A new political risk

Political risk, the potential poison of any oil and gas investment, is gaining a troubling dimension. Increasingly, oil companies are being held to account for political misbehavior in countries where they do business. Political risk thus becomes the prospect not only for disruption of operations where political upsets occur but also for retaliation elsewhere, even at home. Economic sanctions and consumer backlashes are nothing new, of course. They just seem to be more common than ever. In

Feb. 5, 1996

4 min read

Economic sanctions and consumer backlashes are nothing new, of course. They just seem to be more common than ever. In a period of welcome ascendancy for international trade, the trend is especially dangerous.

Shell in Nigeria

Royal Dutch/Shell Group crashed into this thickening wall in Nigeria, where it has worked for 50 years and endured 14 changes of government. Late last year the company received criticism from many sources, among them the environmentalist militia Greenpeace, for not somehow stopping the executions of nine Ogoni tribesmen by the Nigerian government.

Activists among the Ogonis, who occupy part of the Niger Delta's oil producing region, have pestered the military government over sharing of oil revenues and over environmental damage, most of which results from sabotage. When the government sentenced activist leader Ken Saro-Wiwa and eight others to death on contrived murder charges, a number of opinion mongers around the world, Greenpeace prominent among them, assigned Shell responsibility for redeeming the injustice. To anyone attentive to how bullies with illegitimate authority respond to such pressures, the prompt executions of Saro-Wiwa and his comrades came as no surprise.

Short of persuading the indignant of the world to pipe down, Shell could do little to prevent the killings. The city council of Toronto, Canada, nevertheless rejected a retail deal with Shell Canada because the parent company didn't leave Nigeria in protest. That must have been worth a few laughs for the Nigerian strongmen, who at the time were rounding up other Ogonis for trial.

National governments, especially the one in Washington, D.C., are infatuated with this game of proscribing business-especially oil business-as a way of "punishing" miscreant governments. The U.S. has a growing list of countries whose oil it will not buy and into whose jurisdictions it will not allow U.S. oil companies to venture. Nigeria may soon join the roster. In no case has the pressure of withheld commerce removed a villain from power. The pressure falls hardest on the people of target countries and constrained companies.

A dilemma for oil companies is that they not only stand to lose opportunities, sunk capital, or sales because of official misdeeds they usually cannot prevent, but that the world brims with official misdeeds. If nefarious government behavior can render whole countries off-limits to commercial enterprise, the question must be asked how long it will take Greenpeace, the Toronto city council, the U.S. government, and other protectors of righteousness to act on abuses of power in places such as Moscow, Beijing, and any number of shaky regimes in Africa, Asia, and the Middle East.

Outlets for outrage

International companies, especially oil companies, represent outlets of least resistance for the outrage of governments and pressure groups that know no constructive response to despotic excesses. Yet ready resort to these outlets makes for foreign policy that is at best clumsy. Cunning despots can turn outside pressures into inside advantage. Economic disengagement can solidify their power by increasing the dependencies of people they oppress. Waiting for economic pressures to effect political change can be inhumane.

Dealing with the world's nastiness will never be easy or wholly successful. The key is to stay engaged, and commerce is one way to do it. Oil companies must try to show their governments that refusal to deal at all in the realms of the nasty just precludes hope for progress.