Thesis: Oil Crisis in Nigeria

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Oil Crisis in Nigeria

Nigeria, a land of 137 million people coming from 250 ethnic communities, achieved independence from Britain in 1960 and turned into a republic in 1963. This country which has witnessed crisis after crisis in terms of colonial rule, religious strife and harsh military dictatorships saw a small silver lining of economic hope when oil was discovered beneath its land. (Leech, 91) Until then agriculture had been the mainstay of its economy and a large fraction of its development plans relied on it. This mono-cultural economy underwent a drastic change in 1958 when oil was discovered in Oloibiri. (Emmanuel; Olayiwola; Babatunde, 226) However, foreign exploitation of its bountiful oil reserves in conjunction with economic mismanagement has failed to deliver the much-anticipated economic and social upliftment to this struggling country. As Bobo Brown, a Nigerian public relations executive working for Shell puts it, "Nigeria is the land of no tomorrow." (Leech, 91)

As per UNDP and World Bank reports, Nigerians live in abject poverty with an average citizen living on one dollar per day. (Emmanuel; Olayiwola; Babatunde, 226) This is all the more ironical considering the following interesting but confounding facts: First, Nigeria is considered to be one of the world's major players in the energy market. Secondly, in terms of oil producing countries it is the seventh largest one. Thirdly, one-fifths of United States oil imports are supplied by Nigeria. Fourthly, the country is all set to become one of the more significant suppliers of LNG -- Liquefied Natural Gas in the world. (Ikelegbe, 212) Moreover, oil contributes towards 92% of the nation's foreign exchange earnings. (Obi, 10)

Lastly, the Niger Delta region which provides more than 90% of the Nigerian oil wealth is going through excruciating and endemic poverty. It is paradoxical that Nigeria's oil wealth is not just the lifeline of the country's economy and revenues but is vital for its national survival. Its oil revenues contribute towards 70% of the revenues of the government and 40% of its GDP. As per 2003 statistics, 80.6% of the total government receipts were contributed by gas and oil wealth. Despite such magnificent figures, the question that troubles us is what the host or donor community has gained from the abundant and massive wealth accrued from the exploration and extraction of this lucrative 'liquid gold'. Why is it that the average Nigerian has not been able to socially or economically reap the benefits of the potential that it offered? (Emmanuel; Olayiwola; Babatunde, 228); (Ikelegbe, 223)

The answers are multi-factorial and can be attributed to a toxic combination of excessive exploitation by foreign multinationals, militant and apathetic attitude of governments, domestic militancy, poverty, ethnic divide, the strength of the nation to resist the temptations created by oil wealth and a host of other major and minor reasons. (Emmanuel; Olayiwola; Babatunde, 230); (Ikelegbe, 223); (Ihonvbere, 27) The source of foreign exploitation by greedy foreign multinationals can be traced to the history of the Nigerian oil industry which went via 3 significant stages -- 'oil concession' phase followed by 'participation of the state' as well as 'deregulation' periods. According to an old colonial law 'Minerals Oil Ordinance, 1914', oil concessions could be offered only to British companies or companies allied with British ones.

It was according to the mentioned law that Shell D'Arcy, currently Shell-BP had been given 'oil concession' in Nigeria in 1938. With the successful discovery of substantial oil beds in the Niger Delta other multinational players like Mobil, Safrap, Agip, Texaco, Chevron, Elf and Esso also jumped in. The old law was suitably circumvented by the ruling colonists for accommodating non-British companies as well. This phase was totally monopolized by foreign companies while the country simply received taxes and rents. Most of the other foreign companies occupied those areas abandoned by Shell. Shell has remained the dominant player in the Nigerian oil scenario till date. (Obi, 18); (Frynas, 10)

However, its greedy and perverse attitude was immediately obvious in the 2004 Niger Delta oil spill when an old 28-inch high-pressure pipe dating back to 1963 ruptured resulting in major fires. This caused major environmental hazards as well as affected the local economy. Three hundred hectares of land which included farmland, animals and aquatic life were adversely affected and several billions worth of trees were destroyed. It is reported that Shell deliberately neglected the issue and caused delays in spill containment for the benefit of "third parties" -- clean-up operators who mainly benefit financially from such incidents. (Concannon, 128)

According to many scholars, colonialism has an important part with regard to the dismal state of affairs in the development of Nigeria. Oil and other mineral resources were heavily exploited in order to benefit European and North American markets. The colonial policies encouraged foreign companies to enter, capture and exploit the oil industry but did not give any opportunity or incentive for the development of local expertise in the technical or managerial levels in this industry. This resulted in the development of an inflexible public sector where patronage and political placements were rampant. In addition, "the state-heavy, 'extractive' structure of the economy failed to encourage entrepreneurialism." (Gearey, 37) Nigeria's economic problems can also be "seen as an extension of colonial policies aimed towards the development of a small managerial elite rather than a meaningful system of democratic accountability." (Gearey, 37) When Nigeria got independence, its oil industry was mostly owned by foreign companies. Like other sectors, the productive and distributive aspects were also dominated by such multinationals.

After independence, the 'Petroleum Profits Tax Ordinance' also ensured that profit from the oil wealth would be shared equally between the foreign company and the Nigerian government. Customary land laws restricted individual Nigerians to economically exploit their own land and also opposed any kind of change or disruption that any new economic order would have ushered in. "It could hardly be supposed that the former colonial power would take leave of its possessions without an eye to future economic advantage." (Gearey, 40) Legal hybridity is the only word that can be used to describe the Constitution that was framed for the newly formed country in 1960.

Since the mineral rights were vested in the Crown, foreign oil companies simply exploited the various weaknesses in the Constitution to get their drilling mandate from the Crown. This meant that Nigerians went without any compensation for giving up their land for the drilling operations. Companies like Shell became a formidable presence in the country. (Gearey, 40) According to 'Oronto Douglas and Ike Okonta', authors of 'Where vultures feast: shell, human rights and oil in the Niger Delta', "Royal Dutch/Shell is more than a colonial force in Nigeria. A colonial power exhibits some measure of concern for the territory over which it lords. This is not the case with this mogul, which goes for crude oil in the crudest manner possible." (Okonta; Douglas, 11)

American interest in Africa also had more to do with oil than with tackling terrorism or initiating developmental programs. The previous Bush regime followed a violent and imperialistic oil policy and the declining oil production in other regions of the world made them hungrier for the possibilities that Nigerian oil offered. By 2001, the U.S. was already importing 16% of oil from Africa and this figure is supposed to go up to 25% by 2015. (Watsons Web) This need was the prime force behind the creation of AFRICOM -- African Command by President Bush in 2007. According to researcher Jesse Salah Ovadia, "AFRICOM is part of a larger project to create an 'American Lake', a term first used to describe a sphere of U.S. influence in the Pacific Basin carved out by a heavy military presence, in the oil-rich Gulf of Guinea in order to facilitate the extraction of natural resources - primarily oil." (Ayyash; Hendershot) This "American Lake" included African countries like Nigeria and Angola. (Ayyash; Hendershot)

"America's technological, military, and economic security is growing increasingly vulnerable because of a lack of energy security. As a result, America's need to locate, exploit, and control fuel resources has intensified its engagement of the African continent." (McDougal, 805) The U.S. is thus becoming increasingly dependent on "crude military power for policing oil installations." (Lubeck; Watts Lipschutz, 10) Since this would require active support of the local government, America is in favour of an authoritarian government at the helm. Therefore, they would never back a democratic government and dissenting voices will continue to be suppressed. (Lubeck; Watts Lipschutz, 10)

The economic dependence of the country on oil and failure to diversify into other forms of export has increased to a point that all other sectors like agriculture stood neglected and the economy became extremely sensitive to the global oil price. Along with the peak of oil production in the seventies of about 2.1 million barrels/day, 1971 to 2.4 million barrels/day, 1979), agricultural imports also climbed up steadily (N88 million, 1971 to N1.86 billion, 1981). The government pushed efforts to increase its share in the foreign… [END OF PREVIEW]

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