Yesterday, David Kotok of Cumberland Advisors told Business Insider that the tumultuous security situation in Nigeria is his biggest fear for the world right now.
Kotok called Nigeria "the most important oil producer in the world" and said that if unrest there gets really out of hand – which he warned is a very real possibility that everyone is ignoring – oil could soar to $150 per barrel and crush the global economy.
So, what exactly is going on in Nigeria right now?
War with Islamist militants
Just this week already, both sides have taken down big assassination targets. On Monday, the Nigerian military reportedly killed Abu Qaqa, the spokesman of the Islamic militant group Boko Haram.
Today, Boko Haram struck back, murdering Zanna Malam Gana, the attorney general of the state of Borno (located at the epicenter of the conflict between the government and the militants in Nigeria's northeast region).
Wall Street is selling Nigeria at the moment – Goldman Sachs Asset Management chairman Jim O'Neill calls it one of the "Next 11" big emerging markets, and Citigroup chief economist Willem Buiter calls it one of the "3G" Global Growth Generators over the next 40 years.
But the violence caused by Boko Haram in the northeastern region is getting worse, and it's starting to cause real trouble in the Nigerian economy.
A recent geopolitical risk report by Business Monitor International explains how:
[Boko Haram's] disruption of agricultural production in the north is having a bigger impact than previously anticipated. The Central Bank of Nigeria has downgraded its growth estimates from 7-8% in 2012 to 6-7%, citing security complications in the rural north for the slowdown in agricultural output. The sector, which constitutes about 40% of total GDP, grew by 4.2% in Q1 12, the slowest rate of growth ever recorded since the National Bureau of Statistics began publication of quarterly figures in 2001. This has coincided with declining oil production, constraining headline growth.
Armed attacks on oil pipelines
To make matters worse, Nigeria is dealing with a completely separate security problem right now that strikes at the heart of the oil industry there (oil is a key driver of Wall Street's rosy outlook for the country).
A group of gunmen called the Movement for the Emancipation of the Niger Delta (MEND) are stepping up attacks on oil pipelines – they siphon oil from vulnerable locations and sell it to smugglers.
The managing director of Royal Dutch Shell's Nigerian unit, Mutiu Sunmonu, told the Wall Street Journal that the recent pickup in attacks on oil pipelines is " quite an escalation. If nothing is done, it will continue to increase because more and more people will just come to feel that this is a gold field."
And there's a lot at stake – Shell estimates that 150,000 barrels of oil are being stolen from Nigerian pipelines every single day.
The growing threat of crippling labor unrest
Not only does the theft represent lost production capacity, but it also threatens to bring about some serious labor unrest if the government can't get it under control – unions are starting to voice their anger with the government's "inept attitude" toward security a little louder than before.
These are the same powerful unions that almost caused an industry-wide shutdown over a separate government dispute just a few weeks ago. At the time, an Economist Intelligence Unit briefing explained that "i f [the strikes] were to go ahead, prolonged nationwide strikes in the oil and power sectors would affect our forecast for economic growth in particular" and that "the strikes could also trigger sporadic violent unrest."
A big deal for oil and the global economy
In a client briefing today, Roubini Global Economics explains why this is becoming such a problem for the global economy. World oil supply is seriously tight right now when you factor in the supply outages caused by sanctions on Iran and unrest in Libya.
Many analysts hoped that Nigeria could help fill the gap. However, RGE points out that Nigeria is currently producing around 2.4 million barrels of oil a day, which is about the same as they were producing ten years ago and is way below the government's target of 4 million barrels per day.
Now, on-the-ground reports in Nigeria are revealing another troubling sign – long lines forming at gas stations in Nigeria's most populous city of Lagos as retailers run out of gas:
The current fuel scarcity on Monday unduly influenced the price of the product in Lagos forcing motorists out of desperation to buy from the black market for as much as N200 per litre. The official price is N97 per litre.
BusinessDay checks revealed that more filling stations have joined the growing numbers of stations without the product. Findings along the long stretch Lagos-Badagry express road showed that a number of filling stations along the road did not sell yesterday, as they claimed non-availability of the product when our correspondent visited.
And that's only more fuel for the fire. Yet no one seems to be taking notice, like Kotok said.
Hamza Khan, an oil analyst for the Schork Group, told Business Insider that Kotok has a fair point. The reason no one is paying attention, according to Khan:
We can't pay attention to terrorist attacks in Nigeria because they happen so frequently. We've got MEND...they've been carrying out attacks on the oil sector in Nigeria for the last four or five years at least. So, this is a region that always has a certain level of turmoil, but whether it reaches a breaking point or not, it's still up in the air. I don't think we can pay attention to it until we see something more concrete and more tangible.
Veteran oil trader and noted author Dan Dicker told Business Insider that he's skeptical that it's so much worse now in Nigeria than it's been before. However, he said that if a full shutdown were to happen in Nigeria's oil industry, "that's probably good for [another] $20 in the Brent contract."
Despite all of the explosive developments in Nigeria as of late, it seems like at the moment, the situation is sufficiently under the market's radar. If Kotok's fears materialize, all of that could change in an instant.
More From Business Insider