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Implication of oil crisis on businesses

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By Timothy Akintola

Nigeria loses 95 percent of its crude oil hub production to oil theft annually.

Since the discovery of oil in Nigeria in 1956, the country have accrued about 37,050 million of crude oil barrels in reserves, contributing to about 2/3rd of the national economy. However, there has been recurrent concerns as to the social and political crisis that have been remotely catalyzed by the need to control this sector. In fact, recent findings indicate that the oil pipelines are invaded with over 300,000 barrels being stolen daily. Activities like pipeline damage, unlawful bunkering, syphoning, smuggling, lighting without authorization, processing crude oil and petroleum products are evidently illicit acts of oil theft that is being indulged in in Nigeria.

Historically, oil theft in Nigeria commenced during the late 1970s, when the Militant youths in Niger Delta engaged in a war against the Nigerian government and the multinational corporations for the control of the resources. Though the establishment of the Militant Group was largely on the basis of a nonviolent struggles against the poor living conditions of the Niger region. However, it was the the lack of development and the unemployment that ravaged the community catalyzed the violent struggles and political agitations of the people which resulted in the in the rise of oil theft in this region. The corrupt practices of the military and political systems also immensely contributed to the rise of oil theft in the country. Governmental officials indulged in this crime unofficially and funds accrued from it were used to fund campaigns, buy votes and obstruct election processes.

1 of every 4 stolen oil barrels globally sourced from Niger Delta.

Globally, statistics note that at least 150,000 barrels of crude oil are being stolen, with one in every four stolen barrels, sourced from the Niger Delta. Reports posits that Bonny Terminal, the largest crude oil terminal in Nigeria loses about 95% of its products to oil theft. The Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari was in fact, critical of the roles of the religious centers in abetting this crime by enacting storage facilitation for these stolen oil barrels. Chinese oil businesses in Nigeria also gross over 3 billion Yuan annually. Royal Dutch Shell also lost 7 billion annually in Nigeria alone due to the complications of oil theft. In June 2022, Shell and ExxonMobil, two of the largest oil companies globally decided to sell off their production units as a result of the recurrent losses incurred.

At least, 295 illegal connections have been estimated to be draining away the country’s wealth. Even though oil companies that facilitated different measures to detect oil taps and curb oil theft, there has been no major change, as a result of the cumbersome process of efficiently monitoring the long pipes. Reports published in September 2022 indicated that Nigeria loses about $700 million monthly as a consequence of the menace of oil theft. In fact, the efforts of the Nigerian government by setting up a technical committee in 2019 to investigate the key actors of this crime have yielded no tangible result, as there have been no arrest recorded.

Youths in Nigeria now see oil theft as a lucrative activity.

The oil theft menace, as well as the violence and instability that attaches to it have rampantly expanded to regions outside of the Niger Delta, across the national borders. Youths across the different regions now see oil theft as a lucrative activity. In fact, those in the upper class now provide them with guns and other violent implements to aid their illegal activities and serve their financial interests. Immense oil theft in the high sea area and oil export terminals have contributed to the rise of piracy in Nigeria’s marine environment.

Waterway regions of the West African communities have become infested with pirate attacks on the assets of oil investors. The security situation of communities along the coast of the oil exporting routes to Europe and Asia have become highly vulnerable and the emergence of Boko Haram and ISWA have also worsened the situation. However, this menace has had no implication on the country’s diplomatic relations, due to the crisis being seen as an internal conflict. In fact, the former US Ambassador to Nigeria, John Campbell noted that external pressure would not herald monumental change in the situation.

Oil related thefts have caused a deterrent for new investment.

On the business implications however, pipeline sabotage and oil theft have sabotaged numerous companies, causing them to halt production and even sell off their assets. The lack of development of the land has caused companies like Shell, Chevron, Mobil and other International Oil Corporations to sell their assets, blaming difficulty in operations as a reason for these actions. The variation problem within these oil terminals, together with the expenses in environmental cleanups and security measures have overwhelmed these companies, causing a deterrent for new investments. Nigeria’s budget stability has been reported to be relatively shaky, due to the menace of illicit bunkering and oil theft. In over 5 years, this menace has catalyzed the free fall of the Naira’s valuation, all of which have contributed to the difficulty of business survival in Nigeria.

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