do not just cut supplies of crude oil. They also play a psychological role in the minds of investors and, in particular, speculators. Giroux and Hilpert noted that speculators have frequently responded drastically whenever there was a significant attack on energy infrastructure, which plays right into the hands of the various groups who are perpetrating these acts. By adding to the volatility of oil prices, and raising the price of heating oil and gasoline so that people are affected in a concrete rather than an abstract way, speculators unwittingly amplify the power of rebel groups such as MEND.

One way to mitigate the effects of speculators’ overreactions would be for regulators to have greater oversight over the trading of energy futures contracts. As Giroux and Hilpert say in their conclusion: “Staying with the status quo allows VNSA to continue to maximize the effects of E[nergy] I[nfrastructure] attacks, and take credit for higher crude oil prices.”