Meet the oil world's marginal producers.

A cheat sheet for the news.
May 10 2006 11:56 AM

The Little Guys of the Oil Business

Meet the "marginal producers."

(Continued from Page 1)

Some 400,000 bpd will flow through Azerbaijan toward the Mediterranean by the end of this year via the newly opened Baku-Ceyhan pipeline; as many as 1 million bpd are expected by 2009. While another war over the enclave is unlikely, even low-level fighting there could threaten the pipeline, which passes within 10 miles of Nagorno-Karabakh's northern border.

What's more, the market power these states now enjoy may well breed new political turmoil, as increased investment and inflows of cash give competing domestic factions more lucrative spoils to fight over. In the Republic of Congo, a country that produces a little over 240,000 bpd and is already plagued by ethnic unrest and threats of civil war, high energy revenues have fueled rampant corruption. In recent years, an estimated $500 million have changed hands there in black-market oil trading. The state-owned oil company SNPC has sold hundreds of millions of dollars' worth of cut-price oil to private businesses with ties to the government. The country faces threats from southern-based rebel groups who hope to oust President Denis Sassou-Nguesso and win a greater share of the new wealth. Rich offshore reserves have fueled maritime disputes with some of the country's neighbors.

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Conflicts in some of these states also increase tensions between the most powerful consumer nations. The United States is currently leading efforts to impose international sanctions on Sudan in response to government-supported violence in the country's Darfur region. Sudan is expected to produce about 500,000 barrels of crude per day by the end of this year. More than half its oil exports flow directly to China, which has blocked sanctions on Khartoum in the past and threatens to do so again.

The tight oil market has given energy companies, particularly smaller independents, new incentives to scramble for contracts in less familiar states. To protect their market shares and to profit from rising prices, these firms have little choice but to accept the risks that marginal producers pose for their investments—and for the industrialized economies that are increasingly dependent on their product.

Oil production data from International Energy Agency annual figures for 2005.

Ian Bremmer is president of the Eurasia Group, a global political risk consultancy, and author of the bookThe J Curve: A New Way To Understand Why Nations Rise and Fall.

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