This story may not impact the price of oil in the near term but some day it
may bite. It’s a useful construct for understanding what is happening in the
geo-politics of oil, which is vital since above-ground conditions increasingly
determine how much oil reaches OECD markets.
Here is the short version:
1. A great deal of future potential oil flows lie offshore Africa.
2. Shipments of oil from Nigeria are attracting pirates. Bandits who are internal to Nigeria are
also stealing much oil. It is likely that African oil in general will
increasingly be subject to criminal theft. Some will be sold back to Africans
at far less than global prices (since the cost to the pirates is very low), so
criminality will tend to reduce the amount of produced oil that goes into the
global markets from Africa.
3. China is sending large numbers of people to Africa for two
purpose: to provide jobs for peasants and to establish direct oil supply lines
from new African fields to China, thus by-passing world markets. This is
consistent with Chinese policies in the Middle East, Sudan, and Venezuela, for
example, to sign direct supply agreement for oil to be shipped to China. This
policy tends to restrict the supply of oil in the free market and therefore
raise prices.
There seems to be a vicious cycle developing here that will tend to
exacerbate these trends. Oil wealth, as many have noted, tends to increase
dictatorial governance, vis. Sudan, Kazakhstan, many other oil rich and
dictator-controlled countries. Bad governance tends to increase piracy, as the piece quoted below points out in regard to Somalia.
Piracy and bad governance increase the ability of China, with its loose
political moral standard, to infiltrate and gain influence. China has no
interest in helping local populations, so both Chinese influence and dictatorial
government tend to impoverish the local populations and thus to increase both
crime and bad governance.
I think that one of the great trends of the next decade will be the
increasing link between oil wealth and crime in less developed countries. It
will not be a trend that bodes well for increased oil production. Nor for
progress in fighting disease, hunger, and bad governance is the poorest
countries.
