i
OPEC AND THE GLOBAL POLITICS OF OIL: A
FOCUS
ON
AMERICA’S
INCREASING
OIL
DEMAND IN THE GULF OF GUINEA (1980-2001)
BY
OKWOR, CHUDWUDI MARCY
PG/M. Sc/96/23186
DEPARTMENT OF POLITICAL SCIENCE
FACULTY OF THE SOCIAL SCIENCES
UNIVERSITY OF NIGERIA, NSUKKA
SUPERVISOR:
PROF. JONAH ONUOHA
SEPTEMBER, 2010
TITLE PAGE
OPEC AND THE GLOBAL POLITICS OF OIL: A FOCUS
ON AMERICA’S INCREASING OIL DEMAND IN THE
GULF OF GUINEA (1980-2001).
BY
OKWOR, CHUDWUDI MARCY
PG/M. Sc/96/23186
A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF
REQUIREMENTS FOR THE AWARD OF MASTERS DEGREE IN
POLITICAL SCIENCE (INTERNATIONAL RELATIONS)
SUPERVISOR:
PROF. JONAH ONUOHA
SEPTEMBER, 2011
OPEC AND THE GLOBAL POLITICS OF OIL: A FOCUS
ON AMERICA’S INCREASING OIL DEMAND IN THE
GULF OF GUINEA (1980-2001).
BY
OKWOR, CHUDWUDI MARCY
PG/M. Sc/96/23186
DEPARTMENT OF POLITICAL SCIENCE,
UNIVESITY OF NIGERIA, NSUKKA
SEPTEMBER, 2011
TITLE PAGE
OPEC AND THE GLOBAL POLITICS OF OIL: A FOCUS ON
AMERICA’S INCREASING OIL DEMAND IN THE GULF OF GUINEA
(1980-2001).
BY
OKWOR, CHUDWUDI MARCY
PG/M. Sc/96/23186
SUPERVISOR:
PROF. JONAH ONUOHA (Ph.D)
APPROVAL PAGE
This Masters Project Report titled: OPEC and the Global Politics of Oil: (19802001) A Focus on America‘s Increasing Oil Demand in the Gulf of Guinea has been
approved for the Department of Political Science by the following:
-------------------------------
----------------------------------------
PROF. JONAH ONUOHA (Ph.D)
SUPERVISOR
P.C. CHUKWU
AG HEAD OF DEPARTMENT
------------------------------------------------------------------DEAN, FACULTY OF THE SOCIAL SCIENCE
PROF. C.O.T UGWU
---------------------------------------EXTERNAL EXAMINER
SEPTEMBER 2010
iii
DEDICATION
This work is dedicated to my lovely wife Dr. Tochi Okwor who encouraged me to
keep doing this work and to all the members of my family for keeping the
competition alive and healthy.
iv
ACKNOWLEDGEMENT
The people most directly responsible for this study becoming a reality
especially my supervisor Professor Jonah Onuoha Ph‘d for having patience with
me and encouraging me especially when I falter.
I also acknowledge my friend Mr. Ezema Benson C. for all his efforts
and for advice. Without him, I would have abandoned this project. I also
acknowledge my dear Mum for laying the foundation.
OKWOR CHUKWUDI MARCY
Department of Political Science.
v
PREFACE
The importance of oil in advance countries and the growing demand for
petroleum in the emerging markets of the developing countries like China, India
and south Korea has hitherto heightened the increase in demand for oil in the
world. Since 2001, the world oil consumption has been rising at faster rate of
1.7% a year compared to its 27 years average of 1.4%.
The world oil
production has increased from 65.4 million barrels a day in 1990 to 81.7 million
barrels a day in 2007 but the source from which forms the incremental supply
has come through and the emerging need from some developing countries of
the world have made it a major issue in global politics.
For United States of America, diversifying supplies, shortening transport
route and increasing military presence in high risk zones are such risk hedging
strategies. Judging from the current data on oil production capacities and
proven oil reserve, the Gulf of Guinea appears to be an alternative supply route
to the Middle East. With the endless Middle East crisis, it is estimated that the
United States is increasing its import of crude oil from the Gulf of Guinea-the
part of the Atlantic ocean west of Africa‘s coast line between Nigeria and
Angola where an estimated 50 billion barrels of oil reserve are located (forest
and Soausa, 2006:14). This region is now regarded as one of the world‘s top oil
gas exploration hotspot.
The central aim of this study is to critically evaluate how Unites States of
America has increased its demand of oil from the Gulf of Guinea in view of the
political and social crisis plaguing its traditional oil suppliers of the Middle East
countries and its foreign policy implication on the African countries of the Gulf
of Guinea
Abstract
The organization of petroleum exporting countries (OPEC) is an oil cartel founded in
Baghdad in 1960 by five countries namely, Islamic Republic of Iran, Iraq, Kuwait,
Saudi Arabia and Venezuela. The membership later grew to 12 countries after some
countries like Ecuador, Gabon and Indonesia joined at a time and later substantial
export of crude petroleum which has fundamentally similar interest to those of
member countries. Such country become a full member of the organization if
accepted by a majority of the three fourth of full members including the concurring
votes of all founder members.
The world oil production has increased from 65.4 million barrels a day in 1990 to
81.7 million barrels a day in 2007 but the source from which form which the
incremental supply has come through and the emerging need from some developing
countries of the world have made it a major issue in global politics. Also, the public
resentment towards American foreign policy towards the Middle Eastern countries
and the regimes that it supported has grown considerably over the decade The study
is guided by 4 research questions and 4 hypotheses. To analyze the issues raised, the
study will be anchored on center-periphery theory. With the theory, we try to look at
OPEC, its membership and decision making process as it affects the price of oil. We
also look at the central importance of oil in the United States, its demand and the
structural inequality of the supply states and United State.
The study centers on the peripheral states as represented by the oil producing
countries of the Gulf of Guinea and the center country of united state of America. The
research design is non experimental. We made extensive use of secondary source of
data including international documents from government agencies such as united
state embassy, United States department of states, federal office of statistics, Nigeria
national petroleum corporation. We also used extensively current textbooks,
journals, seminar papers, conference papers.
After the 9 – 11 terrorist attack, a
working group called the African oil policy initiative group was set up. It
recommended that African oil be treated as a priority for national security of the
United States and that the US government should declare the Gulf of Guinea an “area
of vital interest” and that it should set up a sub-command structure for US forces in
the region. There is no doubt that Washington sees the Gulf of Guinea as a crucial
opportunity to diversify US oil supply.
As the political and security condition of the Persian Gulf deteriorate, the
availability and appeal of reliable alternative source of oil for the American market
grows. The Gulf of Guinea is emerging as a clear direction towards which US policy
could take to provide a secure source of energy. This has necessitated the US policy
increase of oil demand from 15% to at least 25% by the year 2015.
TABLE OF CONTENTS
TITLE PAGE
CERTIFICATION
DEDICATION
ACKNOWLEDGEMENT
TABLE OF CONTENTS
ABSTRACT
CHAPTER ONE
1.1 Introduction
1.2 Background to the Study
1.3 Statement of the Problem
1.4 Objective of Study
1.5 Significant of the Study
1.6 Scope of the Study
1.7 Literature Review
1.8 Theoretical Framework
1.9 Hypothesis
1.10 Methodology
CHAPTER TWO: THE IMPLICATIONS OF NIGERIA MEMBERSHIP
OF OPEC AND ITS ROLE
2.1 OPEC and Oil pricing in the 21ST Century.
2.2 The Oil Pricing Mechanism and OPEC control.
2.3 OPEC Market Share Movements
CHAPTER THREE: RELATIONSHIP BETWEEN US INCREASED DEMAND FOR
OIL AND ITS INTEREST IN GULF OF GUINEA.
3.1 US Africa Command and Gulf of Guinea
3.2 U.S. Strategic Interests in Africa
CHAPTER FOUR: US INCREASING OIL DEMAND FROM THE GULF OF
GUINEA AND AFRICAN DEVELOPMENT
4.1Priority for U.S. National Security and African Development .
4.2 Africa and the Unified Command Plan
4.3 Current U.S. National Security Strategy toward Africa
4.4 Africa Command: U.S. Strategic Interests and the Role of
The U.S. Military in Africa
CHAPTER FIVE: THE SOCIAL CRISIS PLAGUING THE TRADITIONAL
OIL SUPPLIERS IN THE MIDDLE EAST
5.1 Militarization of Energy Policy in Gulf of Guinea
5.2 Historical Development of Oil Gulf of Guinea
5.3 Middle East crisis drives Oil Prices up
5.4 The Growing importance of West Africa Oil
5.5 Political risk and supply Stability of oil
5.6 West Africa in American oil diplomacy
Summary and Conclusion
Bibliography
CHAPTER ONE
1.1 INTRODUCTION
The tremendous change taking place in the traditional OPEC oil
producing countries of the world is shaping strategic interest in the Gulf of
Guinea. Giving the political climate in the Middle East which periodically has
disruptive effects on oil prices and the accelerated growth of China and India,
the gulf of Guinea region will occupy a more important place in the energy
strategies of the United States, the EU and China. The United State‘s interest in
the region is informed mainly by the concern for energy security. The US
Government‘s energy policy has a strategic objective of ensuring that the
country‘s energy supplies represent a diverse set of sources. Indeed the US
Government has made energy security a top priority with security and diversity
of supply as the raison deter of its policy engagement on energy issues. Within
this context, it recognizes Africa‘s role as a major energy supplier. Currently,
12 percent of US oil is imported from Africa. Nigeria has been the fifth largest
supplier of crude oil to the US, with exports to the country averaging nearly
600,000 barrels daily. About 65 percent of Nigerian crude oil production is light
and sweet; making it particularly suited for US refineries since it yields high
volumes of gasoline. Angola, the second largest producer in the region also
supplies a substantial volume of crude to the US. Gabon, sub-Saharan Africa‘s
third largest producer currently produces about 300,000 barrels daily. Over 45
percent of Gabon‘s oil output is exported to the United States. Equatorial
Guinea is emerging as a major oil producer in the Gulf of Guinea. On the
average, Equatorial Guinea produced 179,000 barrels daily including crude and
natural gas liquids in 2002. By 2010, Equatorial Guinea is expected to produce
500,000 barrels daily of oil and LNG. It is also expected to become a supplier
of LNG. Chevron, Amerada Hess, ExxonMobil, Marathon Oil and Deven
Energy are some of the American firms with investments in exploration,
production and service activities in the country. Sao Tome and Principe is also
an emerging oil producer in the region. Sao Tome‘s petroleum reserves spans
its own Exclusive Economic Zone, EEZ and a joint development zone with
Nigeria, JDZ. The JDZ is estimated to hold substantial reserves, possibly as
much as 6 to 10 billion barrels. ExxonMobil has already made investments in
Sao Tome. The US$3.7 billion Chad-Cameroon Pipeline which is led by
ExxonMobil with participation of Chevron is one of the largest single private
US investments in Africa. Ghana‘s Jubilee field was scheduled to begin
production late 2010. Exciting new finds have been made offshore Ghana. The
United States certainly recognizes the potential of the Gulf of Guinea to meet
part of its excess demand for energy and has been taking steps to harness it. For
instance, the United States Agency for International Development, USAID,
provided assistance in the design and implementation of a regional regulatory
framework aimed at controlling the exploration of natural gas as well as
generation of electricity in Ghana and Nigeria. In the same vein, the US ExportImport Bank financed the West African Gas Pipeline, WAGP, which is 1,000
kilometres long and is meant to transport natural gas from Nigeria to Benin,
Togo and Ghana. Equatorial Guinea has a gas plant that will allow the country
to increase gas production each year by reducing flaring through re-injection
and transformation of gas into LNG. This was estimated to cost the Equatorial
Guinea government and the Texas headquarters of Marathon US$1.4 billion.
With 16 percent of its total imports coming from the gulf of Guinea, the US will
continue to consider the region as an area of strategic importance. This volume
of oil imports from West Africa equals the volume of imports from Saudi
Arabia. The National Intelligence Council predicts that ―West Africa will play
an increasing role in global energy markets, providing 25 percent of North
American oil imports in 2015. Walter Kansteiner III, a former Assistant
Secretary of State for African Affairs, addressing representatives of the US oil
industry put it bluntly, ―African oil is of national strategic interest to us, and it
will increase and become more important as we go forward. It will be people
like you who are going to develop that resource, bring that oil home and try to
develop the African countries as you do it‖. The re-evaluation which has taken
place in US foreign policy and energy policy with the coming of President
Barack Obama has not in anyway changed the basic thrust of those policies
towards the Gulf of Guinea. In that context, Obama‘s trip to Ghana was seen as
informed by Washington‘s strategy of working with regional allies in West
Africa to develop relationships which will secure US energy security in the
long-term. The US sees the Gulf of Guinea as offering the opportunity to break
with the old policies which saw the US at the mercy of geo-strategic pressure of
unstable or unfriendly oil producing states in the Middle East. America‘s
energy policy strategists believe the way forward is to promote a zone of energy
security and prosperity in a part of the world that is relatively receptive to
American presence. The US is however not alone in seeing Africa as a stable
source of energy. There is a new scramble for Africa‘s raw materials, especially
energy resource. This has been caused by China‘s astounding industrial growth
and its growing influence in the global economy. It is now the second largest
consumer of oil in he world behind the US. In 2006, nine percent of Africa‘s oil
exports went to China with 60 percent of Sudan‘s oil China bound. Already
China has sped past Britain and France to become Africa‘s second largest
trading partner behind the United States. China‘s audacious attempt to wrest
blocks from western multinationals in Nigeria is part of efforts to establish a
foothold in the Gulf of Guinea. It is also part of its long-term strategy of
securing natural resources for the China‘s growing economy and building
political influence in developing countries. Though Angola, the second largest
oil producer in Sub-Saharan Africa supplies the United States with about twice
as much oil as it supplies China, the Asian giant has outpaced the US in
partnering Angola‘s rapid development with its multi-billion dollar investment
support for the country‘s infrastructure.
1.2 Statement of the Problem
When it comes to strategic alignment and the articulation of envisaged
policies, the United States government spares no resources to make sure that an
achievable result is attained with reasonableness. Therefore, out of strategic
necessity and America‘s interest the Center for Strategic and International
Studies (CSIS), a Washington D.C.-based think-tank group and Goldwyn
International Strategies – another think-tank had to study the present situation in
the Middle East, especially the disruption of continual flow of crude oil to
the United States. Their findings were not strategically enduring, and this may
have influenced their recommendation to President George Bush led
administration to realign its African Policy and, sincerely look to the
‗Gulf of Guinea‘ as an alternative source for crude oil. Very brilliant estimation
worthy of commendation, and anybody or group who thinks that the United
States should not pursue an objective that is in her interest must rethink again.
Activities within the region have shown that France in an attempt to control the
entire area and undermine Nigeria‘s capability had played a very unsavory and
domineering influence in the Gulf of Guinea. To protect the interest of France,
it has stationed a rapid deployment force approximated to be a Division
Strength positioned from Senegal to Equatorial Guinea. Most Francophone
Countries within West Africa has a French forward Base (FOB) or Home Port
Base (HPB) for the French navy, air force and infantry; all to protect France‘s
interest and that of the ruling party, but not necessarily that of the host nation‘s
suffering citizens.
There exists evidence as reported in studies conducted by various thinktank groups based in U. K. that Portugal also has marines and patrol vessels
base in Sao Tome and Principe, while US, France and China provide Military
training to Equatorial Guinea and Cameroon Armed Forces. China is also
known to have increased its presence and activities in Cameroon and Equatorial
Guinea by gradually taking over the complete training and weapons supply of
both Countries Armed Forces and Navy. Even Libya is listed to have donated
training patrol boats highly equipped with modern weaponry to Sao Tome and
Principe in the immediate past. Nations like Taiwan, Russia, Ukraine, and
Portugal are competing heavily to supply Military logistics to Sao Tome and
Principe, Equatorial Guinea and Angola; all are principal members of the
concentric region of the Gulf of Guinea. This research is a critique of the US
interest in the oil gulf of Guinea and their exploitative agenda in African Sub
Region. We argue that US interest in oil gulf of Guinea is purely exploitative
and should be address with immediate effect.
Although several authors have written on US interest in the oil gulf of
Guinea but none was able to critically narrow it down to context of exploitation.
In this work therefore, efforts shall be made to fill the lacuna noted in the
literature. Base on this, we pose the following questions for interrogation.
1. What are the implications of Nigeria membership of OPEC and its frontal
role in the new regional oil policy of the gulf of Guinea?
2. Is there any relationship between United States increase demand for oil and
its interest in the gulf of Guinea?
3. Does oil in the gulf of Guinea have any contribution to social crisis plaguing
the traditional oil suppliers of the Middle East Countries?
4. Is the US increasing oil demand from the gulf of Guinea transcending to the
development in the region?
1.3 Objective of the Study
The objective is to examine the role of OPEC in world oil politics and the
growing demand for oil in the United States and other emerging markets of the
developing countries.
1. To critically analyze the implication of Nigeria membership of OPEC
and its frontal role in the gulf of Guinea.
2. To identify if the oil in the gulf Guinea has any contribution to the
social crisis plaguing the traditional suppliers of the Middle East.
3. To ascertain if the US increasing oil demand from the gulf of Guinea
transcends to development in the region.
1.4 Significance of the Study
The central aim of this study of to critically evaluate how United States of
America has increased its demand of oil from the Gulf of Guinea in view of the
political and social crisis plaguing its traditional oil suppliers of the Middle East
countries and its foreign policy implication of the African countries of the Gulf
of Guinea.
The United States has sought to increase its economic relations with SubSaharan Africa, and trade between the United States and Africa has tripled since
1990. In 2000, the Clinton Administration introduced a comprehensive U.S.
trade and investment policy for the continent in the African Growth and
Opportunity Act (AGOA; Title I, P.L. 106-200). AGOA has been amended by
Congress on several occasions, most recently in 2006. Natural resources,
particularly energy resources, dominate the products imported from Africa
under AGOA. Africa now supplies.
The United States with roughly the same amount of crude oil as the
Middle East.53 Nigeria is Africa‘s largest supplier of oil, and is the fifth-largest
global supplier of oil to the United States. Instability in the country‘s Niger
Delta region has reduced output periodically by over 25%. World oil prices
have been affected by Nigerian political developments and by periodic attacks
on pipelines and other oil facilities in the Delta. President Bush announced in
his 2006 State of the Union Address his intention to ―to replace more than 75
percent of our oil imports from the Middle East by 2025,‖54 echoing a
commitment made in 2002 ―to strengthen [U.S.] energy security and the shared
prosperity of the global economy by working with our allies, trading partners,
and energy producers to expand the sources and types of global energy
supplied, especially in the Western Hemisphere, Africa, Central Asia, and the
Caspian region.‖55 A senior DOD official reportedly commented in 2003 that
―a key mission for U.S. forces (in Africa) would be to ensure that Nigeria‘s oil
fields ... are secure.‖56 In spite of conflict in the Niger Delta and other oil
producing areas, the potential for deep water drilling in the Gulf of Guinea is
high, and analysts have estimated that Africa may supply as much as 25% of all
U.S. oil imports by 2015.57.
1.5 Scope of the Study
The scope of the study will cover the Africa rich oil zone and the US
interest in the gulf of Guinea.
1.6 Literature Review
Oil Policy in the Gulf Of Guinea
Can Angola, Cameroon, Congo, Gabon, Equatorial Guinea, Nigeria, and
Sao Tome & Principe create a regional oil policy that can promote their security
and development? Although they differ in many ways, the countries of this
region share several common characteristics besides their oil. They all have
weak governments, underdeveloped economies and a shortage of qualified
human capital. Their populations suffer from poverty, hunger, endemic
diseases, illiteracy, unemployment and a life expectancy rate comparable to that
of Europe in the middle Ages. Very few of them have achieved significant
levels of growth, and none of them can boast of equitable income distribution.
These are not very promising ingredients for successful integration. However,
things have started to change. Most of these countries have started applying
democratic principles of government. Almost all of them are involved in
regional projects, and many of them enjoy political and social stability. Some
are even trying to implement transparency and good governance. The end of the
Cold War may have been the main cause of the changes now taking place. Or
perhaps these changes are the result of internal principles. Whatever the reason,
these countries should now take advantage of the present importance of oil to
improve the long-term prospects for the region. Now is the time to use this nonrenewable resource to develop the regional economy, because there is reason to
believe that in thirty years time oil will not be as important as it is today. The
arguments in favour of a regional oil policy include the need to defend their
common interests against the major multinational oil corporations, the
possibility of collective bargaining with the Americans (whose increasing
dependence on the region confers greater importance to its reserves) the
existence of regional organizations, and the absence of major conflict among
the states of the region. The arguments against such a regional policy include
the chronic weakness of their state institutions, their under-developed
economies, heavy foreign debts, poor social conditions and widespread poverty.
All of these would undermine their ability to negotiate advantageous conditions
for their resources. Also, the projected emergence of new, cheaper, cleaner, and
more accessible sources of energy may soon put an end to the quasi-monopoly
enjoyed by oil as the world‘s premier energy source.
The OPEC Experience
What precedents are there for a regional oil policy? For an oil policy that
transcends the nation state? The Organization of Petroleum Exporting Countries
(OPEC) was created in 1960 to defend the rights and interests of its member
states in a market that was dominated by huge multinational oil companies. Its
objective was to ―coordinate and harmonize the oil policies of member
countries in a manner that would guarantee just and stable prices for oil
producing countries and ensure an efficient, cheap and regular supply of oil to
consumer nations as well as just capital returns for investors in the oil industry.
Apart from negotiations with the oil majors, OPEC maintained a very low
profile during its first years of existence. This did not stop it from expanding
from its five original members (Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela) to include eight new members (Qatar, Indonesia, Libya, UAE,
Algeria, Nigeria, Ecuador and Gabon). Along with this expansion, the
organization set up a secretariat and moved its head office to Vienna.
OPEC acquired international prominence in the 1970s when its members began
to control production in their countries and to play a role in determining the
price of oil in the world markets. The first two oil crises (1973 & 1979) caused
a sharp increase in the price of crude oil, which continued until the early 1980s,
when the price collapsed, resulting in the third crisis (1986). A consensus was
gradually reached on the need for joint action between producers in order to
guarantee a steady market with reasonable prices. In the early 1990s, the
members increased their production to avert a new crisis, and these prices
remained stable until the end of the century, when the economies of Southeast
Asia collapsed, triggering a collapse in oil prices that only ended with collective
action by OPEC member states. The Organization has achieved a lot, to the
point where it now plays an important role in the production and marketing of
oil. But what has been achieved by this success? While it is true that it has
defended the interests of its member states, this has not necessarily helped the
ordinary people who live in these countries. Do they enjoy democracy? Has the
wealth generated from the sale of oil been fairly distributed? How much do the
vaunted high per capita income figures reflect the daily life of these people?
Doesn‘t the excessive wealth rather serve only to make the rich richer, and
perpetuate the impoverishment of the already very poor? Foreign Influences
There is also the question of global power politics. Opposition to OPEC is
strong. Naturally, the world‘s major powers do not take very kindly to the kind
of influence this strong organization wields. While OPEC is comprised of
members who are for the most part their friendly allies, it often causes grave
energy problems for the major powers whenever it firmly and successfully
opposes their interests or measures. These powers are hostile to OPEC in spite
of the fact that the organization has always played a more or less conciliatory
role (as can be seen during almost every major energy crisis). The role played
by big oil lobby groups is also an important impediment. Nor should we forget
the mergers of the oil majors, creating new super-majors like Exxon-Mobil,
Chevron-Texaco, BP-Amoco and Total [Fina- Elf] which have increased their
bargaining power and diversified their non-OPEC portfolios. The events of
September 11th brought to the surface the problems that existed between
Washington and its main partners in the Middle East, especially Saudi Arabia,
upon whom the US depended for a significant portion of its oil supply. The
search for alternative sources of oil thus became essential for American national
security. I believe that the Gulf wars had as their objective the security of oil
supply in the region. The supplier chosen was Iraq, and the transportation route
chosen was the Mediterranean, to avoid the narrow and dangerous Persian Gulf.
While this route shortens the distance to North America, the maintenance of
pipelines to the Near East has also increased US involvement in the Arab-Israeli
conflict, as well as Syria and Lebanon. The current crisis in the Middle East is
forcing the US to look for alternative sources of oil. West Africa – especially
the Gulf of Guinea with its high-quality and abundant offshore reserves – seems
to be an ideal solution. This region has the added advantage that it shortens the
distance to the North American coastline by
Almost 14,000 km. According to Congressman Ed Royce, ―African oil should
be treated as a priority for US national security after September 11.‖ According
to Walter Kansteiner, ―African oil is of national strategic interest to us, and this
importance will increase as time goes on.‖ If African oil exports increase, as
many experts are predicting, to 25% of total US imports, then such tangible
national interests will oblige America to take concrete political, economic,
security and military measures in the region. Because of American hegemony, it
is now able to arbitrarily impose its will on any country. In the case where its
interests coincide with those of the country concerned, it cooperates with them.
When they do not, it imposes its will by force if necessary. This will have direct
consequences on the ability of the states in the region to develop their own
collective oil policies.
There are many reasons why an oil policy should be developed by the
Gulf of Guinea. However, there are also many reasons to fear that such a policy
would not work. The weakness of the countries of the region is a problem that
will be solved only with the end of oil‘s importance as the primary source of
energy, and consequently, the end of American interest in the region. For now
this interest is strong, and we can do nothing to stop American hegemony. But
at least some benefits could be gained. An oil policy should be developed, but
not along the lines of OPEC. Rather, it should be formulated at the regional
level. Regional organizations like ECOWAS, ECCAS and SADC should come
together with the countries in the Gulf of Guinea and set up a mechanism that
would enable them to take advantage of the enormous benefits from the sale of
oil or from the foreign investments flowing into the oil sector. This could be
done by setting up common projects, by creating special funds, establishing tax
packages, signing trade agreements, harmonizing oil policies, and passing
legislation on privatization.
OPEC: Nigeria membership and its frontal role
The Organization of the Petroleum Exporting Countries (OPEC), which
then consisted of twelve countries, including Iran, seven Arab countries, plus
Venezuela, Indonesia, Nigeria, and Ecuador, had been formed at a Baghdad
conference on September 14, 1960. OPEC was organized to resist pressure by
the "Seven Sisters" (mostly owned by U.S., British and Dutch nationals) to
reduce oil prices and payments to producing countries. At first OPEC had
operated as an informal bargaining unit for the sale of oil by resource-rich Third
World nations. OPEC confined its activities to gaining a larger share of the
profits generated by the Western oil companies and greater control over the
members' levels of production. As a result of this and other events in the early
1970s, it began to exert its economic and political strength; the major Western
oil conglomerates, as well as the importing nations, suddenly faced a unified
bloc of exporters.
On August 15, 1971, the United States pulled out of the Bretton Woods
Accord taking the US off the Gold Exchange Standard (whereby only the value
of the US dollar had been pegged to the price of gold and all other currencies
were pegged to the US dollar), allowing the dollar to "float". Shortly thereafter,
Britain followed, floating the pound sterling. The industrialized nations
followed suit with their respective currencies. In anticipation of the fluctuation
of currencies as they stabilized against each other, the industrialized nations
also increased their reserves (printing money) in amounts far greater than ever
before. The result was a depreciation of the value of the US dollar, as well as
the other currencies of the world. Because oil was priced in dollars, this meant
that oil producers were receiving less real income for the same price. The
OPEC cartel issued a joint communiqué stating that, from then on, they would
price a barrel of oil against gold. This led to the "Oil Shock" of the midseventies. In the years after 1971, OPEC was slow to readjust prices to reflect
this depreciation. From 1947-1967 the price of oil in U.S. dollars had risen by
less than two percent per year. Until the Oil Shock, the price remained fairly
stable versus other currencies and commodities, but suddenly became extremely
volatile thereafter. OPEC ministers had not developed the institutional
mechanisms to update prices rapidly enough to keep up with changing market
conditions, so their real incomes lagged for several years. The substantial price
increases of 1973-74 largely caught up their incomes to Bretton Woods levels
in terms of other commodities such as gold.
On October 6, 1973, Syria and Egypt launched a surprise attack on Israel.
This new round in the Arab-Israeli conflict triggered a crisis already in the
making; the price of oil was going to rise. The West could not continue to
increase its energy consumption 5% annually, while also paying low oil prices,
and selling inflation-priced goods to the petroleum producers in the developing
Third World. This was stressed by the Shah of Iran, whose nation was the
world's second-largest exporter of oil and a close ally of the United States in the
Middle East at the time. "Of course [the world price of oil] is going to rise", the
Shah told The New York Times in 1973. "Certainly! And how...; You [Western
nations] increased the price of wheat you sell us by 300%, and the same for
sugar and cement...; You buy our crude oil and sell it back to us, refined as
petrochemicals, at a hundred times the price you've paid to us...; It's only fair
that, from now on, you should pay more for oil. Let's say ten times more.‖ On
October 12, 1973, President Richard Nixon authorized Operation Nickel Grass,
an overt strategic airlift to deliver weapons and supplies to Israel, after the
Soviet Union began sending arms to Syria and Egypt.
On October 16, 1973, OPEC announced a decision to raise the posted
price of oil by 70%, to $5.11 a barrel. The following day, oil ministers agreed to
the embargo, a cut in production by five percent from September's output, and
to continue to cut production over time in five percent increments until their
economic and political objectives were met. October 19, US President Richard
Nixon requested Congress to appropriate $2.2 billion in emergency aid to Israel,
including $1.5 billion in out-right grants. George Lenczowski notes, "Military
supplies did not exhaust Nixon's eagerness to prevent Israel's collapse. ... This
[$2.2B] decision triggered a collective OPEC response." Libya announced it
would embargo all oil shipments to the United States. Saudi Arabia and the
other OPEC states quickly followed suit, joining the embargo on October 20,
1973. At their meeting in Kuwait the OPEC oil-producing countries,
proclaimed the oil boycott that provided for curbs on their oil exports to various
consumer countries and a total embargo on oil deliveries to the United States as
a "principal hostile country". The embargo was thus variously extended to
Western Europe and Japan.
Though United States was the initial target of the embargo, it was later
expanded to the Netherlands. Price increases were also imposed. Since oil
demand falls little when the price is raised, the prices had to be raised
dramatically to reduce demand to the new lower level of supply. Anticipating
this, the market price for oil immediately rose substantially, from $3 a barrel to
$12. The world financial system, which was already under pressure from the
breakdown of the Bretton Woods agreement, was set on a path of recessions
and high inflation that persisted until the early 1980s, with oil prices continuing
to rise until 1986. ―OIL is found in the minds of men.‖ So says a popular
bumper sticker in America's oil patch. There is something in that. Daniel
Yergin, author of ―The Prize‖, a Pulitzer prize-winning history of oil, argues
that the history of oil is one of astonishing innovations. In 1859, Colonel Edwin
Drake struck oil in Pennsylvania by drilling rather than digging, adapting the
old Chinese trick of drilling for salt. That prompted the world's first oil boom,
which inevitably led to bust as oil flooded the market and prices collapsed.
In 1901, another set of unlikely innovators struck oil in unpromising terrain at
Spindle top, Texas. They used novel drill bits that rotated through the earth
rather than merely pounding it, enabling them to reach far greater depths. This
started up a ferocious gusher that spewed out nearly 1m barrels of oil in ten
days. It marked the birth of the modern oil industry. Inevitably, this boom once
again led to bust as oil grew ever more plentiful. And yet, despite this history of
innovation and abundance, concerns about depletion are once again clouding
the industry's future. This time round, argue the doomsayers, depletion really is
looming, and technology will not come to the rescue, as it has done in the past.
If they are right, today's oil prices are but a harbinger of much, much worse to
come. Clearly, oil is a non-renewable resource that has to run out some day.
Those who expect that day to come sooner rather than later usually point to
Hubbert's peak. M. King Hubbert was a geologist at Shell who predicted in
1956 that America's oil production would peak and begin to decline in the early
1970s. In fact, oil production from the 48 contiguous states did peak around
1970. The current debate on depletion is about when the global ―Hubbert's
peak‖ will be reached.
The United States Geological Survey did a comprehensive study in 2000
and concluded that such a peak was at least two decades off. The IEA broadly
concurs, arguing that oil supplies will not become constrained until after 2030
provided the necessary investments are made. However, some analysts disagree
sharply. 1 Oil The Economist_30 Apr 05.docl Africa‘s coastlines, particularly
along the Gulf of Guinea, the Gulf of Aden, and the west Indian Ocean, have
been highly susceptible to illegal fishing, illegal trafficking, and piracy in recent
years. The inability of African governments to adequately police the region‘s
waters has allowed criminal elements to smuggle people, drugs, and weapons
and dump hazardous waste, and has opened maritime commerce and off-shore
oil production facilities to the threat of piracy and sabotage. The growing
problem of narcotics trafficking in West Africa, estimated by the U.N.
Office on Drugs and Crime (UNODC) to be a transit point for approximately 27% of all
cocaine annually consumed in Europe, has become an area of increasing concern to
policymakers. In 2005, the Bush Administration introduced its National Strategy for
Maritime Security, identifying the freedom of the seas and the facilitation and defense of
commerce as top national priorities and indicating plans to fund border and coastal security
initiatives with African countries.59 The United States government, represented by members
of EUCOM, U.S. Naval Forces Europe, the State Department, and the Africa Center for
Strategic Studies (ACSS), has engaged its West African partners in a number of ministerial
conferences on maritime security, and is currently conducting several activities to increase
the capability of African navies to monitor and enforce maritime laws. The U.S. Navy has
increased its operations in the Gulf of Guinea to enhance Security in the region, although
those operations have been sporadic through its Global Fleet Stations (GFS) concept, the
Navy has committed itself to more persistent, longer-term engagement (see information on
the African Partnership Station in ―Security Assistance‖ below). In the waters off the coast of
East Africa, the Combined JointTask Force - Horn of Africa (CJTFHOA) is working with the
Navy and with coalition partners in CENTCOM‘s Coalition Task Force 151 (CTF-151),
which conducts maritime security operations to protect shipping routes in the Gulf of Aden,
Gulf of Oman, the Arabian Sea, Red Sea, and the Indian Ocean. Coalition and U.S. naval
forces have had numerous engagements with pirates in these waters.
Economic Vulnerabilities
The price for imports of crude oil has increased markedly since 2003, but
demand has not waned in response. Due to higher oil prices, energy imports
added about $70 billion to the U.S. trade deficit in 2005 and $50 billion in
2006. They currently account for roughly one-third of the current trade
imbalance. In the summer of 2005, Federal Reserve Board Chairman Alan
Greenspan warned Congress that increased energy prices since the end of 2003
diminished U.S. economic growth by about one-half of a percentage point in
gross domestic product in 2004 and by three-fourths of a point in 2005.
High energy prices hurt energy-intensive sectors of the economy and have
trickle-down effects on other sectors as well. Consumers have been hurt by rises
in fuel prices. Feeling their reduced purchasing power, they cut back on
spending, thus diminishing economic growth from the demand side. In a May
2007 poll, two-thirds of Americans reported that they have been affected
financially in some meaningful way by higher gas prices. For 18 percent, it created a financial hardship, and an additional 49 percent indicated that high gas
prices caused them to adjust their usual spending and saving habits in significant ways. Lower-income households and middle-income families have been
especially affected.
If consumer spending falters and business becomes more cautious about
expanding, reassessing the profitability of investment projects in light of higher
energy costs, the United States might slide into a recession, which would cause
higher unemployment and slow private spending even further. Signals of a
weakening U.S. economy may prevent trading partners from reinvesting their
returns in the United States. If U.S. productivity and economic power were
seriously questioned, investors might seek different havens to get a better return
on their investments. This would put the U.S. economy under considerable
strain and put the dollar in doubt as a safe harbor currency.
In the long run, however, U.S. markets may adapt to these challenges. Higher
energy prices will provide strong market incentives to find alternative sources
of energy, to develop new technologies, and to improve energy efficiency. For
these effects, there is an additional driving force: increasing public concern
about environmental damage caused by traditional forms of energy
consumption.
Oil and the Gulf of Guinea
Both the US and Europe are becoming increasingly dependent upon SubSaharan Africa for their oil and gas supply, as energy demand increases due to
rising competition from China and India and the US desire to reduce its
dependence on the Middle East.Of strategic and geo-political importance to the
US, Europe and now China are the Gulf of Guinea States, which include
Nigeria, Angola, Congo-Brazzaville, Congo DRC, Cameroon, Sao Tome &
Principe, Equatorial Guinea, Gabon, and Ghana. Nigeria and Angola are the
largest producers: Nigeria has estimated proven oil reserves of 36.2bn barrels
[Heady excitement damped by doubt]; Angola has estimated proven reserves of
9bn barrels which will continue to rise as new discoveries are made [country
analysis briefs. Oil has become synonymous with violent conflict. The Niger
Delta is a case in point, where a violent armed struggle is escalating for the
control of the oil resources, which regularly threatens oil supply and keeps the
price of oil high. Angola is currently producing more oil than Nigeria due to
militant attacks on oil installations in the Niger Delta as well as the lucrative
business of oil bunkering – or funding an insurgency. This has reduced
production from 2.5m barrels to 1.5m barrels per day.
The major oil companies face new and more difficult challenges. As well
as increased insecurity with their onshore and now offshore operations,
Production Sharing Agreements are being renegotiated in both Angola and
Nigeria due to the high oil price. Moreover, the major oil companies that have
held an unchallenged monopoly in the global energy market face new
competition from other state oil companies from China, India and Russia. For
the US and Europe ―There is a primary shift from training peacekeepers
missions in Africa to training for counter-terrorism and energy security‖.
[Lubeck, P (2007) ―Convergent Interests: US Energy Security and the Security
of Nigerian Democracy‖ International Policy Report, Feb 2007, cited in The
Gulf of Guinea Citizens Network: A Regional Advocacy Project for the Gulf of
Guinea States.] Internal security capabilities within the Gulf of Guinea States
are being enhanced enabling national security authorities to control (or
suppress) the host communities. [The Scramble for African oil‖, New African,
July 2006]. Investigative reporting is critical because of the strategic importance
of oil for both Africa and the West. Oil investment in Sub-Saharan Africa
represents 50% of all foreign direct investment. [Watts, M (2006), Empire of
Oil: Capitalist Dispossession and the Scramble for Africa, Monthly Review,
Vol 58, 4]. in countries where corruption and unaccountability are endemic and
human rights are violated with impunity, the media is the only way to expose
such abuses. As the World Bank stated in 2001: ―There is no more effective
check on corrupt officials, bribe takers, embezzlers and those who waste public
funds than a hard-nosed investigative journalist‖. Oil promotes all of these
abuses of power and contributes to global political instability and climate
change.
Too often, conflicts in these oil-producing states are reported as
ethnic/tribal issues or greed versus grievance. The reality is that these conflicts
are far more complex, involving both local and international actors.
Investigative journalists should reflect this in their reporting and expose the
direct links between oil consumption, energy security in the West and conflict
in these oil producing states. Put another way, events in Iraq and the Gulf of
Guinea are related and should not be seen as individual isolated cases. There is
a lack of critical investigation regarding the oil companies and the Corporate
Social Responsibility rhetoric behind which they hide. Moreover, there is now a
plethora of voluntary initiatives that oil companies sign up to such as Blair‘s
flagship project the Extractive Industry Transparency Initiative or the Voluntary
Principles on Security and Human Rights which provide a buffer to oil and
mining companies against mandatory regulations. These voluntary initiatives
are driven by a normative response towards the protection of human rights by
Western governments, inter-governmental organizations and NGOs. Yet the
real politick on global energy security promotes an unregulated oil industry in
which the securing of oil is the prime objective. Thus these initiatives might
have good intentions but do they work in practice?
There is very little investigative reporting about the role of AFRICOM
(the US Africa Command) and its implications for the African continent. The
question that lies begging is what is the real purpose of AFRICOM? The Bush
administration promoted it as a panacea for all of African woes; that it will
solve the problems plagued by the continent and promote security,
democratization, access to health and education and improve economic growth.
It is also part of the US global war on terror (GWOT), with Africa viewed as
the ―world‘s soft underbelly‖ for global terrorism [Isike, Uzodike & Gilbert
(2008) The United States African Command: Enhancing American security or
fostering African development? Institute for Security Studies, African Security
Review 17.1 p.26, quote from Susan Rice, Under-secretary of State, (2002)].
But for the sceptics and cynics this is seen little more than a further extension of
US imperialism, a recolonisation of Africa, in which energy security is the
raison d‘étre. It is unlikely that an already overstretched US military would put
troops into ―Africa‘s oil triangle‖, however, there is an increasing market niche
for private security companies to fill that void. Global Networking: There is a
need for the bringing together of investigative journalists from the Gulf of
Guinea states, other parts of sub-Saharan Africa and other regions of the world
to share their experiences regarding the investigative reporting of oil. A need to
broaden and strengthen links with UK and US investigative journalists who are
reporting on oil and gas exploitation within the Gulf of Guinea states and
throughout sub-Saharan Africa. To build the capacity of journalists who are
interested in investigative reporting and monitoring of oil and gas at the early
stages, (Sao Tome, Ghana, Niger, Uganda), who could learn from journalists
who are already actively reporting from mature petro-states like Nigeria and
Angola.
To begin the process of building and strengthening an independent media
to enable more effective investigative journalism on the reporting of oil and gas
exploitation, taking into consideration legal obstructions such as the Freedom of
Information Act and the State Security Act; weak institutional support and poor
resources; and journalists under constant threat. To be willing to critically
examine the oil industry, this not only includes the oil companies but their
contractors as well. Don‘t just buy what is on offer. Ignore the Government and
Public Affairs Department who court the media and act as the gatekeeper, but
get to the personnel that are in the driving seat at the strategic and policy level
and those working in the operational field. Oil and the Gulf of Guinea – Irene
Gerlach – July 2008
Poverty: A Barrier to Sustainable Development
Poverty is one the contradictions of capitalism, and perhaps that of the
capitalist world. Wherever capital is being accumulated on a large scale, some
people must be left behind; these people are usually at the extreme of poverty.
Poverty though is as old as human race, the emergence of industrial revolution
and globalization, has increased the number of people who can hardly cater for
themselves let alone their family members. In Africa, Poverty problems are
enormous as health and economic conditions routinely become devastating. The
Nigeria‘s history of poverty can be gauged from this (Smith, 2003; Adejugbe,
2005). Schaefer (2005) noted that efforts of sociologists and other social
scientists to better understand poverty are complicated by the difficulty of
meanings that people often give to it. This problem is evident even in
government programmes that conceive of poverty in either absolute or relative
terms. Schaefer posited that Absolute Poverty refers to a minimum level of
subsistence that no family should be expected to live below. For instance,
policies concerning minimum wages, housing standards, or school lunch
programmes for the poor imply a need to bring citizens standard of living to
some predetermined level of existence. On the other hand, Relative Poverty is a
floating standard of deprivation by which people at the bottom of a society,
whatever their lifestyles, are judged to be disadvantaged in comparison with the
nation as a whole(Schaffer, 2005:211). The issue of poverty in the Africa oil
producing regions is perhaps that of relative poverty. Over the years, oil has
sustained Africa‘s economic growth, improved the standard of living of other
non-oil producing regions at the expense of the host communities whose natural
resources are being exported into metropolitan countries for importation of
capital in return. Many African cities have been developed with the oil wealth
while towns and villages in the Niger Delta have become eyesore today
(Osuntokun, 2000; Onosode, 2000; Okecha, 2000; Yaro et al., 2000).Thre are
empirical evidences previously researched by scholars that confirm the
assertion that poverty is a serious economic and social problem in the Niger
Delta Writing about the nature and types of poverty in the Niger Delta,
Aworawo (2000) commented that the economic conditions in the Niger Delta
reflect unequivocally that poverty is endemic in the region. One of the
indicators of poverty is the constant disruption of the mainstay of the traditional
economy of the people by multinational oil companies. This often consequently
leads to pollution of the coastal water that produces fishes for the people,
stoppage of farming activities because of oil spillage. Because of this type of
economic incapacitation of the people, inhabitants of the Niger Delta are today
living in poor health conditions and environmentally polluted atmosphere that
constrain good standard of living.
Aworawo (2000: 155) has succinctly captured this excruciating poverty
in his chapter titled The Impact of Environmental Degradation on the Rural
Economy of the Niger Delta in a book published by Professor Akinjide
Osuntokun. He stated thus: While the petroleum producing companies
continued to perform fitfully in the area of effectively tackling the problem of
oil spillage, the people of the Niger Delta continue to groan under the burdens
of the devastation of their land. A study carried out in 1995 revealed that
between 1992 and 1993 the total area under major food crop production in
Bayelsa, Rivers and Delta states decreased by 41.7 and 15% in 1995.The
decrease is generally attributed to the increasing incidents of oil spillage which
destroyed farmlands. This is a serious situation considering the nature of the
land in the Niger Delta. It is estimated for example, that of the 2,185,000
hectares that is the land area of Rivers and Bayelsa states about half of it is
swamp land which hampers agriculture. In Delta state, of 1,769, 800 which
represent its total land area, about a third are similarly swamps. This means that
continuous loss of land to oil spillage and other activities connected with
petroleum production and other industrial activities is basically the destruction
of the means of livelihood of the people. Worried about the enormity of the
problems of poverty in the Niger Delta, the UNITED NATIONS in 2005
carried out a survey of human conditions in the Niger Delta states, this included
among other things, an overview of past indicators of economic and social
development in the area as well as a review of government efforts so far. One of
the findings of the surveys explained the conditions in comparative terms; it
showed that some of the Niger Delta states may be said to be improving more
than what they used to be in the year 1996. Two of these states were listed as
Edo and Delta states. Human conditions are relatively lower in Ondo however,
meaning that there were variations across the states, it thus confirmed the fact
that Ondo had longed been neglected like some other states in the oil-rich
region. Making an inter-country comparison of the Niger Delta states with
Indonesia, the United Nations Development Programmes remarked as follows:
Indonesia is another oil-producing country that is almost at the same level of
development as Nigeria. Even there, human development situation is slightly
better than in the one in the Niger Delta. Indonesia‘s HDI for 2002 was 0.658,
which is higher than the Niger Delta average of 0.564. Life expectancy in
Indonesia was rated at 0.662, compared with 0.527 for the Niger Delta; adult
literacy was at 0.895, compared with 0.673 on the education index for the Niger
Delta; and real per capita consumption was at 0.592 compared with the Niger
Delta‘s GDP Index of 0.570. Countries like Libya and Venezuela have also
performed better than both Nigeria as a whole and the Niger Delta region in
particular (UNDP, 2006: 56 - 57). The foregoing exposition is just a meager
percentage of relative poverty being experienced by the people of the oil
producing region. How then can these people develop when their rural
economies have been damaged by oil exploration? It is this concern that will
make us understudy Nigeria‘s absolute poverty relative to poverty in the gulf of
Guinea.
1.7 Theoretical Framework
The center –periphery theory which we use in this study explains the
relationship between the center countries of the developed economies of the
world and the periphery states of the underdeveloped world. The relationship of
the center states and the periphery states is that of dependency and dominance.
The underlying factor to this is capitalism which produces underdevelopment.
According to the scholars that hold this view, the backwardness of the
underdeveloped periphery is because of its systematic exploitation by
international capitalism. According to Amin (1976), the underdevelopment of
the third world is functionally related to the development of the core in which
the international capitalist system had permitted the advanced core states to
drain the periphery of its economic surplus transferring wealth from the less
developed countries to the developed capitalist economies through the
mechanism of trade and investment. The center-periphery theorists admits the
existence of the two unequal classes in the world- the developed market economy
countries which is nationally organized political communities of the advanced
industrial capitalism such as united states of America, European countries,
Canada and Japan. These economies are characterized by strong commitment to
liberal democratic political values sustained economic growth and technological
advancement, financial and military power. These are known as the center of
the world economy as they determine the structure, pattern and direction of the
Global economy. The second group are countries lying at the periphery of the
world economic system.
They constitute mainly countries in the southern hemisphere and they
include countries in Africa, Asia and Latin America characterized by
underdevelopment and dependent economic system. These two extreme
developments represent the two development ends of the world capitalist
system united by complex relationships that have been characterized by glaring
inequalities in power, technology, financial resources and skill. From the
center-periphery theoretical framework of analysis, the fundamental structure of
inequality on which international economic relations between market economy
(center) and the third world (periphery) countries are based. Given this
structure, international economic relations between the two are fraught with
conflict and contradiction. In the world capitalist system, relations between
center and periphery are not at all relations among equals. These relations are
characterized by the industrialized center‘s dominance over the economically
underdeveloped periphery. This dominance is based on the economy but
influences every other sphere. The center has organized the capitalist economy
as a whole according to its needs and has moulded the periphery as a source of
raw materials, cheap labour and market for manufactured goods and services.
From the position of the third world countries that make up the Gulf of
Guinea, the major problem arising from the inequality of the center-periphery
system is dependence (Spero1977). This means a high unequal economic
interaction and a high sensitivity in a relationship in which the developed
market economy countries consistently maintain dominance. There is
inequitable deal from the present character of international economic structure
with the existing center-periphery system. This explains the relationship
between the united states of America which represent the center of centers and
the oil rich countries of the Gulf of Guinea which lies within the southern
Hemisphere, at the periphery of the world economic system. The relationship of
the unites states of America and the Gulf of Guinea region countries is that of
dependency, supply of raw materials and crude oil for the America markets.
The center-periphery theory helps us to understand the position of the countries
of the Gulf of Guinea region in the international political economy and the
pattern of oil exploration and exploitation in the Gulf. It also helps us to
understand why the sudden increase in demand in the oil in the region as well as
the increased militarization of the zone by the center countries of US, France
and Portugal. It also helps in understanding the reason why inspite of abundant
oil deposit in these countries, these countries continually depends on the center
countries for finished products including petrol and kerosene which are finished
products from crude oil. It helps us to understand why refineries in most of the
countries of the Gulf of Guinea are not functioning.
1.8 Hypothesis
This study has been designed to test the following hypotheses,
1. There is a positive relationship between increase demand for oil and United
States interest in the gulf of Guinea.
2. There is a positive relationship between US increasing demand for oil in the
gulf of Guinea and the recurrent crisis in the Middle East oil producing
region of the Persian Gulf.
3. Nigerian frontal role in the new regional oil politic of the gulf of Guinea is
likely to affect her membership of OPEC.
4. There is no positive correlation between African development and US
increasing demand for oil from the Gulf of Guinea.
1.9 Method of Data Collection
It is obvious that the quality of a good research is tied to the method and
technique used for gathering the data used in the project. To critically evaluate
and analyse this work, we shall dwell primarily on secondary sources of data.
The secondary sources of data used include official and institutional documents
from government and agencies such as the United States embassy in Nigeria,
United States senate report on Africa, congressional research service briefs on
Africa, Nigerian federal office of statistics and documents from Nigerian
National Petroleum Corporation.
Also, we relied heavily on textbooks, international and local journals,
seminars and conference papers and contributions from the internet. These
secondary sources of data were so useful because we found out that related
topics have been extensively worked on by eminent scholars and information,
data and other related statistical issues are already documented officially.
In other to ensure the reliability validity of the array of data and documents
available to us for this study, we will use the content analysis technique. This
technique will be used in gathering, selecting and analyzing the materials
available for this research work. Basically,, the method of data collection for
this study is the use of relevant textbooks and other related texts. The research
design is historical survey of documents. The content analysis technique will be
used to ensure reliability and make sure that the materials used are valid for this
study.
CHAPTER TWO
THE IMPLICATIONS OF NIGERIA MEMBERSHIP OF OPEC
AND ITS ROLE
2.1 OPEC and Oil pricing in the 21ST Century.
The Organisation of Petroleum Exporting Countries (OPEC) appears to
be losing its considerable control over the determination of crude oil prices; a
position it enjoyed especially from the 1970s onwards. This control over pricing
may have been largely achieved through output regulation from its member
countries: output cuts to raise prices, or market flooding to reduce prices1. This
negotiating advantage - in playing prices up or down - could have been further
influenced by excess production capacity (less capacity enabling OPEC to
successfully achieve relative member cohesion to cut output, thus raising
prices), and growth in global demand for crude2.
However, the advent of non-OPEC countries3 produced competition for
OPEC, resulting in loss of market share (e.g. from 50% to 47% in 1979)4, as
non-OPEC producers do not normally cut output alongside OPEC. In addition,
sustained high prices resulted in moves to find alternative energy sources over
the years, as well as increased conservation and energy efficiency, the likely
result being a decline in demand for OPEC crude.
High crude oil prices as administered by OPEC have been linked to
global economic recession, as a contributing factor (e.g. drop in GDP)5.
Leaving aside a possible ‗causal link‘ argument surrounding this, the current
global recession has – as a matter of fact - further dampened the demand for
crude oil, as well as other derived commodities such as aviation fuel. Events
following the September 11th World Trade Centre disaster appears to have
further worsened the global recession. News reports suggest that the demand for
flying has – not surprisingly – dropped significantly, the effect being a fall in
demand for aviation fuel (a major refined product of crude), hence a further
steep drop in crude oil demand. This fall in demand has forced the price of
crude to drop sharply from as high as $22 on the April 26th, to $12 by
December 14th, of the same year 20016 (Note: price from San Joaquin Valley
Heavy Crude Oil posted prices).
Member cohesion within OPEC remains a problem7. As has been shown
many a time, it has been difficult for the organisation to maintain output cuts
whenever member countries enjoyed excess capacity. Virtually all oil-rich
developing countries (except Saudi Arabia) have opened their economies to
foreign investment, the most likely result being increased capacity. This
increases the likelihood of these countries, keen on increasing their share of
OPEC output, to cheat. On the basis of the above prelude, the question arises as
to whether or not OPEC can regain its bargaining power over crude oil pricing,
given the peculiar situation the global market is faced with. Considering
previous actions taken by OPEC during crisis periods could help ‗gauge‘ its
future actions8. In addition, an analysis of the oil pricing mechanism, demand
and supply analysis of the effects of oil price movements, as well as a review of
the politics involved, should help to further understand the issue, with a view to
providing an answer to the question. Typical in research papers of this sort, is
the time constraint factor. Primary data in the form of interviews with OPEC
officials could enhance the research. However this has not been possible. In
addition, some of the data appear unreliable, and this tends to have an effect on
the quality of the conclusions drawn. This notwithstanding, effort has been
made to prepare an objective paper, given all the available facts, within the
working constraints.
2.2 The Oil Pricing Mechanism and OPEC Control
OPEC asserted some control over pricing from the 1970s, raising tax
rates and posted prices9, following such crucial events as the Arab-Israeli war
of 1973, the Khomeni revolution of 1979 etc. Chalabi10 argues that OPEC‘s
price decisions were more or less taken following such political events. That is,
OPEC caught on the effects of shortages on demand and thus price, and
restricted output to raise these prices. An easy read-off from this argument
could be that the assumption is that prices go up - OPEC influenced – at these
‗political events‘. However, this has not entirely been the case (as shown in the
1986 shock, the crisis of 1998/99, and September 11th 2001 disaster). Chalabi
further argues that OPEC should have returned these prices to normal
(compared to demand/supply-determined prices) after the occurrence of these
events. However one could argue that it is commonplace for oligopolies to be
intent on keeping prices high, as long as there is demand for their product.
Chalabi11 also mentions that OPEC may have applied the Hotelling12
depleting resource argument: increasing prices to compensate a finite depleting
resource. This is not further developed in this paper, as the motives behind
OPEC price administration are not considered. The point being made here is
that OPEC may have linked price to oil availability, and cost of alternative
sources of energy, which could be refuted as a misconception, as the infinite
abundance of crude oil has been argued (if not proven)13. According to
Hammoudeh & Madan14, OPEC makes expectations of future oil demand and
supply conditions, then sets a target price, which thus happens to be compatible
with its revenue objectives. In their argument (which concludes that ―flooding
the market as a means of moving it towards an equilibrium price‖ is
undesirable), OPEC sets an output ceiling, and tries to ensure compliance. This
‗ceiling‘ is then adjusted in response to discrepancies between the market price
and their target price. In November 2001 for instance, the EIA had OPEC‘s
high price band to be at $28, and the low price band at $22 (the price of crude
oil is currently below this price band).
The question arises as to why the aforementioned form of pricing
mechanism should hold. Prices have been quite volatile since the 1970‘s, when
OPEC assumed ‗powers‘ over the market. Horsnell & Mabro15 mention that
prices as administered by the seven sisters in the 1950s and 1960s were more
stable. This provokes the question of whether or not OPEC‘s oligopolistic
position would be acceptable to net consumers or non-OPEC countries, if it
were perfect (as the seven sisters apparently were). The volatility in oil prices
however could have been created by greater dependence of the oil industry on
forward and futures markets16, which were not necessarily in place during the
seven sisters price administration period. As such, it would appear as though
crude oil prices are currently market influenced.
2.3 OPEC Market Share Movements
Kosobud & Stokes17 found in their effort that the OPEC cartel used their
market shares to influence decisions on output quantities, which were in line
with its price and revenue aims. OPEC‘s output restrictions, as mentioned in the
previous subsection, have resulted in market share losses to other producers
since 1981. According to WTRG Economics18 the effect of years of increased
prices in the seventies resulted in efficient energy use, thus decreasing demand
for high-priced crude oil. OPEC lost shares from above 50% in 1974 to 47% in
1979.
In recent years, the sustained growth in global oil demand and the
resultant steady increase in oil prices have allowed the oil-producing African
countries (OPAC) to improve their export and growth performances.2 The
OPAC had average annual GDP growth of over 7 percent in 2000–06 while
Sub-Saharan Africa (SSA) grew at 4.7 percent and the global economy at
4.3 percent. However, one of the major threats to sustaining this impressive
growth rate is the lack of competitiveness of the non-oil sector in these
economies. Their heavy reliance on oil revenues makes them highly vulnerable
to external shocks and leaves their long-run economic prospects uncertain.
CHAPTER THREE
RELATIONSHIP BETWEEN US INCREASED DEMAND FOR OIL
AND ITS INTEREST IN GULF OF GUINEA
US Africa Command and Gulf of Guinea
At the beginning of the century, while the United States was still
embroiled in military interventions in the Balkans and had launched what
would become the longest war in its history in Afghanistan with the invasion
of Iraq to follow, it was also laying the groundwork for subordinating the
African continent to a new military command. With 4.5 percent of the world‘s
population, the U.S. accounts for approximately 30 percent of crude oil
consumption. Although the world‘s third largest producer of crude, it imports
over 60 percent of what it consumes (12.4 of 20.7 million barrels it uses
daily). A decade ago 15 percent of those imports came from the Gulf of
Guinea region on Africa‘s Atlantic Ocean coast, mainly from Nigeria, and it is
projected that the proportion will increase to 25 percent in the next four years.
The National Energy Policy Report issued by the Office of Vice
President Richard Cheney on May 16, 2001 stated: ―West Africa is expected to
be one of the fastest-growing sources of oil and gas for the American market.
African oil tends to be of high quality and low in sulfur…giving it a growing
market share for refining centers on the East Coast of the U.S.‖
The following year, the Washington, D.C.-based African Oil Policy Initiative
Group conducted a symposium entitled ―African Oil: A Priority for U. S.
National Security and African Development,‖ with the participation of
American legislators, policy advisers, the private sector and representatives of
the State Department and Defense Department, at which Congressman William
Jefferson said: ―African oil should be treated as a priority for U.S. national
security post 9-11. I think that…post 9-11 it‘s occurred to all of us that our
traditional sources of oil are not as secure as we thought they were.‖ As is
customary in regards to American foreign policy objectives, the Pentagon was
charged with taking responsibility. It immediately went to work on undertaking
three initiatives to implement U.S. energy strategy in the Gulf of Guinea: U.S.
Africa Command, the first overseas military command inaugurated since 1983.
The U.S. Navy‘s Africa Partnership Station as what has developed into the
major component of the Global Fleet Station, linked with worldwide maritime
operations like the 1,000-ship navy and the Proliferation Security Initiative and
piloted in the area of responsibility of U.S. Southern Command and the U.S.
Fourth Fleet reactivated in 2008: The Caribbean Sea and Central and South
America. The NATO Response Force designed for rapid multi-service (army,
air force, navy and marine) deployments outside of the bloc‘s North AmericanEuropean area of responsibility.
3.2 U.S. Strategic Interests in Africa
Issues on the African continent have not historically been identified as
strategic priorities for the U.S. military, and U.S. military engagement in Africa
has been sporadic.46 According to one defense analyst, ―during the Cold War,
United States foreign policy toward Sub-Saharan Africa had little to do with
Africa.‖47 After the fall of the Soviet Union, many U.S policymakers
considered the U.S. military‘s role and responsibilities on the continent to be
minimal. In 1995, the Department of Defense outlined its view of Africa in its
U.S. Security Strategy for Sub- Saharan Africa, asserting that ―ultimately we
see very little traditional strategic interest in Africa.‖48 In 1998, following
terrorist attacks on two U.S. embassies in East Africa, the United States
conducted a retaliatory attack against a pharmaceutical factory in Khartoum,
Sudan, that Clinton Administration officials initially contended was producing
precursors for chemical weapons for al Qaeda. The embassy bombings, and the
retaliatory strike against Sudan, are considered by many analysts to be a turning
point in U.S. strategic policy toward the region.
3.3 Africa and the Unified Command Plan
Africa was not included in the U.S. military command structure until
1952, when several North African countries, including Libya, were added to the
responsibilities of U.S. European Command because of their historic
relationship with Europe. The rest of the continent remained outside the
responsibility of any command until 1960, when Cold War concerns over
Soviet influence in newly independent African countries led the Department of
Defense
to
include
Sub-Saharan
Africa
in
the
Atlantic
Command
(LANTCOM), leaving North Africa in EUCOM. The Unified Command Plan
was revised again in 1962 by President John F. Kennedy, and responsibility for
Sub-Saharan Africa was transferred to a newly-created Strike Command
(STRICOM), which was responsible for operations in the Middle East, SubSaharan Africa, and South Asia. STRICOM was redesignated as Readiness
Command (REDCOM) in 1971, and its responsibility for Africa was dissolved,
leaving Sub-Saharan Africa out of the combatant command structure until 1983.
Under the Reagan Administration, U.S. military involvement in Africa was
largely dominated by Cold War priorities, and the Administration‘s
―containment‖ policy led DOD to divide responsibility for Africa into its
configuration among three geographic commands.
CHAPTER FOUR
US INCREASING OIL DEMAND FROM THE GULF OF GUINEA AND
AFRICAN DEVELOPMENT.
4.3 Priority for U.S. National Security and African Development.
In May of last year, the Bush administration, through the guidance of the
Office of the Vice President, released its report for national energy policy. The
administrations plan calls for a major diversification of oil supplies away from
longstanding reliance on volatile and unfriendly oil-bearing regions. In the same
report and with respect to Sub-Saharan Africa the report stated: ―Along with
Latin America, West Africa is expected to be one of the fastest growing sources
of oil and gas for the American market. African oil tends to be of high quality
and low in sulfur, making it suitable for stringent refined product requirements
and giving it a growing market share for refining centers on the East Coast of
the United States.
Indeed, a recent unclassified Defense Department report resulting from a
conference summary on the subject declared: ―West Africa is the swing
production region that allows oil companies to leverage production capability to
meet fluctuating world demands. West African oil is of high quality is easily
accessed offshore and well positioned to supply the North American market.
And production in two of the oil producing states, Nigeria and Angola, is
expected to double or triple in the next five to ten years. Already Nigeria and
Angola together provide as much oil to the U.S. as Venezuela or Mexico,
making it of strategic importance. We import as much oil from West Africa as
we do from Saudi Arabia. It is within this context of the growing strategic
significance of Sub-Saharan Africa, and particularly of the Gulf of Guinea
region, that we are hosting this event. This symposium has three basic goals:
First, to recognize the extraordinary work and accomplishments of the House
International Relations Subcommittee on Africa, led by Chairman Ed Royce.
One of the administration's top priorities in Africa is promoting trade and
foreign direct investment. African oil obviously is extremely important to the
United States. The United States obtains approximately 15 percent of its import
requirements of oil from Africa. Also, it offers a region that's growing in
reserve potential. West Africa, as we've just heard, has great oil potential.
Offshore African oil also offers a unique political risk-hedging opportunity for
U.S. businesses. The developmental needs in Africa are great. The average
GDP per capita in Africa in the last 15 years, the nominal GDP, has actually
declined 15 percent African energy is also critical to African development. It
provides a revenue stream that should supply the capital to grow African
economies and to break the cycle of poverty that plagues the continent.
African energy is also critical to African development. It provides a revenue
stream that should supply the capital to grow African economies and to break
the cycle of poverty that plagues the continent. Unfortunately we know that this
hasn't always been the case. I think we know that the best African economic
performers, those with the highest growth rates, are not oil producers and this
has led some observers to the conclusion that oil wealth is a curse for some
African countries. But it is not preordained that oil wealth should be squandered
or that the non-energy sector of an African economy should be neglected. For
example, there is no good reason why African oil producing countries should
not take advantage of the African Growth and Opportunity Act (AGOA) to
diversify their economies. In fact, these countries should be in the best position
to do so because oil revenues could be used to finance the infrastructure needed
to export.
4.2 Current U.S. National Security Strategy toward Africa
The Bush Administration‘s National Security Strategy of 2002 reflected a
need for a more focused strategic approach toward the African continent: ―In
Africa, promise and opportunity sit side by side with disease, war, and
desperate poverty. This threatens both a core value of the United States—
preserving human dignity—and our strategic priority—combating global
terror.‖ To address these challenges, the document asserted that U.S. security
strategy must focus on building indigenous security and intelligence capabilities
through bilateral engagement and ―coalitions of the willing.‖49 The most recent
National Security Strategy, issued in 2006, goes further, identifying Africa as ―a
high priority‖ and ―recognizing) that our security depends upon partnering with
Africans to strengthen fragile and failing states and bring ungoverned areas
under the control of effective democracies.‖50 46 For an overview of the
history of U.S. military involvement in Africa, see Appendix A. Appendix B
provides a list of instances in which U.S. military forces have deployed in
conflict situations in Africa since World War II. 47 Letitia Lawson, ―U.S.
Africa Policy since the Cold War,‖ Strategic Insights, Vol. VI, Issue 1, January
2007. 48 The report did, however, note significant U.S. political and
humanitarian interests. DOD Office of International Security Affairs, United
States Security Strategy for Sub-Saharan Africa, August 1995. 49 The White
House, The National Security Strategy of the United States, September 2002.
50 The White House, The National Security Strategy of the United States,
March 2006.
4.3 Africa command: U.S. Strategic Interests and the Role of the U.S.
Military in Africa
The establishment of the new Africa Command reflects an evolution in
policymakers‘ perceptions of U.S. strategic interests in Africa. In 2004 an
advisory panel of Africa experts authorized by Congress to propose new policy
initiatives identified five factors that have shaped increased U.S interest in
Africa in the past decade: oil, global trade, armed conflicts, terror, and
HIV/AIDS.51 They suggested that these factors had led to a ―conceptual shift to
a strategic view of Africa.‖52.
Oil and Global Trade
The United States has sought to increase its economic relations with SubSaharan Africa, and trade between the United States and Africa has tripled since
1990. In 2000, the Clinton Administration introduced a comprehensive U.S.
trade and investment policy for the continent in the African Growth and
Opportunity Act (AGOA; Title I, P.L. 106-200). AGOA has been amended by
Congress on several occasions, most recently in 2006. Natural resources,
particularly energy resources, dominate the products imported from Africa
under AGOA. Africa now supplies the United States with roughly the same
amount of crude oil as the Middle East.53. Nigeria is Africa‘s largest supplier
of oil, and is the fifth-largest global supplier of oil to the United States.
Instability in the country‘s Niger Delta region has reduced output periodically
by over 25%. World oil prices have been affected by Nigerian political
developments and by periodic attacks on pipelines and other oil facilities in the
Delta. President Bush announced in his 2006 State of the Union Address his
intention to ―to replace more than 75 percent of our oil imports from the Middle
East by 2025,‖54 echoing a commitment made in 2002 ―to strengthen [U.S.]
energy security and the shared prosperity of the global economy by working
with our allies, trading partners, and energy producers to expand the sources
and types of global energy supplied, especially in the Western Hemisphere,
Africa, Central Asia, and the Caspian region.‖55 A senior DOD official
reportedly commented in 2003 that ―a key mission for U.S. forces (in Africa)
would be to ensure that Nigeria‘s oil fields ... are secure.‖56 In spite of conflict
in the Niger Delta and other oil producing areas, the potential for deep water
drilling in the Gulf of Guinea is high, and analysts have estimated that Africa
may supply as much as 25% of all U.S. oil imports by 2015.57 51 Some U.S.
officials have recently argued that environmental security should be
CHAPTER FIVE
THE SOCIAL CRISIS PLAGUING THE TRADITIONAL OIL SUPPLIERS IN
THE MIDDLE EAST.
5.1 Militarization of Energy Policy in Gulf of Guinea
The Gulf of Guinea has emerged as the second largest pool of
commercial petroleum resources in the world, next only to the Persian Gulf and
its territorial environs. ―In fact, it has recently surpassed the Persian Gulf as
America‘s highest supplier of crude oil. ―Not satisfied with only a small piece
of the new oil destination of the world, America stepped up its formation of
AFRICOM, making open moves to extend the kind of cohabitation it enjoys
with Sao Tome and Principe to Nigeria. ―The whole thing about this Africa
Command by the US is all borne out of their interests in the oil-rich Gulf of
Guinea, which they have…been angling to take over. The Nigerian government
should not fold its arms to allow the US government re-colonise it. ―[T]he US
had concluded plans to establish a military base in Africa with the intent of
protecting the oil-rich Gulf of Guinea and also to forestall the economic
incursion of China into Africa, especially Nigeria. ―The US has completed all
the groundwork and has moved into the offshore of Sao Tome and Principe,
Angola
and
Guinea
to
secure
positions
for
their
submarines and other security facilities.‖ [26]. ―The gulf‘s oil and gas deposits
are put in the region of 10 billion barrels. Statistics show that as of 2004 Africa
as a whole produced nearly 9 million barrels of oil a day, with approximately
4.7 million barrels a day coming from West Africa. African oil production
accounted for approximately 11 percent of the world‘s oil supply, while the
continent supplied approximately 18 percent of US net oil imports. Both
Nigeria and Angola were among the top 10 suppliers of oil to the US. The
apprehensions were not without foundation. On October 3 U.S. ambassadordesignate to Gabon and to Sao Tome and Principe, Eunice Reddick, issued the
following statements: ―Mismanaged, an oil boom could threaten Sao Tome and
Principe‘s young democracy, security and stability.‖
The United States has trained Gabonese forces under the African
Contingency Operations Training Assistance (ACOTA) program….To promote
the security of the strategic Gulf of Guinea region, origin of a growing share of
U.S. oil imports, U.S. military engagement with Gabon has developed in
several areas….If confirmed, I will work closely with the Gabonese civilian and
military leadership, our European Command and the new Africa Command….‖
[28].
As noted above, the month after AFRICOM‘s preliminary activation the
U.S. Navy dispatched its first Africa Partnership Station mission to the Gulf of
Guinea, described by the Pentagon as a multinational maritime security
initiative. Te guided missile destroyer USS Forrest Sherman visited Cape Verde
for three days in early November ―to consolidate a growing sense of partnership
between the U.S. Navy and the Caboverdian armed forces‖ at the same time
USS Fort McHenry began the Africa Partnership Station‘s maiden mission with
a
visit
to
Senegal
en
route
to
the
Gulf
of
Guinea.
In 2008 the NATO secretary general at the time, Jaap de Hoop Scheffer, visited
Ghana, meeting with the country‘s president and defense minister ―on
deepening the cooperation between NATO and Africa,‖ and delivered a speech
on the topic at the Kofi Annan International Peacekeeping Training Center in
Accra.
In July of that year U.S. European Command conducted the Operation
Africa Endeavor 2008 multinational interoperability and information exchange
exercise in Nigeria with the participation of the armed forces of Nigeria, Benin,
Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Chad, Gabon, The
Gambia, Ghana, Kenya, Lesotho, Malawi, Mali, Namibia, Rwanda, Senegal,
Sierra Leone and Uganda. General William Ward, commander of AFRICOM,
attended the closing ceremonies at Nigerian Air Force Base, Abuja. Te
following year‘s Africa Endeavor exercises were held in Gabon, with ―more
than 25 nations participating…the second largest communications exercise in
the world.‖ For the first time run under the command of AFRICOM, it focused
on ―interoperability and information sharing among African nations via
communication networks and collaborative communications links with the
United States, NATO and other nations with common stability, security and
sustainment goals/objectives for the African continent.‖ [31] Participants
included the Economic Community of West African States and Gulf of Guinea
nations Benin, Cameroon, Gabon, Ghana, Nigeria, and Sao Tome and Principe.
At the time Associated Press reported:
―Just a few years ago, the U.S. military was all but absent from the oil-rich
waters of West Africa‘s Gulf of Guinea.
5.2 Historical Development of Oil Gulf of Guinea
Our intention in producing this volume was to create an easily accessible,
practical, yet scholarly source of information about a topic of increasing
importance to the United States: our relationship with the oil producing nations
of West and Central Africa. By examining in depth the lessons learned from our
relationship with the oil producing nations of the Middle East and exploring the
current landscape of noticeable trends and challenges in the Gulf of Guinea, the
book offers an integrated policy framework for how we should pursue our
energy security and national security goals in tandem. U.S. national security
and energy security are inexorably intertwined, particularly when considering
the multiple state and non-state actors who can wreak considerable havoc on
our economy based solely on our significant dependence on foreign oil.
Ensuring unfettered access to Middle East oil has sustained U.S. economic
growth, but has also contributed to less desirable outcomes, such as the spread
of anti-U.S. sentiments that fuel radical terrorism. Despite its oil wealth, the
quality of life in the Arab World is considerably lower than in many Latin
American and East Asian developing countries-a condition which Osama bin
Laden and other Islamic radical terrorists have noted in their continual
exhortations for the Muslim world to take up violence against the U.S. and its
allies.
This volume argues that lessons learned from our experience in the
Middle East should be applied to our burgeoning energy security interests in
western and central sub-Saharan Africa. Particularly, the Gulf of Guinea
presents some unique opportunities, quite distinct from the Middle East. Oil is
plentiful, but there are many challenges to overcome before the people of the
region can truly benefit from the revenues this oil will bring. There are
numerous security challenges throughout the region that must be addressed
before good governance can truly be achieved. Unfortunately, because of the
authoritarian regimes, corruption, and other challenges discussed in this
volume, there are a range of broad political, social, and economic grievances
that create a climate of unrest and dissatisfaction in the region. Overall, the
research provided in this book suggests that long-term national security for the
U.S. will prove elusive unless our energy security interests are pursued
alongside coordinated efforts to increase state legitimacy and good governance
in oil-producing countries worldwide.
The discussion begins with an analysis of how oil plays an integral role
in our national security and economic stability, followed by a review of
emerging U.S. energy security and national security interests in West and
Central Africa. Because the U.S. is so dependent upon imported oil, and
because of the threat of increasing political instability throughout the Middle
East, our policymakers have recently turned their attention toward the oil-rich
countries of sub-Saharan Africa. The next three chapters of the volume thus
examine the opportunities and challenges faced by the countries of the
strategically important Gulf of Guinea region-specifically, Angola, Cameroon,
Chad, the Republic of Congo, Equatorial Guinea, Gabon, Nigeria, and São
Tomé and Príncipe. Along with individual (albeit necessarily brief) profiles of
each country, Chapter 2 offers a comparative analysis that highlights similar
patterns of political violence-including attempted and successful military coupsindicating that this is certainly a tough neighborhood in which to maintain
peaceful, good governance. In addition to local and regional violence, the major
governance challenges can be generally grouped into a small handful of
categories: authoritarian regimes, corruption, and underdevelopment. A brief
analysis of each reveals important considerations for U.S. energy security
policy.
Chapters 3 and 4 then delve into specific security challenges that result from a
climate of political instability, porous borders, corruption, and resource
exploitation. In short, there are a host of security vulnerabilities throughout this
region that can be exploited by both criminal networks and terrorist
organizations. Because the oil-rich, authoritarian countries of the Middle East
have become the birthplace of today's global jihadist terrorism movement, there
is a growing concern that the U.S. over-reliance on oil from this region has
created a serious vulnerability to our national security. Thus, U.S. energy
security and national security objectives are more intertwined in the 21st
century than ever before. From this perspective, Chapter 5 argues that the if
United States is going to get more involved in the Gulf of Guinea, we should
examine the history of U.S. relations with key oil-rich states in the Middle East,
and identify the "mistakes" we should avoid in our emerging relationship with
the countries of West and Central Africa. The analysis of U.S.-Middle East
history provided in this volume reveals disturbing realities that are directly
connected to the extraction of oil: political corruption, lack of political and
social development, critical levels of economic dependence on a single national
resource, and increasingly dissatisfied young populations with limited prospects
for a brighter future.
Following this discussion, Chapter 6 reviews contemporary U.S. policies
in the Gulf of Guinea, highlighting both successes and challenges. Then chapter
7 reiterates our initial argument that African energy development requires
synchronized involvement in neo-liberal development, democratization, and
other dimensions of human development. The chapter also introduces a policy
framework for U.S.-Africa relations that may be useful for planning and
implementing a coherent and effective policy in the future. This framework is
structured around three essential foundations for U.S.-Africa policy: security,
economic development, and democratization. Security is an absolute
prerequisite for both economic development and democratization. Economic
development is the second priority after human security, and is arguably more
important to most citizens of underdeveloped countries than is democracy.
Democratization, adapted to local culture and unique national factors, is what
will guarantee stability by institutionalizing peaceful mechanisms for political
compromise and thereby strengthening the relationship between the society and
the state. Three requirements for effectively implementing this frameworkinteragency
coordination,
public-private
partnerships,
and
multilateral
cooperation-are also identified in this chapter. Together, these elements will
determine the nation's ability to realize our core energy security and national
security goals. Following this discussion, the remaining chapters of the volume
explore in depth each of these essential foundations and implementation
requirements, and a concluding chapter offers an integrative summary of the
analyses, arguments, and recommendations presented in the volume.
In sum, the observations and analyses presented in this volume lead to a single
conclusion: the U.S. must adopt a long-term, integrated strategy for achieving
the nation's energy and security goals in sub-Saharan Africa. Long-term
national security for the U.S. will prove elusive unless our energy security
interests are pursued alongside coordinated efforts to increase state legitimacy
and good governance in oil-producing countries worldwide. This argument is
particularly salient when building our relationships with the oil-rich countries of
West and Central Africa, especially in the Gulf of Guinea, where a complex
history of external and internal factors have led to an overall decline in the
standard of living for most people. Based on an historical analysis of oil
extraction in the Middle East-where the overall standard of living has also
declined dramatically, despite the region's oil wealth-it becomes clear that
securing unfettered access to oil for multinational extraction corporations
without
commensurate
investments
in
socioeconomic
and
political
improvement does not bode well for achieving long-term energy security and
national security goals. Thus, as the U.S. moves forward in developing the
energy extraction industry in the Gulf of Guinea, it must demand transparency
in public financial transactions, respect for human rights, and a social and
economic environment governed by the rule of law. An integrative and
forward-thinking approach, guided by fundamental U.S. values, must serve as
the basis for both policymakers and corporate leaders when dealing with the
developing world. If we fail to learn from the past, we are destined to repeat our
mistakes in the future.
5.3 Middle East Crisis Drives Oil Prices up
Following the uprising in the Middle East and North Africa (MENA)
region and turbulence in currency markets, crude oil prices remained on the
higher side in the outgoing first half of the year with few days to end of first
half, WTI and Arab crude, benchmark for Pakistan, oil prices during the first
half have surged by 22 percent and 52 percent, said PPI report. Most
importantly, a sharp increase in Arab gulf crude as compared to WTI is
indicative of changing demand pattern of international oil markets. On the local
front, the rise in the international oil price unleashed the pricing Pandora where
government attempted various measures including reducing Petroleum Levy
(PL), fixing oil marketing companies (OMC) margins and abolishing wharfage
and incidental charges to keep the domestic oil prices in check.
Despite all the measures local oil products prices grew by 28 percent to
60 percent with diesel and petrol prices touching all-time highs in May 2011.
International crude oil and products market in first half once again was marked
with high volatility in the intentional oil prices primarily on account of political
unrest in Middle East and uncertainty surrounding the global economic
recovery. Where, WTI crude prices jumped by 22 percent on closing day basis,
average prices stood at $89 per barrel (up 19 percent year-on-year). On the
other hand, Arab light crude oil prices - a benchmark crude for local energy
companies, rose by a massive 52 percent during the first half whereas average
price stood at $91 per barrel (up 24 percent year-on-year). However, contrary to
historic trends, Arab light in first half traded at average premium of $3 per
barrel (three percent ) to WTI against last five-year discount of $2 per barrel (three percent), indicative of changing demand patterns of the international oil
market. The premium currently stands at $15 per barrel. This could be due to
higher demand from Asian region especially from China and India. The same
price trend was reflective in middle distillate prices, with price of HSD going
up 45 percent while price of the (Furnace oil) rose by 46 percent in first half.
The rising trend in the international oil prices raised concerns for policymakers
to keep domestic oil prices in check. The government initially abolished
incidental and wharfage charge along with fixation of OMCs in rupee terms.
The development adversely affected the profitability margins of refineries and
OMCs. Furthermore, the government also had to take a hit on its PL, which
was slashed to bear minimum on various petroleum products. In particular, PL
on diesel was eventually slashed to Rs 0.55 per litre originally from Rs 8 per
litre. With little room left, government eventually had to pass on the price hike
to final consumer on May 11. Overall prices of regulated products including
petrol, diesel, kerosene and LDO increased by 28 percent to 29 percent.
Similarly, furnace oil, which is totally deregulated and mainly used in power
generation, increased by massive 60 percent.
It is expected that global oil market will display high volatility on
account of divergent views regarding the global economic health. However,
based on prevalent trends, oil prices are expected to remain firm around the
levels of $96 per barrel in first half. Our long-term oil prices assumption
remains $90 per barrel. In turn, firm oil prices are expected to bode well for
exploration and production (E&P) and refinery sector, while being a source of
inventory gains for OMCs.
5.4 The Growing Importance of West Africa Oil
Several factors account for West Africa‘s rising importance on the global
energy scene: First, West Africa‘s oil production is projected to increase by 50
per cent or more by 2010. The increase will primarily be driven by the
development of deepwater discoveries in the Gulf of Guinea and concentrated
in four countries: Nigeria, Angola, Equatorial Guinea and Chad. Cambridge
Energy Research Associates considers the growth potential of West Africa to be
greater than that of Russia, the Caspian basin or South America. Proven oil
reserves in West Africa doubled in the past decade, to over 60 billion barrels.
Investment in the region‘s deepwater fields will exceed 50 billion USD by
2010, making the Gulf of Guinea the world‘s largest recipient of offshore
hydrocarbon capital investment. Second, while West Africa‘s overall output
will represent 7-9 per cent of global daily oil production at the end of the
decade, the region‘s position as an incremental supplier will be even stronger. It
is estimated that West Africa will add 2 million to 3 million barrels per day of
oil to the global market in the next five years. These volumes will represent 20
per cent of new worldwide production capacity, meaning that one in five new
barrels of oil brought onto the market will come from West Africa. When
OPEC nations cut back their own production to sustain high oil prices, it is the
suppliers outside OPEC that step in to meet rising demand. (Nigeria is the only
OPEC member in West Africa.) Third, the growth in West Africa‘s ability to
meet rising demand, exert downward pressure on prices and counteract OPEC
power has coincided with a renewed emphasis among leading oil importing
countries on diversification of supply from sources outside the Persian Gulf.
This has won West Africa increased attention, recognition and support
internationally. In terms of energy security, the comparative advantages of the
region have become more apparent: openness to foreign investment; limited
OPEC influence; reduced political risk on account of high offshore production;
proximity to U.S. markets; high quality crude oil. Fourth, foreign investment in
the petroleum sector reflects a confluence of business and geopolitics, in the
sense that the commercial interests of international oil companies often come
together with the broader economic and security interests of their home
governments. If companies can rely on the support of governments to do their
bidding, it can sharpen their competitive edge. And the more powerful the
government, the greater the potential advantage to the company. It is no
accident, therefore, that the supermajors – ExxonMobil, Shell, Total, BP and
ChevronTexaco – dominate the West African energy scene
5.5 Political Risk and Supply Stability of Oil
According to the Centre for Strategic and International Studies, more
than 50 per cent of global oil demand will in 2020 be met from countries that
pose a high risk of domestic instability. At least 10 of the top 14 oil exporting
countries run the risk of instability in the short to medium term. While
exploration, development and production in the Gulf of Guinea mitigate
political risk – Angola was able to conduct petroleum operations offshore while
civil war engulfed the mainland the lingering fragility of West Africa‘s oil
producing nations is nevertheless an energy security concern. To quote from a
recent report on rising U.S. energy stakes in Africa: ―The risk calculus for the
global economy is straightforward: if African producing nations remain stable,
they will grow as reliable suppliers of oil and gas. If they face internal unrest
and disruption, they will create shocks to the global economy.‖ Fighting the
“resource curse”
Afflicted by repression and exploitation, many West African oil producing
nations are among the most economically troubled and conflict-ridden. This
condition is often attributed to the perils of oil-led development: a long-term
decline in the terms of trade; revenue volatility; Dutch disease; crowding out
effects; the strengthening of the state at the expense of society, which tends to
corrode public institutions and distort decision-making, as well as foster rentseeking, corruption and conflict. In order for these countries to avoid the socalled ―resource curse‖ henceforth, the quality of their governance must be
improved. Responsible revenue management will help break the cycle of
poverty that plagues much of West Africa. This will be good for political
stability as well as energy security. The question is how to get West African
(and other resource-rich) governments to embrace responsible revenue
management, given that powerful elites in these countries have a vested interest
in preserving the existing governance structure. The answer lies in changing the
incentives surrounding the management of the region‘s oil wealth. This will
require concerted action – a big external push for transparency and
accountability – by OECD governments, the World Bank and IMF, oil
companies and civil society groups. However, it is still a matter of debate how
much leverage the international community is likely to have with oil producing
nations. The receptivity of West Africa to external pressure will vary with the
size of the country in question. It also matters whether a country is at the
beginning, middle or end of an oil boom. There seems to be an inverse
relationship between national oil revenues and international leverage. This
places a premium on the timing of any external push.
Building Transparency
Building transparency is the essential first step that will help promote the
political, economic and social reforms that can ensure responsible revenue
management. Several recent international initiatives to help improve
governance in resource rich countries are based on this premise: the Extractive
Industries Transparency Initiative spearheaded by the government of Tony
Blair; the 2003 Evian Declaration on Fighting Corruption and Improving
Transparency and the subsequent G-8 Transparency Initiative; the Publish What
You Pay Campaign launched by George Soros and the Open Society Institute;
and the Africa Union‘s New Partnership for African Development (NEPAD). It
takes government action to provide a full account of the revenue streams from
resource extraction in a particular country. If companies disclose what they pay,
however, it can help pry open the public finances of the host government. This
is the premise of the Publish What You Pay Campaign, which is calling for
legislation that will require companies to disclose payments to all governments.
The campaign believes that a purely voluntary approach, which is the basis for
most other transparency initiatives and the preferred choice of the petroleum
industry, will not suffice to effectuate change in the resource-rich countries that
need it the most. And according to a recent report by Global Witness, these
countries include West African oil producers Angola, Equatorial Guinea and
Congo Brazzaville. The Nigerian government, on the other hand, is currently
being praised for having embraced transparency of its own volition. An
anticorruption, accountability and transparency drive is a key element of the
Obasanjo administration‘s new economic reform program.
5.6 West Africa in American Oil Diplomacy
Over the next 20 years, the United States will probably increase its intake
of foreign oil by 50 per cent. Dependence on imports could grow to as much as
two thirds of total American oil consumption. The Bush administration‘s energy
policy details how to secure these oil supplies through a strengthening of global
alliances: ―We need to strengthen our trade alliances, to deepen our dialogue
with major oil producers, and to work for greater oil production in the Western
Hemisphere, Africa, the Caspian, and other regions with abundant oil
resources.‖ By extension, this is a policy for greater U.S. involvement –
diplomatically, financially, and militarily – in the affairs of oil exporting states.
The overall purpose of the Bush policy, however, is to ensure that the economy
of America and the world has access to energy on terms and conditions that
support growth and prosperity, and to ensure that the United States can pursue
its foreign policy and national security interests without being constrained by
energy concerns. West Africa is expected to be one of the fastest-growing
sources of oil and gas for the American market. Today, the region supplies 13
to 14 per cent of U.S. oil imports. In a decade, the figure could be 20 per cent or
more. Nigeria and Angola are the two leading suppliers, followed by Equatorial
Guinea, Gabon and Congo Brazzaville. Nigeria, Angola and Equatorial Guinea
are also poised to become major suppliers of liquefied natural gas (LNG) to the
United States. Furthermore, by 2010, about a third of total investment in the
Gulf of Guinea will probably come from U.S. companies like ExxonMobil,
ChevronTexaco, Amerada Hess, Marathon, Devon, Unocal and Kerr-McGee.
Their increased participation in the development of West Africa‘s petroleum
resources receives strong backing from Washington. According to some
estimates, American energy investment in Africa may account for over 100,000
jobs back in the United States. It is also a key premise of the Bush
administration‘s energy plan that investment by U.S. companies overseas will
enhance oil market efficiencies and linkages and promote energy security, in
addition to increasing environmental protection. The key priorities in U.S.
policy towards Africa are commonly listed as encouraging trade and
investment, promoting democracy and human rights, fighting HIV/AIDS,
countering terrorism and promoting regional stability. With regard to West
Africa, these priorities are often shaped by the link to U.S. energy security.
American public diplomacy tends to address them in the following manner:
More foreign direct investment in the petroleum sector of Nigeria, Angola,
Equatorial Guinea, Gabon, Congo Brazzaville, Cameroon, Chad and the
Democratic Republic of Congo will lead to increases in the availability and
diversity of world oil supply. Transparency, accountability and good
governance are necessary to ensure that oil revenues benefit the population at
large and support sustainable development. Democratic institutions are
important in order to reduce the potential for oil-related conflicts within and
between the countries of the region. West African supply stability presupposes
West African political stability, the lack of which could create a vacuum that
attracts terrorists. The U.S. stands ready to assist the oil producing nations of
the region in meeting the challenges of responsible revenue management, not
just out of altruism, but also self-interest. A deepening of relations.
The last few years have seen a deepening of relations between the United
States and the countries of West Africa. This is partly due to the expansion of
contacts that has accompanied efforts to promote the interests of U.S. energy
companies. President Bush has directed his secretaries of state, commerce and
energy to reinvigorate the U.S.-Africa Trade and Economic Cooperation Forum
and the U.S.-African Energy Ministerial process. The deepening of relations has
also come about, however, because the leaders of West Africa have enlisted in
the global war on terrorism. Overall, the response to 9/11 has probably had a
greater impact on relations than the expansion of oil business opportunities. For
example, during a visit to Washington in the spring of 2001, president Obiang
of Equatorial Guinea was generally viewed as an unsavoury dictator and largely
shunned by the Bush administration. He was only able to secure a meeting with
an assistant Secretary of agriculture. In September 2002, however, Obiang was
one of 10 Leaders from West and Central Africa who met with president Bush
at the White House to discuss the war on terrorism and the looming war with
Iraq.
The United States is becoming more involved in the security of several
West African nations as a result of the war on terrorism and increased energy
cooperation. The U.S. European Command has begun to provide limited
military assistance, primarily training in counterterrorism and peacekeeping, to
regional governments. It is also setting up a program to strengthen maritime
security in the Gulf of Guinea, where some countries are eyeing the energy
resources of others and everybody worries about what Nigeria is up to. This
would be a train and equip program for the local coast guard. A Pentagon
contractor is already working with Sao Tome and Principe to assess its
maritime defence needs. There has also been talk of the United States building a
naval base on the island nation – ―a harbour for aircraft carriers, patrol boats
and Marines stationed in the region‖ but the Pentagon has denied any such
plans. Bilateral and multilateral leverage
U.S. government officials are under instructions from President Bush to
support more transparent, accountable and responsible use of oil resources in
African producer nations. Along with the other G-8 members, the United States
has made a commitment to encourage governments and companies, both private
and state owned, to disclose revenue flows and payments; to work with
interested governments to achieve high standards of transparent public revenue
management; to provide capacity-building support where needed; and to
encourage the IMF and World Bank to give necessary technical support.
Although generally supportive of the British government‘s Extractive Industries
Transparency Initiative, administration officials say they prefer to work these
issues in the context of the G-8 rather than focus more narrowly on the
technical aspects of transparent reporting. Washington is also opposed to
making it mandatory for resource companies to disclose their revenue streams.
According to U.S. government officials, the island state of Sao Tome and
Principe, the smallest country in Africa, stands the best chance of success when
it comes to creating a system for transparent and responsible oil revenue
management in West Africa. Sao Tome and Principe have a democratic
government with a president, Fradique de Menezes, who is strongly committed
to transparency. Moreover, the country is in the early stages of oil-led
development. This gives the United States and other Western powers greater
leverage with Sao Tome and Principe than with any other nation in the region,
including Chad. At the same time, however, the prospects of oil wealth already
appear to have made the country more vulnerable to ―capture‖ by groups
seeking to enrich themselves. Only last year, for example, it took the assistance
of the international community, mobilized in part by the U.S. ambassador
(residing in Gabon), to foil an attempted coup and reinstate president Menezes.
Ed Royce (R-California), chairman of the Subcommittee on Africa in the U.S.
House of Representatives, warns that Equatorial Guinea could become the new
poster boy for ―oil curse.‖ U.S. diplomats concede that Equatorial Guinea is ―a
hard nut to crack‖ because of all the money pouring in from different quarters.
This gives Washington fewer levers to pull. There is said to be some cause for
optimism, however. President Obiang has started to focus on his legacy. He
cares about his international reputation and is particularly interested in staying
on the good side of the United States. For these reasons, the Equatoguineans say
the right thing on transparency, accountability and governance. However,
sustained engagement by the United States, Spain (the former colonial power)
and other Western nations will be required. The Bush administration and
Congress agree that the recently reopened U.S. embassy in Malabo will serve
this purpose. The embassy was closed in 1995 – right before major new oil
discoveries were made partly for budgetary reasons and partly because of
Equatorial Guinea‘s dismal human rights record. The U.S. ambassador to the
country had actually been receiving death threats because of his championship
of human rights. U.S. bilateral leverage with Nigeria and Angola is said to be
rather limited. According to officials in Washington, there is little the United
States can do to improve transparency and governance unless the countries
themselves take ownership of the issue. If such ownership is forthcoming,
however, the United States can and will use its influence in multilateral
institutions and forums to ensure collective action in support of policies that
promote transparent and responsible revenue management. The difference
between Nigeria and Angola is said to be that the government in Abuja is
demonstrating the kind of national commitment that is necessary, whereas the
government in Luanda is still sitting on the fence, hoping that it can build an
internationally acceptable facade without actually changing very much. The
United States remains hopeful, however, that Angola will soon prove ready for
change internally.
Summary and Conclusion
The change taking place in the traditional OPEC oil producing countries
of the world is shaping strategic interest in the Gulf of Guinea. Giving the
political climate in the Middle East which periodically has disruptive effects on
oil prices and the accelerated growth of China and India, the gulf of Guinea
region will occupy a more important place in the energy strategies of the United
States, the EU and China. The United State‘s interest in the region is informed
mainly by the concern for one of the administration's top priorities in Africa is
promoting trade and foreign direct investment. African oil obviously is
extremely important to the United States. The United States obtains
approximately 15 percent of its import requirements of oil from Africa. Also, it
offers a region that's growing in reserve potential. West Africa, as we've just
heard, has great oil potential. Offshore African oil also offers a unique political
risk-hedging opportunity for U.S. businesses.
The importance of U.S. oil production in the Gulf of Guinea points to
developing a strategy to protect this production from terrorism, and this raises
critical concerns about the role of the U.S. military in the region and its
relations with African militaries.
With increasing tensions from the Middle East, most importers are also
trying to reduce their dependence on oil from that region. It has been estimated
that most of the new oil entering the world market in the next 10 to 15 years
will come from African fields because it is in Africa that substantial new fields
have been found and brought into production. Energy insecurity has increased
the geo-strategic significance of the Gulf of Guinea. As reported by the US
Vice-President‘s own National Energy Policy Report in 2001, ―West Africa is
expected to be one of fastest-growing sources of oil and gas for the American
market….‖1 Following the 9/11 attacks, the Bush Administration, citing energy
security and terrorist concerns, ―radically revised‖ strategy for the hydrocarbons rich Gulf of Guinea region on Africa‘s west coast, shifting ―primarily
from training for peacekeeping missions in Africa to training for counter
terrorism and energy security.‖2 The US has thus established or expanded
military aid programmes in the Gulf of Guinea countries, as well as the
provision of US arms, military equipment and technical assistance. Thus far, the
limited initiatives in this field undertaken in these countries (with the exception
of Nigeria) have been undertaken by international organisations with very little
connection or contact with local groups or networks. Without very little buy in
from local organisations, these initiatives are unsustainable and, as long as they
are sustained only through occasional forays by international actors, endanger
both the international actors and the local organisations who may wish to get
involved. This network, therefore, offers us the opportunity to build an active
and informed constituency in the region to complement international advocacy
for responsible and orderly system.
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