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Written by HardAssetsInvestor.com  |

April 24, 2007

And The Winner Is?

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Keeping an eye on everything impacting the price of oil requires a broad purview. Refinery problems, trading liquidity, refinery closures, West African politics...

Nigeria held its elections on April 21 ... sort of ... and the continued uncertainty surrounding that vote is having a major impact on the price of crude around the world.

In case your attention wasn’t fixed on West Africa last week, the situation was like this. After eight years of civilian governmental rule, this oil-rich nation was prepared for the first transfer of civilian power in the country's history (see below). The votes were tallied on Monday, and they look like this:

• Umaru Yar'Adua, heir-apparent of the ruling People's Democratic Party (PDP), was declared the winner in Nigeria's election on Monday, April 23. According to the wet paint, he won 24.6 million votes.
• Muhammadu Buhari of the All Nigeria People's Party (ANPP) came in second with a reported 6.6 million votes.
• The second runner up, Atiku Abubakar (the current Vice President, no longer in favor with the boss), garnered 2.6 million votes.

A landslide, right? Well, maybe not. After an election rife with ballot stuffing, intimidation and violence (there were 200 deaths in the week preceding the vote), EU observers are saying that “the polls were not credible.” The problems are familiar to any student of historical gangland Chicago: violence, disorganization, late, missing or stolen voting materials, intimidation, “voter disenfranchisement and bias.” By afternoon, even the current President admitted that, “the elections cannot be said to have been perfect. ” He urged people to take their complaints to electoral tribunals.

The market has been watching the Nigerian elections for months, with oil traders keeping a particularly close eye on events. Brent crude climbed to over $67 a barrel as reports of the widespread problems rolled in on Monday. U.S. benchmark crude rose to $65.89 Monday night (up 2.8 percent). Why the late run? Even hardcore analysts aren't sure if the results are going to hold, or, indeed, which outcome will be best for oil exports. But they do know one thing: uncertainty and unrest surrounding the election is bad.

During the 16 months prior to the election, violence has steadily escalated in the oil rich region of the Niger Delta, cutting oil exports by 20 percent . It's predictable, and it's bad, but it's particularly bad for the U.S. and Europe, as Nigerian crude oil is particularly good and represents a large share of Western oil imports. Nigerian crude is “light & sweet,” to use industry lingo, which means you get more gasoline with less effort at the refinery. The end result? Lower prices at the pump, and reduced imports from the Middle East. With Nigeria’s continued exports at risk, it’s worse than a one-for-one reduction in global oil production; there’s a multiplier effect at work.

What’s next? Wait and see. As the week progresses, we'll need to watch and see if supporters of the various also-rans will protest the election, or if international pressure will force a do-over. Of course, a re-vote just means more instability. If all you care about is the price of oil (to heck with things like democracy and human rights), even an effective military coup would be better than that.

Country Profile by BBC News

Country overview by Energy Information Administration .

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(Nigerian Politics In Brief: Gained independence from Britain in 1960. Military coups followed -- some bloodless, some not -- until 1999, when Parliamentary and Presidential elections were held. Olusegun Obasanjo of the PDP was sworn in as the first president in 1999. This was the first attempt at a democratic handover of power since.)