Energy Security from the Middle East to West Africa

Most of the current discussions around energy security is centred around the Strait of Hormuz. The conflict between the United States, Israel and Iran has disrupted the Middle East in a way that is incalculable in many sectors but access to black gold has destabilised stock markets and made many countries vulnerable to further economic shocks. A quick result from this conflict is not likely and Wall Street analysts believe that the crude supply will drop to 12 million barrels per day. This will include crude oil products such as diesel, jet fuel, LPG and naph­tha, which has increased to over $100 a barrel. This price is likely to continue to fluctuate creating more risks for the economy and many businesses unable to budget for the uncertain future. Western governments have attempted to calm the markets by releasing 400 million barrels of oil from emergency reserves via the IEA. Italy and France have appealed to the Iranian authorities in Tehran for safe passage through the Strain of Hormuz to maintain energy security but it is still a risk to move cargo through this chokepoint. The graph below illustrates the drop in traffic by vessels that are not considered shadow tankers: 

Without safe access to oil and gas from the Gulf States, governments must look for alternatives to diversify the supply chain. Yusuf Tuggar, the Minister of Foreign Affairs of Nigeria, has suggested a partnership with the Gulf States and Nigeria to boost energy security. Instead of being considered competition, Tuggar stated that “Nigeria has consistently maintained that potential competitors should focus on collaboration and investment rather than rivalry.” It is also important to note that Nigeria possesses a substantial amount of untapped reserves of crude oil and natural gas. With so much uncertainty happening in the Middle East, a reliable alternative supply source of these resources by collaboration with the Gulf countries may hedge against disruptions in global energy flows. The Nigerian Economic Summit Group (NESG) believe that the current crisis could be a boon for their oil economy. They estimate a “time-limited opportunity” where a ​​fiscal windfall “could range from N2.3 trillion under a short-lived crisis to N30.2 trillion under a protracted scenario.” Even with its own abundance of oil, Nigeria is not immune to this crisis. With output of 1.7 million barrels of oil per day, the higher crude prices boost government revenues. The flip side is that there is also more pressure on the domestic fuel supply and pricing due to Nigeria’s dependence on imported refined products. Africa’s biggest crude refiner, Dangote Refinery, announced recently that they will “prioritise domestic supply and continue to ensure that Nigeria enjoys what it has enjoyed only for the last 18 months, two years, and that it is fuel abundance and not fuel scarcity.” Although it seems very straightforward that Nigeria can provide energy security where others cannot, the government has their own difficulties.

The Niger Delta has long been plagued by militant activity from violent non-state actors like Boko Haram and other armed militants. They often engage in oil theft and pipeline sabotage as well as targeting transmission lines making the nation’s electrical grids unstable and a significant energy security risk factor. It is estimated that “Nigeria has lost $40.6 billion due to insecurity in 2020 as unknown gunmen, killer herdsmen, bandits, Boko Haram, and ISWAP terrorists combined to unleash violence.” With the election of President Bola Tinubu, his initiative in the Delta “by beefing up security, streamlining contracting and dangling tax incentives, along with a raft of other reforms designed to lower costs and raise competitiveness” is seen as an improvement although less than a year ago, an explosion disrupted the Trans Niger pipeline, resulting in political backlash on punishing other elected officials. For corporations whose resources for foreign direct investment are needed in emerging markets, they must calculate the risk of ongoing conflict within the Middle East as well as sporadic attacks from violent non-state actors in West Africa, it is a difficult decision to determine where to invest in oil-based energy security.