Stealing Oil - Hurting People

By Nehad Ismail in Abu Dhabi.

This month’s Atlantic Council Global Energy Forum in Abu Dhabi saw the launch of an important report on the illicit trade of hydrocarbons. It’s the first comprehensive study of a rarely discussed subject.

Authored by Dr. Ian M. Ralby and titled “Downstream Oil Theft” it includes case studies, trends and recommendations.

Refined oil theft is a global problem. It exists in both oil producing and non-oil producing countries and in wealthy and poor states.

The report highlights the scale of the problem but does not condemn everyone involved. The author writes: ‘’the criminals who perpetrate illicit downstream hydrocarbons activity range from sophisticated and sinister international networks to well-meaning humanitarian service providers on limited budgets in poor and desperate communities. Refined oil theft is not, therefore, a crime that necessarily involves a desire to do harm; rather it frequently starts and ends with a desire for a discount. This diversity of criminal motives, however, complicates the approach to ending the problem, as communities may wish to preserve the illicit market’’.

Whether we are talking about a donkey carrying jerry cans across rough terrain in Asia or giant oil tankers heading for West Africa; the purpose is the same  – making large amounts of money through illegal practices.

The report explores the illicit activities in Africa, Asia, South America and even the EU which is supposed to be the most transparent and least corrupt political and economic entity in the world. It is not possible to give space to each country mentioned so what follows is a small selection of the most notorious places for fraud and smuggling.

Take Mexico which produces around 2.5 million barrels of oil a day. Illicit hydrocarbons crime is endemic, and theft of crude and refined products is widespread. Tapping of Pemex pipelines (Petróleos Mexicanos) is a common occurrence. The Mexican government estimates that from March 2016 until end of the year hydrocarbons theft yielded $1.17 billion of illicit revenue. 23,500 barrels per day are stolen.  US companies may have been complicit in the cross-border smuggling of Mexican fuel and Pemex has taken legal action against some. While Pemex has suffered a great deal from the illegal activities in Mexico, officials and employees have benefited personally from the criminal activities.

The net losers are the governments of such states and ultimately the people.

Corruption is rife in Nigeria, Uganda and Mozambique at all levels of government and therefore mitigation of the problem becomes increasingly difficult.

In Nigeria, which loses almost 20% of its production to illicit activities, the government is accused of awarding security contracts to criminal gangs. It is widely recognized that Nigeria is the top dog in the illicit oil trade business. The report says under the presidency of Goodluck Jonathan from 2010 to 2015 corruption reached unprecedented levels. The allocation of contracts has become the chief mechanism for oil fraud at the national level. Corruption and collusion among law enforcement agencies and the military are established facts. 80% of the fuel in Benin is illegally smuggled from Nigeria.

A Chatham House report estimates that total annual cost of stolen oil revenue in Nigeria is between $3 billion to $8 billion.

Protection rackets by criminal gangs and thefts at export terminals are a way of life. 30% of refined products are stolen. Piracy and armed robbery at sea happen frequently but ignored by the world media which is more used to focussing on Somalia pirates.

Uganda, which is a recent entrant into the oil game, is another example of complicity between criminals and government officials. A transparency International report ranked Uganda as one of the most corrupt states in Africa. The so-called “OPEC boys” are gangs of criminals engaged in cross-border smuggling and eventually became reliable suppliers of oil products with the blessing of the authorities.

Mozambique hydrocarbons industry, which is state-owned, is victim to corruption at every level. 54% of all cargo movements in Maputo involve bribes to the highest levels of government.

Turkey, with its long borders and high fuel prices, has created opportunities for smuggling and downstream hydrocarbons crime. The most controversial issue is the smuggling of diesel from ISIS held territories in Iraq and Syria. A US Treasury official said in 2015 that ISIS makes $40 million a month from doing business with the Assad regime.

In Azerbaijan, the state controls the production of oil and gas most of which is extracted from the Caspian Sea.  Ample evidence exists of  smuggling, downstream oil thefts, and fraud linked to the regime.

The EU is not as corrupt as third world countries, but price disparities between states encourages corrupt and illegal practices. The price differentials between Northern Ireland, which is part of the UK, and Ireland has prompted criminal gangs to engage in smuggling.

It is estimated that 4 billion euros are lost through illicit activities.

Counter measure including rigorous checks, monitoring and co-operation between international agencies and states are essential steps to scale down the thefts. The author Ian Ralby told the conference “it is very hard to put your hand in the cookie jar when everyone is watching”.

The full report can be accessed via this link.

Nehad Ismail.

Senior Analyst at Wikistrat