Oil Has Been The 'Glue' That Has Held Nigeria Together, And Now It's Failing

When OPEC decided not to cut production last week, the move was widely seen as Saudi Arabia declaring war on American shale producers.

But there's likely to be a lot of collateral damage. Venezuela is going to get slammed by dropping prices. Libya was getting killed even when prices were over $100 a barrel.

Now, RBC Capital Markets's Helima Croft is warning that Nigeria might actually be the country most at risk for civil unrest related to oil price declines.

"In a country plagued by deep regional and religious divisions, oil revenue is literally the glue that binds the fractious elites together," Croft writes.

There are two major sources of violence in Nigeria: In the north, Boko Haram and Ansaru (influenced by ISIS of late). In the south, there are the Christian militias, which reached a tentative peace agreement with the government a few years ago. That agreement expires next year.

Further, writes strategist Emad Mostaque in a note, "Nigeria has been meaningfully below its faceplate production capacity for a number of years. The primary reasons for this are local instability (particularly in 2008 with MEND), decaying infrastructure and graft."

In a separate email to Business Insider, Mostaque noted that "Nigeria is a... porous country with billions going missing each month between NNPC [Nigerian National Petroleum Corporation] invoices and receipts alone..."

The country's budget is based on an oil price of $77 per barrel. Any revenue above that goes into the excess crude account (ECA). The money in that account is depleting rapidly: an allAfrica post from earlier this year said there was $2.1 billion in it in February, down from $11 billion in December 2012. Oil has been far above $77 a barrel during that period. A more recent post from this month puts the total in the coffer at $4.1 billion.

Public violence has been increasing in the last year in the country, and the threat for more civil unrest as the February 2015 national elections approach is high. Sectarian tensions between Christians and Muslims are running high.

Low oil prices will only make the situation worse. According to RBC's Croft, "elites have also turned to crude theft as a way to help finance elections ... with less oil money around to grease the election machinery, crude theft and production outages could easily exceed levels seen in prior polls."