Oil and maritime systems disruption

By Dave Anderson:

Shadow OPEC may be a reality again.  Oil
hit $86 per barrel this morning. The global economy is beginning to grow enough to eat up the slack in the global oil production system.  Oil is the hard constraint on economic growth right now, so black market operations that divert, delay or destroy oil production will now have significant macro-economic impacts as there is little slack capacity that can be cheaply brought online as replacement capacity.

MEND in Nigeria is heating up its actions after a six month ceasefire that came after the government stated that it would seek to fulfill the majority of MEND's announced political aims.  Reuters has some details from mid-March:

Nigerian militants detonated two car bombs outside government talks on an amnesty programme in the oil-producing Niger Delta on Monday, raising the prospect of renewed unrest in Africa's biggest oil and gas industry...

Former militants who handed over guns had long complained that promised stipends were going unpaid and pledges of re-training were not seeing the light of day....

The Movement for the Emancipation of the Niger Delta (MEND), which claimed the Warri car bombs, warned of renewed attacks on oil installations in the coming days...

MEND has made such claims in the past, but if it lives up to its threat, the amnesty programme could be derailed and Nigeria's oil output could again fall, reducing government revenues and threatening economic growth.

There have been a few kidnappings, attacks on shipping in Nigerian waters and a general escalation of rhetoric.  The Nigerian government's budget is based on very aggressive oil production targets and prices; if revenue can be forced down by 15% to 20% due to a 25% shut-in, the Nigerian government will be forced back to austerity and be limited in its capability to push a conventional counter-offensive into the Delta region.  To do this, MEND would need to take several hundred thousand barrels per day off the global market and raise global oil prices by 7% to 10% over the counter-factual of no-disruption.  

Somali pirates scored a large coup this morning.  Pirates seized a South Korean owned Very Large Crude Carrier that had a third of Saudi Arabia's daily exports on board.  This is the third large tanker seized in the past seven months. 

The interesting thing about this seizure is its location.  The first two tankers that were seized in the Fall of 2009 were within a few hundred miles of the Somali coast, and no more than 4 days from the pirates' main ports of operations.  This tanker was seven hundred miles off the Somali coast and on the far side of the naval patrol zone from Somalia.  Pirates have been active in most of the central and eastern Indian Ocean and Arabian Sea for the past month or two and they now have the proven capacity to seize large ships that are attempting to sail around the threat zone and use the Cape of Good Horn instead of the Suez Canal route to Europe and the Americas.

If there are future seizures so that tankers either sail in convoy with convoy's attendant inefficiencies, or re-route even further east to the Indian Coast, adding more days to the trip, this effectively reduces global supply until more tankers are re-activated to take up the system slack.  

These are just two of the more prominent examples of non-state actors who could cause significant global economic dislocation this summer as they fight relatively local fights.