Explainer: How Nigeria can curb crude oil theft
Africa’s biggest oil producer has long grappled with the menace of crude oil theft, which has had detrimental effects on its economy and national security for years.
This unlawful activity usually involves the illegal extraction and smuggling of crude oil, vandalization of pipelines, and bunkering, resulting in significant revenue losses for the country and environmental degradation.
The stolen oil is often refined locally or sold on the black market, robbing the country of vital revenue that could be invested in infrastructure development and social welfare programs.
Crude oil theft is not alien to producing countries around the world. An article published by the UN in March 2022 revealed that oil is the largest stolen natural resource globally, while fuel is the most smuggled natural resource at $133 billion per year.
“Oil theft equates to 5–7 percent of the global crude oil and petroleum fuel market. It is so ingrained in the energy supply chain that thefts are priced in by traders and tolerated by many shipping companies as petty theft,” the publication stated.
Here are nine steps Nigeria can adopt to curb oil theft.
Maritime security support
Given that a significant portion of stolen crude oil is smuggled out of the country through maritime routes, enhancing maritime security measures can effectively disrupt illegal activities.
According to the article by the UN, maritime security is essential to maintaining the flow of revenues from oil and gas, which have the potential to contribute significantly to development in West Africa.
Tracking ships
According to an article by Chatham House titled Nigeria’s Criminal Crude: International Options to Combat the Export of Stolen Oil, assistance in tracking ships could be helpful if a broader crackdown against oil theft were expected.
The article suggests that countries could use satellite technology to track ships carrying stolen crude.
“The tools for this include vessels that regularly switch their automatic identification system transponders on and off; commercial-class oil tankers that wait for offshore Nigeria but do not dock at any oil export terminal; and ships engaged in non-standard ship-to-ship transfer operations.”
The UN article added that data analytics on ship transponder signals provide detailed information on ships’ movements, and software automation can assist in identifying those vessels most likely to be involved in illegal oil trades.
“AIS monitoring can be complemented by other satellite detection, such as radar signals and other emissions from ships,” it said.
“Extending this information trail to include ports visited, bills of lading, bunker activities, vessel management and ownership, crew, etc. can provide detailed forensics on the illegal oil trade.”
Oil pipeline protection via technologies
Protection of pipeline systems exposed to potential illegal taps can be improved through technologies such as pipe-in-pipe lines, fiber-optic sensors, drone surveillance, and pressure-drop-controlled flow stations, says the article by UN.
According to the article, these provide a combination of early warning and early intervention to minimize thefts and spills.
Collaboration between domestic and international navies
International maritime cooperation between domestic navies and international naval forces has significantly improved presence and response times in piracy-prone seas, the article by UN said.
By leveraging the combined resources, expertise, and operational capabilities of domestic and international navies, collaboration can significantly enhance maritime security and contribute to curbing oil theft in Nigeria.
Anti-money-laundering activities
According to the UN article, commercial banks should now be in a position to act as whistle-blowers if they observe signs of illegal fund transfers or money-laundering activities.
“The exclusion of criminal organizations from the international banking system would be a big step forward in avoiding the contamination of legitimate businesses with criminal oil theft profits,” the article said.
Decisive oil theft sanctions globally
The UN said that oil theft sanctions should be applied with precision and that blanket sanctions (e.g., a general ban on a specified country’s oil) should be avoided.
“In a manner similar to the US sanctions targeted at corporate entities and individuals involved with (state-sponsored) terrorist and criminal activities, the international community could act to ban banking, visas, asset ownership, freeze assets, etc. for those involved in the illegal oil trade.
“Thieves should be placed on ‘do-not-trade’ lists and companies should be barred from offering theft networks goods and services (e.g., vessel insurance). However, for such targeted sanctions to be effective, many countries involved in the international oil trade would need to participate,” the article proposed.
According to the UN, such sanctions could limit thieves’ rights to travel, to obtain loans to fund their illegal business, and to access their (overseas) funds and financial assets and would also raise red flags at banks and trading partners. However, loopholes for culprits exist and shadow banking (cash transactions/cash smuggling, cryptocurrency) may limit the effectiveness of targeted sanctions.
International court cooperation
The article added that international courts and courts in countries other than those where oil has been stolen could play a more active role in holding criminal organizations and syndicates to account for the consequences of their illegal activities in the oil trade.
“At present, international oil companies appear to be targeted by foreign courts mainly for wrongdoing in developing countries,” it said.
However, this sets a precedent for doing the same with regard to international criminal organizations that corrupt international oil markets and destabilize developing economies.
Transparency and Accountability
Improve governance and transparency in the oil sector. Strengthen regulatory frameworks, enforce compliance with industry standards, and ensure proper auditing and monitoring of oil operations to minimise corruption and collusion.
“Due diligence is an important tool for the oil supply chain to regulate itself. End users increasingly value the origination of the products they purchase,” the article by UN said.
“The extractives industries and their supply chains similarly recognise the need for standards in transparency about the origination of commodities, as well as performance standards for suppliers, transporters, and traders.”
Litigating against buyers and sellers
The UN article added that foreign governments could impose criminal and civil penalties on oil thieves, or prosecute them for piracy, pillage and other violations of the law of armed conflict.
“Nigerians could also try to sue oil thieves in foreign courts for violating Nigerian law. Foreign officials need to follow a list of best practices for prosecuting organized criminals to ensure cases generate more than headlines,” the UN said.
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