Should we boycott or engage with brutal dictatorships? This has always been a serious question, but it’s one made even more vital by the threat of terrorism. Businesses, especially oil companies, are routinely criticized for “profiteering” in these countries, but is disengagement the wisest choice?
Nine years ago I visited Ogoniland, in the Niger Delta of Nigeria, to see the allegedly notorious oil-exploration activities of the Shell Oil Corporation. Activist Ken Saro-Wiwa had just been executed by the government of the day, led by the despotic General Abacha. The world’s media were beginning to wake up to the troubles Nigeria faced on a daily basis, after having previously ignored the human-rights violations that had become commonplace there. Before his death, Saro-Wiwa had shown skill in turning a human-rights disaster, government-backed assaults, and nascent ethnic cleansing against certain tribal groups into an environmental issue: Shell’s despoliation of the Niger Delta. As a green story, his death was eagerly reported in the West.
Shell was in a difficult place; its operations in Nigeria began in 1958, two years before British rule ended. Nigerian production now accounts for 10 percent of Shell’s worldwide output, and Shell runs about half (2 million barrels a day) of Nigeria’s oil output. When Shell was forced to downgrade 3.9 billion barrels of its proven oil reserves earlier this year, about a third was in Nigeria. Shell needs Nigeria’s excellent-quality oil, and it puts up with a lot to get it. In 2001, there were 45 reported hostage-taking incidents, a number that remained high–24 incidents in 2002–after considerable effort to improve security. Stories circulating in 1995 that Shell provided the police with guns were true, but the company did so at the demand of the Nigerian government.
Furthermore, environmental damage continues to occur around broken pipelines. Not that that is entirely Shell’s fault–such ruptures are mostly deliberate acts of sabotage, not the result of poor maintenance. Saro-Wiwa’s followers spiked pipelines to create a news story back in 1994-1995, and outright oil theft, with its inevitable despoliation, continues unabated.
Today, Shell faces increased security threats. Organized, criminal siphoning from the pipelines remains rampant. At least $1 billion and possibly as much as $4 billion of oil revenue is stolen every year, which has been used by community militias to buy ex-Soviet weaponry, including rockets and even possibly surface-to-air missiles. Not only does this open a door to terrorists with wider aims, it threatens to destabilize the region.
At a domestic level, the effectiveness of Shell’s social programs has been disputed. Shell claims to have spent nearly $70 million in social programs in 2002, but Christian Aid says the money has not helped the nonfunctioning water systems and health centers. On balance, there seems little doubt that Nigeria, and most Nigerians, benefit from Shell’s continued presence. The current Nigerian government, led by Olusegun Obasanjo, is far from perfect, but it is relatively democratic–and so it seems Shell should stay. Whether they should have pulled out in the Abacha days is more to the point: Perhaps they should have opposed the dictator more, and boycotted the country, but they are still there now, and there they should stay. Whether they will be able to remain if more of their staff die in conflicts is another matter.
While Shell continues to stay the course in Nigeria, another Western oil company–Canada’s Talisman Energy Inc.–is approaching the second anniversary of its divestment from war-torn Sudan. Since oil was discovered in Sudan in 1983, the lure of potentially gigantic profits has proven tantalizing. Oil companies, undeterred by both criticism from human-rights groups and the enormous risks incumbent upon foreign companies operating in what has effectively been, for the last two decades, a war zone, continue to operate there. That war, pitting the Islamist government in Khartoum against Southern black African factions dominated by the Sudanese People’s Liberation Movement (SPLM), has been fueled in no small part by the existence of oil fields. While the Khartoum government–which has been accused of just about every atrocity within the power of a government to inflict–uses oil revenues to purchase arms, the southern rebels claim the fields as their own. The first Western foray into the Sudanese oil business ended abruptly in 1985, when Chevron left the country after a rebel attack on a company facility left three employees dead.
In acquiring a 25-percent interest in the Greater Nile Oil Project during the fall of 1998, Talisman calculated that the profits to be made in Sudan outweighed both the material risk to company assets and the public-relations risk associated with doing business with a militaristic government ostracized by the international community. With its ample injection of capital and technical know-how, Talisman jumpstarted Sudan’s oil industry, making the country a net exporter for the first time in 1999. But while business was good, Talisman’s self-avowed dedication to building health and educational infrastructure, as well as promoting peace, was not enough to dampen criticism from Western governments, church groups, human-rights agencies, and others. In October of 2002, after amplified pressure from institutional shareholders to divest–and with a lawsuit for complicity in genocide looming–Talisman sold its shares in Sudan to an Indian oil company. From the time of its entry in 1998, to its exit four years later, Sudanese crude-oil production had increased from almost nothing to nearly 250,000 barrels per day.
Unlike Shell, whose roots in Sudan extend back to colonial rule, Talisman entered Sudan with full knowledge of the human-rights ramifications of its investment. Though it certainly made an effort to enact benevolent reforms, like building clinics and schools, its crucial role in creating oil-generating capacity could not realistically hope to promote peace in any way. As The Economist stated in a fall 2000 report, “The dirty bottom line is that Talisman is helping the Sudan government finance its war.”
Though difficult to imagine a few years ago, the situation in Sudan has gone from bad to inconceivably worse. Despite a tentative peace accord between the government and the SPLM, violence in the Western province of Darfur–blamed on government-backed militias–looks increasingly like ethnic cleansing of the most brutal kind. Ironically, this begs the question, “Should Talisman have left?”
Certainly, it was the right move for Talisman’s shareholders. The 2002 sale turned a profit, new investments in the North Sea have increased profits and production, and after a recent 3-to-1 stock split, the company’s outlook has never been brighter. But after spearheading the development of Sudan’s oil-exporting infrastructure (along with Chinese and Malaysian partners), and starting a few humanitarian projects, Talisman effectively abandoned the Sudanese people to an Indian firm practically immune to human-rights pressures. In other words, Talisman not only entered into a situation where its actions effectively supported a repressive government, but also exacerbated the conflict by ensuring that oil revenues will continue to flow to Khartoum long after its exit. Perverting an old saying, we get: “Steal a man a fish, he eats for a day; teach a man to steal, he eats for a lifetime.”
What does Talisman’s example mean for Shell? Well, like Talisman and the Khartoum government, Shell supported, tacitly at least, the oppressive Nigerian regime of General Abacha, a decision for which it was rightly criticized. However, now that the company has seen Nigeria begin to turn the corner towards a more democratic government, it should remain.
As Africa’s most populous nation, the way in which Nigeria faces the challenges of ethnic and religious strife has important implications for the continent. Certainly, the level of responsibility with which its oil wealth is managed will play a big role in meeting that challenge. Now that Shell has done its damage with the Abacha government, its time for it to step up and deliver on its promise to help the Nigerian people.
–Roger Bate is a visiting fellow of the American Enterprise Institute.