Behind rising oil cost: Nigeria

Want to know why the price of oil is climbing again?

For part of the answer, drive three hours from Port Harcourt, the capital of Nigeria's oil-rich delta region, past swampy rivers with fishermen in dugout canoes, down a bumpy dirt track to Iwhrekan, where 1,000 villagers live in run-down concrete and mud-brick buildings.

On July 21, 2005, the pipeline that runs near here ruptured. Streams of black goo oozed into farmers' fields and a fishing creek. Because of a complicated dispute between villagers and the major oil company in this region, Royal Dutch Shell, the oil hasn't been cleaned up. Black residue still covers thousands of plants.

Residents are angry. "We will face Shell," says village chairman Daniel Oweh surrounded by agitated young men. "The next stage will be violent."

Threats like this are increasingly being carried out - helping drive oil to $66 per barrel this week. Four international oil workers were taken hostage by armed men in speedboats last week. Nigeria's production has dropped by nearly 10 percent.

It could get worse. "The loss of more Nigerian oil could send the price to $80 or $95 per barrel or higher," says David Goldwyn, a former US assistant energy secretary who now consults in the region. Given the instability here, he says, "The likelihood of a significant disruption" to Nigeria's output of about 2.6 million barrels per day "always has to be counted as relatively high."

Militants calling themselves the Movement for the Emancipation of the Niger Delta are holding the four hostages - an American, a Briton, a Bulgarian, and a Honduran. They have threatened even more aggressive moves against oil workers and their families soon. Shell has evacuated 330 employees.

Already, two attacks in recent days on some of Shell's roughly 1,000 oil wells and 80 pumping stations caused a drop of 220,000 barrels a day in output - nearly 10 percent of Nigeria's 2.5 million barrels a day in exports.

Tensions over Iran are also driving the global price higher. Iran is the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC) and exports about 4 million barrels a day. Oil markets are jittery over fears Iran might cut exports if hit with UN sanctions for resuming its nuclear program, which it announced it would do last week.

Nigeria, meanwhile, is the fifth-biggest supplier of US oil imports - and Africa's largest oil exporter. In 10 years, by some estimates, the US will get a fourth of its oil from Africa. Nigeria is not, however, in the same league as Iran or Saudi Arabia, which exports about 10 million barrels per day. "Unlike [an attack on] Saudi Arabia," adds Mr. Goldwyn, "the world could manage around a major attack on Nigerian oil suppliers." Still, what happens here reverberates to gas stations across the world.

On Monday, one of the four hostages read a list of the captors' demands, including local control of oil wealth, a $1.5 billion payment by Shell to compensate for pollution, and the release from jail of an oil-region militia leader. Negotiators said Tuesday they had made contact with the captors and expected a peaceful end.

Yet in Iwhrekan, tensions continue.

The dispute grew out of a disagreement over which contractor should clean up the oil spill. In the wake of the accident, the village council appointed a contractor to do the job. Shell appointed another, and when he arrived, villagers chased him away. The reason: The village-appointed firm had agreed to do such things as fixing the village's defunct water wells and providing plastic chairs for residents sit on.

Then, villagers say, the Shell-appointed man came late one night with a bevy of drunken soldiers - and Shell's approval - and ransacked the village, leaving one teenager hospitalized and four houses and two cars destroyed.

Shell, in a statement, denies inviting "any security agents into the community" and says the villagers have impeded cleanup.

Now it's a stalemate.

Residents are getting more and more angry - despite having the choice to allow the cleanup.

"Is this road fitting for an oil-producing community?" asks indignant village chairman Mr. Oweh, pointing to the bumpy dirt track that is his village's main street.

Yet Shell and other oil companies pay the government royalties and taxes that amounted to a whopping $27 billion in 2004. This is one of the world's most corrupt countries, however, and much of the oil money disappears into personal accounts of officials.

Nor is there much international pressure for peace and reconciliation in the area. Although, amid growing concern about terrorism, that could change.

There are fears that rising fundamentalism in Nigeria's Muslim north could combine with discontent in the southern oil region to bring international terrorist targeting of oil facilities. Al Qaeda leader Osama bin Laden even mentioned Nigeria as a potential target in a 2003 video. So far, though, there's no evidence of a north-south connection, Mr. Goldwyn says.

Still, in a sign of the country's growing importance, the US military has beefed up its presence here. And first fady Laura Bush was in Nigeria Wednesday, announcing $163 million in US aid for fighting AIDS. Whether it will all have any impact on Iwhrekan villagers is unclear.

Asked how long they're willing to live with the oil mess - to try to force Shell to capitulate - an articulate thirtysomething named Paris Eyarienoro declares, "Forever" if that's what it takes.

• Wire reports were used in this story.