OECD Observer
Oiling an illegal market

Nigerian oil is renowned for being easy to refine, though this also fuels a trafficking problem. Oil theft in Nigeria hit a record high in the first quarter of 2013. Nigerian authorities reported a loss of US$1.2 billion in a single month, equivalent to a 17% drop in sales. 

Nigeria loses on average 100,000 barrels per day to theft according to Chatham House, a London-based think tank. This amounts to about 5% of total output. Thieves break into pipelines to siphon off the oil, damaging not only the economy but the environment. In June 2013, the Nigerian National Petroleum Corporation registered 53 breaks along the Nembe Creek Trunkline.

The impact on Nigeria’s oil industry is clear, but the harm to the global oil market is less so. All five of the international companies producing Nigeria’s crude oil are affected, and are often forced to shut down production to repair pipes. Part of the problem is complacency. Corruption has bedevilled Nigeria’s oil industry for decades. Illegal oil money, laundered in global financial centres, has funded election campaigns, militant groups and probably drug-trafficking and terrorist networks.

Another part of the problem is law enforcement. No one knows exactly who is buying the stolen oil or where it is being smuggled to. Much of it may be blended with legally refined oil to hide its origin from buyers. Chatham House reports evidence that the ultimate destinations of this illicit oil are the US, Brazil and Switzerland, as well as non-OECD countries such as China, Indonesia, Singapore, Thailand and some West African states. They urge governments to bolster intelligence to crack oil theft networks, track the financial activities of parties suspected of oil theft, and make a 10-year comparison of import data from these countries with Nigerian export figures.

- Lyndon Thompson 

Chatham House (2013), Nigeria’s Criminal Crude: International Options to Combat the Export of Stolen Oil

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© OECD Observer No 296 Q3 2013