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Forbes: Oil Prices Soar On Nigerian Election Troubles

Elisabeth Eaves, 04.24.07, 2:06 AM ET
It should have been a great moment for Nigeria — an elected president is stepping down, handing power to another elected leader, the first transfer of power from one civilian government to another in the country’s history.

Though governing party presidential candidate Umaru Yar’Adua has been declared the landslide winner, Saturday’s polling was marred by violence and fraud, feeding a spike in global oil prices Monday.

Nigeria is a major player in world oil markets: It’s the world’s eighth-biggest exporter and the fifth-largest oil supplier to the United States.

When Nigerian fields are operating at top capacity, they can produce 2.5 million barrels of oil a day, or some 3% of global consumption. But operations accounting for 10% of its output are currently shut down thanks to unrest in the country’s Niger Delta region, according to Princeton Lyman, a senior fellow at the Council on Foreign Relations and a former U.S. ambassador to Nigeria.

On Monday, London Brent crude spiked $1.66 to $68.15 a barrel, while U.S. crude rose $1.78 to $65.89.

For now, uncertainty reigns in Nigeria. With ballot-box stuffing and intimidation among the many irregularities observed on election day, and dozens dead from election-related strife, domestic and foreign observers have declared the polling deeply flawed.

Lyman thinks that Yar’Adua will probably be able to establish his legitimacy as president, but that it will take a while.

“Over the next year it’s going to be rough,” he said. “The new government will have to deal with challenges in courts and rerun some of the local elections that were annulled.”

In the meantime, he said, “there could be continued unrest in the Delta.”

For decades, the impoverished Niger Delta region has seen little benefit from oil drilling there that generates most of the country’s foreign-exchange revenues, spawning local militia groups that are seeking to get a share of the wealth.

The Delta was one of the regions where the election was the most ill-run, says Lyman, with “virtually no election at all in some areas.” Similar problems during 2003 elections contributed to bitterness across the region.

On the bright side, Yar’Adua’s vice presidential running mate, Goodluck Jonathan, comes from the Niger Delta region, signaling a willingness to address grievances there. But “it will take a major effort to tackle it,” Lyman says.

Some analysts remain sanguine about oil prices. Sebastian Spio-Garbrah, an Africa analyst with political risk consultants Eurasia Group, points out that in recent months, very little violence has been directed at energy companies. He notes that Royal Dutch Shell (nyse: RDSA – news – people ), the country’s biggest foreign oil company, announced two weeks ago that it would reopen its Forcados field by June or July.

Spio-Garbrah sees no reason the company won’t go ahead as planned, and if it does, it would return Nigeria to producing around 2.4 million to 2.5 million barrels a day.

He notes that in a country where 60% of the national budget comes from oil revenues, it’s in the interest of every leader to keep it flowing.

“Even militias know that there is a symbiotic relationship between themselves and the oil companies,” he says. “They need the oil companies to be there so that they can take a little bit of what’s flowing through the pipe.”

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