Nigerian Oil crisis and its implications on businesses

The oil rich African nation of Nigeria has 218 million inhabitants. Oil was first discovered in Nigeria in 1956. The country has proven crude oil reserves of 37,050 million barrels which supports roughly 2/3rd of the Nigerian economy. Every day, Nigerian pipelines are broken into to steal more than 300,000 barrels of oil. Crude oil theft includes all illicit actions such as unlawful bunkering, pipeline damage, syphoning, smuggling, lifting without authorization, processing crude oil, and processing petroleum products. (SOREMI, 2019) This illegal activity has increased since 2012 when the government of Nigeria gave amnesty to local rebels in the delta region.


Oil theft began in the late 1970s when militant youths in the Niger Delta waged war against the Nigerian government and multinational corporations (MNCs) for resource control. The emergence of youth militancy in the Niger Delta has been linked to nonviolent struggles against the Niger region’s poor living conditions and the reduction of the derivation fund from 50% of oil rents and royalties to 1.5% that spread throughout the oil-producing communities in the late 1970s through the 1980s. Lack of developmental activities and employment in the region led to violent escalation of the political agitation of the people resulting in oil theft.

Rampant corruption within the military and the political structure of Nigeria further exacerbated the issue of oil theft. During Nigeria’s military regime, corrupt officials were involved in oil theft. When democratic rule was restored in 1999, those in positions of authority got unofficially and indirectly involved, as the revenues generated from oil theft could be redirected to finance election campaigns and arrange for targeted assassinations, purchasing votes, hiring thugs to obstruct voting in order to stay in power. Oil theft provides funding for the maintenance of the long-standing rentier state.

Current situation

At least 150,000 barrels of crude oil are stolen globally each day. Out of these, one in four barrels of crude oil are sourced from the Niger Delta. Bonny terminal, the largest producer of crude oil in the Nigeria is losing 95% of its produce in oil theft. Mele Kyari, the managing director of Nigerian National Petroleum Corporation pointed to the participation of churches and mosques in facilitating the storage of stolen fuel. (Economic Confidential , 2019)

Chinese Oil businesses in Nigeria lose more than 3 billion Yuan annually. The theft of crude oil cost Daqing Oil Field 7 billion Yuan per year, while Royal Dutch Shell yearly lost 7 billion dollars in Nigeria alone. In June 2022, two of the largest multination oil firms, Shell and ExxonMobil decided to sell off their production units due to losses incurred.

 It is estimated that there are at least 295 illegal connections in this 200km long pipeline draining away the country’s wealth. Even though oil firms have implemented a variety of methods and techniques to detect the illegal taps, the oil pipeline are so lengthy that it is hard to monitor and supervise the actual situation in a timely manner. As per reports published in September 2022, Nigeria loses $700 million every month due to oil theft. Nigeria lost $1 billion in revenue in the first quarter of 2022, as per the Nigerian Upstream Petroleum Regulatory Commission’s chairman, Gbenga Komolafe. (Adesina, 2022)

 The Nigerian government even set up a technical committee on November 17th, 2019, to look and identify the key suspects involved in the oil theft under the leadership of Roselyn Coyne some action seems to have been started yet no arrests have been made. The committee in its report also identified 12 key players in this whole problem namely oil refineries, fertilizer companies, illegal artisanal factories, and refineries. In August 2022, the Nigerian government launched an online portal to monitor oil theft and made a commitment to reward informants. They also hired an ex-militant who had a history of oil theft for pipeline surveillance.

Geo political angle

Oil theft-related violence and instability are quickly expanding to regions outside the Niger Delta, to outside its national borders. Youths from surrounding regions perceive oil theft as very lucrative. They are typically provided with arms to attack oil and non-oil facilities to serve the financial interest of their financer. Typically, the same individuals involved in these activities, use their given weapons to incite violence in various parts of the country. They are instrumental in facilitating the longevity of corrupt political regimes and are involved in attacking political opponents or rigging elections. In this way, they are a threat to Nigeria’s national security.

 A large portion of oil theft occurs on the high seas and at oil export terminals, which has led to an increase in marine piracy in the sub-region. The sea pirates have two functions: they protect oil vessels transporting illicit crude oil as non-state security agents, and they act as agents for offshore oil workers and assault oil vessels carrying legal crude oil throughout the high seas with the intention of stealing the oil. The theft of oil benefits the sea pirates as well, which leads to an increase in their operations in the waterways and hinders the free flow of commodities and services in the sub-region. There is continual violence and aggression in the waterways of West Africa as the pirate’s attack oil investors and their assets. The peace and security of the West African States, particularly those along the coasts where the oil routes to Europe, America, and Asia, are highly vulnerable to the violence to oil theft and sea piracy. The arrival of Boko Haram and ISWA also a pose a considerable threat to the region, however most of Nigeria’s military capacity has been directed towards policing and preventing oil theft. This too, has long term security implications. (Sayne, 2013)

 Oil theft in the country has had no effect on the diplomatic relations of Nigeria as the conflict is seen to be an internal conflict. Former US ambassador to Nigeria John Campbell, opined that external pressure cannot bring about a favorable change to the situation as oil theft has for long been deeply engrained in the Nigerian polity. Oil theft rings have never been the subject of a significant investigation or prosecution by foreign police or prosecutors. Although Interpol maintains a regional office in Abidjan and created an anti-piracy task force in 2008, the organization has not carried out any targeted operations against crude oil theft. There is no internal subject matter expertise at the UNODC (UN Office on Drugs and Crime). Outside of the realm of law enforcement, business experts and civic society typically disregard the issue.

Business Implications

Pipeline sabotage and related crude oil theft have compelled certain businesses to halt production and/or sell off their assets. Because they no longer see any development potential in their land and shallow offshore assets, Shell, Chevron, Mobil, and other international oil corporations (IOC) are selling them off. These firms blame operational difficulty —the substantial discrepancy between what they generate at the wellhead and output at terminals. This variation in crude output at terminals, together with the expense of environmental cleanup and other security issues, serve as a deterrent to fresh investment in the industry and the nation. The loss of investor interest and trust in the oil and gas sector has been greatly impacted by persistent crude oil theft and pipeline damage. This helps to explain why Nigeria isn’t as appealing as it once was for foreign direct investment.

Nigeria’s budgetary stability is at risk since illicit bunkering and oil theft consume up to 400,000 barrels of the nation’s daily oil production. Losses to oil thieves and government leaks, may surpass official collections of oil money into the Nigerian treasury, even as the current wave of oil theft wrecks the country’s economy. As of September 2022, Nigeria has the 25th highest inflation rate in the world, with rising food and energy costs serving as the primary drivers of price increases. The value of the Naira has decreased by about 95% in only five years, crossing to N705/$ on the black market. The decline in Nigeria’s revenue can be linked to this loss of currency value. All these factors together make it very difficult for businesses to survive as the constantly risk losing their investments.


Economic: In Nigeria, unemployment rates are higher everywhere outside the oil industry. The country is highly dependent on the sale of crude oil. Oil exports account for 90% of foreign exchange profits, 95% of export revenues, and 80% of federal government revenue. The oil sector accounts for more than 70% of Nigeria’s government revenue under the rentier state system, other businesses, particularly in the agricultural sector, which was the country’s primary source of income until recent, now provides very little money and jobs.

Social: Warlords in the Niger Delta frequently exploit oil theft as a means of obtaining weapons as well as of recruiting and training warriors in sustained combat, which is a very lengthy struggle between military and civilians. These purchases and augmentations give the “criminal armed” organizations the tools they need to keep up their involvement in the illicit activities. Young adults may decide to leave school and join “criminal armed” gangs in order to get wealthy through oil theft, which might result in increasing school drop-outs. Due to the possibility that the young may die in conflicts with the military or other criminal organizations or possibly wind up in prison, this might result in a loss of personnel needed for the community’s progress. Due to conflicts between the military and “criminal armed” groups, violence inside the criminal organizations, and decreased household income as a result of poisoned farmlands and waterways, the Niger Delta has experienced internal population displacement. Many families have left their towns as a result of the uprooting, either to neighboring riverine oil-producing regions in pursuit of rich fishing grounds or to metropolitan areas all throughout the nation to live in slums and find low-paying employment.

Naman Anand
Naman Anand
Naman is an alumnus of Motilal Nehru College, University of Delhi. He is currently pursuing his Masters in Diplomacy, Law and Business from O.P. Jindal Global University, Sonipat.