When the people take on an oil giant

Shell's public relations team must be tearing their hair out. Just when the Brent Spar had finally dropped out of the headlines, up comes Nigeria, and Shell is in the firing line once more. Earlier this year Greenpeace brought Shell to its knees over the disposal of an oil storage buoy in the Atlantic. And the execution of nine minority rights activists in Nigeria last week provoked allegations that Shell, the biggest multinational in the country, had supported a brutal military regime.

These are trying times for multinational companies. They are expected to operate according to the highest environmental and ethical standards no matter where in the world they are based. And, suddenly, they are being called upon to intervene and make judgements on the local politics of the countries in which they work. Last week, Anita Roddick wrote in a letter to the Financial Times that Shell should condemn the execution of the activist Ken Saro-Wiwa. "What power can stop it?" wrote Ms Roddick. "Shell can stop it."

Of course, Shell could never be a Body Shop. Oil and natural resource companies are not like traders. They cannot make and break contracts at the drop of an executioner's axe. Energy projects can take years to plan and years to complete, and it can be decades before you get a return on your investment. Short-term political demonstrations are simply not an option.

But alongside the limits on their freedom to manoeuvre, oil companies also have greater power and greater responsibility. Their power peaks precisely when a government and an economy are in trouble - and the revenue from natural resources becomes the only remaining support for the regime. Right now, the oil revenues from operations by Shell, Elf, Agip and other oil multinationals are helping the Nigerian military government to survive.

At the same time, oil companies are often more deeply involved with dubious governments than other kinds of companies ever need to be. As their work involves extracting and exploiting a country's natural resources, they are inevitably drawn into joint ventures with government. Shell works closely alongside Elf and Agip in joint ventures with the government-owned Nigerian National Petroleum Corporation (NNPC). These international companies are also inevitably affected by the Nigerian government's failure to implement proper environmental standards, and by its inability to broker a compromise between oil interests and local farmers who are so disrupted by exploration.

In Nigeria, opposition to the government and opposition to Shell have become intertwined. Ken Saro-Wiwa called on Shell to pay $10bn compensation to the Ogoni people for alleged environmental damage to their homeland. Given that Shell's actions were central to Saro-Wiwa's protests, the company was bound to come under pressure to condemn his executioners.

Two questions arise out of this crisis for Shell in Nigeria. First, how much should we expect multinationals to do in the cause of human rights? Second, are consumers strong enough and sufficiently determined to make them act ethically?

Clearly, big companies have a responsibility to avoid being party to corrupt deals or violent and oppressive government action. Where a national government is unable or unwilling to implement adequate environmental standards, it is wrong for a multinational to take advantage of the situation and blithely pollute the country.

That said, it is often difficult to know how effective businesses can be when they intervene in politics and human rights. Although outright sanctions and disinvestment were effective in South Africa's case, a few public condemnations from Shell about the Nigerian dictatorship might not make much difference to the military government's belligerent behaviour.

These ethical dilemmas may be taken out of Shell's hands. If international governments decide to impose an oil embargo, then Shell has no choice but to get out of Nigeria. Meanwhile, Shell and others will be weighing up how their losses in the outraged Western consumer markets balance against their continued profits in Nigeria. In a global market with an international media and international pressure groups to publicise misdemeanours, the way a company behaves in one market is vulnerable to consumer boycotts in another.

The phenomenon of ethical consumption has been growing for years. It dates back to the student boycotts of Barclays because of the bank's links with apartheid, campaigns against Nestle over formula baby milk, and the legal battle for compensation in thalidomide cases. According to recent research by the Co-operative Wholesale Society, three out of five consumers say they are prepared to boycott firms or stores over their ethical standards. At the same time, ethical investors are flexing their muscles across British industry. Pirc, a corporate governance consultancy launched in 1986, advises on ethical investments and has clients worth more than pounds 70bn. Instead of telling investors to get out of certain distasteful companies, it encourages them to buy shares and change the companies' policies.

It took 20 years of campaigning to get Barclays out of South Africa. Yet it took only months of protest from Greenpeace to get Shell to back down on the Brent Spar. The next few months will reveal whether the latest outcry against Shell is little more than noise. It may be that consumers really have become an irresistible force.

Shell's great dilemmas

NIGERIA

Shell is accused of causing environmental damage through oil spills in the area inhabited by the Ogoni tribe, but it will go ahead with a pounds 2.7bn gas investment project. About 14 per cent of Shell's global oil production comes from Nigeria

BRENT SPAR

Ministers backed Shell's plans to dump the Brent Spar oil platform in 6,000 feet of water off the Outer Hebrides. But the company caved in under pressure from Greenpeace in June. Come September, Greenpeace apologised for overestimating the amount of oil left inside. The Spar is in a Norwegian fjord while companies suggest ways of disposing of it

MERSEYSIDE

In 1989, 150 tons of Venezuelan crude oil leaked into the Mersey from a Shell pipeline, causing a 20-mile slick and killing 300 sea birds. The incident cost the company pounds 1.4m in operational losses and clean-up charges, and in 1990 Shell was fined pounds 1m. Five tons of crude oil seeped into the Mersey in 1990

BURMA

In 1992, Shell announced its withdrawal from Burma. The company said it was for purely commercial reasons but others have contended that its decision was inflluenced by the autocratic nature of the regime and its human rights record

SOUTH AFRICA

The United Nations and Opec called for a boycott of oil supplies in the Eighties, but Shell decided not to pull out of its mining, chemicals and petroleum-related industries in South Africa. It argued that its employees did not suffer racial discrimination, despite reports to the contrary from Eiris, the UK ethical investor service

ROCKY MOUNTAINS

Shell manufactured pesticides and herbicides on a US Army site near Denver where nerve gas had been made. In 1970, the US Army warned Shell that it would be liable for 85 per cent of the costs of cleaning it up. Shell sued its insurers in 1983 for its share of the costs. Six years later, the company's appeal against a state jury ruling that the insurers were not liable was rejected

Digging deep in Nigeria

Shell, the world's largest oil company, has been caught up in a maelstrom of protests after the execution at the weekend of the Nigerian writer Ken Saro-Wiwa and eight fellow political activists.

The political impasse posed by Nigeria's military government represents a public relations nightmare for Shell, which is accused by environmentalists of having polluted the Ogoni region. The executed men had been campaigning for a greater share of oil revenue from the government, political self- determination and ownership of the oil beneath the land.

In some countries, notably Germany, protesters have accused the Anglo- Dutch conglomerate of being partly guilty for the executions because of its close involvement with Nigeria's military regime. Demonstrations in this country have closed a number of Shell petrol stations.

The Shell Development Company of Nigeria, a unit of the Royal Dutch Shell Group, has been involved in Nigeria for almost 60 years and, if its recent statements are to be believed, it will continue to produce oil in Africa's most populous country for decades to come.

Oil revenues provide about 90 per cent of Nigeria's foreign exchange earnings and some 80 per cent of the federal government's total revenue.

Shell's production of about 300,000 barrels of oil each day represents 14 per cent of its worldwide production of crude oil. The company produces about half of Nigeria's oil in partnership with the government and with Agip of Italy and Elf of France. Shell has said it is still interested in going ahead with a pounds 2.7bn gas investment project. The company is due to make a decision before the end of the year about whether or not to proceed. The Prime Minister, John Major, says he wants to talk to Shell about its plans.

Analysts say Shell's operations in Nigeria are not very profitable in global terms. It is believed that Shell is making about $1/2m per day there. This might sound like a fortune but in oil terms it is considered modest. Last year Shell made a net profit of nearly pounds 4bn; that is the equivalent of about pounds 11m per day.

The company is committed to returning to the Ogoni region but only if it can do so peacefully. It stopped operating in the area in January 1993, having endured threats, intimidation and physical violence against local staff.

Shell accepts that its operations in Ogoniland have caused some environmental problems but, in the words of a company spokesman, "these do not add up to devastation".

Shell is funding a $4.5m environmental study of the Ogoni region in an effort to determine the extent to which the company is responsible for damage to the land. The study will be conducted by a group of international consultants and is due to start next year.

David Orr