‘Energy rebels must not be provided a cause’ – published by the FT

May 2006

By Daniel Litvin – This article was originally published by the Financial Times – Click here to view

Soaring energy prices are giving new political voice to dissident regimes and groups in energy-rich countries.

Soaring energy prices clearly matter to the global economy. But just as important is the way they are giving new political voice to dissident regimes and groups in energy-rich countries. When markets are taut, as they are now, threats and local supply problems that might once have been mere local irritations affect global prices, causing widespread anxieties across consuming nations, including in the west. This is putting irresistible temptation in the way of global rebels of varying hues.

Driving oil prices to the peaks of recent weeks, for example, have been worries about supplies from Iran and Nigeria that have been partly induced and played up by local rebels. In Nigeria, the attacks of the Ijaw militants in the Niger Delta have already cut the country’s oil exports by some 20 per cent, and their threats to do more damage have alarmed global markets. In Iran, officials of the regime itself have issued veiled threats (albeit contradicted by the oil minister) that oil supplies could be restricted in the face of intensifying western pressure over the country’s nuclear programme.

There are a growing number of energy rebels across the world; they are either regimes that are at odds in some way with western interests or local movements opposed to the status quo within their own countries.

In the first category is Iran and Venezuela, where Hugo Chávez, the populist anti-US president, has toughened controls over western oil companies and spoken of oil going above $100 a barrel. Other examples are Chad (whose oil minister recently threatened to cut off oil exports to make the World Bank rethink its suspension of loans to the country, loans that are now being resumed) and Russia (Gazprom, its gas monopoly, has warned Europe not to block its plans to expand in the region, heightening fears about growing European dependence on Russian gas).

In the second category are Nigeria’s militants and the insurgents of Iraq, whose sabotage of local refineries and pipelines has undermined oil production. Similarly, al-Qaeda terrorists in Saudi Arabia this year tried to blow up a huge oil facility.

High energy prices can help such rebels in three ways. First, they give them publicity: at times of high prices the world’s media focus on problems in energy-rich countries that might once have been ignored. Nigeria’s militants are now basking in global media coverage after struggling for years to get attention. Second, high prices – because they are so sensitive to additional supply problems – allow rebels to communicate their grievances more powerfully by using the threat of disruption to induce further price spikes.

Third, they provide them with more funds to finance their activities and more economic freedom to manoeuvre. In Venezuela, Mr Chávez has benefited politically from surging state oil revenues, some of which he has used to win support elsewhere in Latin America. Russia knows China and other customers in Asia and elsewhere are queueing up for its gas should Europe not co-operate over its energy ambitions.

In February, John Negroponte, US director of national intelligence, noted the growing political problems around energy supplies and pointed to the increased “geopolitical leverage of key energy-producer states”. But the rise of energy rebels since then urgently requires further debate.

Solutions are not obvious. Each situation requires different responses from western governments and companies. However, a few general points are evident. The west should seek to wean itself off dependence on oil and gas from unstable regions. More co-operation between the west and energy-hungry Asian nations could limit producers’ ability to play one side off against the other. Appealing to producers’ interests not to push prices too high – lest the west’s shift to energy alternatives becomes a stampede – could help.

Western energy companies and governments need to pioneer more sensitive approaches to energy investment in developing countries. In a number of the rebel countries, including Nigeria and Venezuela, problems have erupted partly because oil investments have failed to generate sufficient long-term development. Elites have benefited rather than the population as a whole. Oil projects have even helped perpetuate corruption and conflict.

The new wave of western energy investment in regions such as west Africa and around the Caspian Sea clearly needs to avoid these outcomes. In some countries such problems are precisely what have given the rebels their cause. Western companies and governments have begun to tinker with the issue but it now needs to be treated as a strategic priority.

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