Oil slicks swirled and eddied around the legs of paddling children. On a nearby beach fine, once-white sand mopped up oil bubbles like blotting paper.

A few yards away, in the middle of a reed-covered lagoon, a rusty “wellhead” rose out of foul-smelling water. The-flow station stood eerily idle. For the first time in years villagers could not see or feel the heat from a bright orange flare lighting the sky.

Flaring – the burning off rather than harnessing of natural gas to obtain the crude below – is banned in many parts of the world. It creates acid rain and adds to greenhouse gases. In the Niger Delta, however, it is common for the night sky to glow yellow.

Yet a rebellion by militants demanding a bigger share of oil revenues has dimmed the flames. It has also cut output by the world’s eighth-largest oil exporter by about 25 per cent in 18 months, slashed government revenues and helped to push world prices to record highs.

The crisis in the delta is by far the biggest challenge facing President Umaru Yar’Adua, who took office last month after elections condemned by international and national observers as fraudulent. It is by no means the only one facing Nigeria, the most populous country in Africa with some 130 million people.

Far from solidifying a fragile democracy, the election in April has exacerbated tensions created by decades of misrule and corruption. Apart from the armed insurrection in the delta, Nigeria faces renewed separatist demands in the former Biafra in the southeast and growing Christian-Muslim tensions in the north.

Analysts fear that a failure to address the root causes of discontent could drag the country back into chaos or military dictatorship, with devastating effects for the rest of the turbulent West African region.

In a report published the day after the President’s inauguration on May 29, entitled Nigeria: Failed Elections, Failing State, the Brussels-based International Crisis Group called for an inclusive government of national unity to pull the nation “back from the brink of chaos”. In response Mr Yar’Adua has released one of the main leaders of the delta militants after two years’ detention, pending a trial on treason charges.

Mujahid Dokubo-Asari returned to the oil capital of Port Harcourt to a hero’s welcome. Crowds, some wearing “welcome home” T-shirts, thronged the streets of the rundown city, which shows no evidence of the billions of pounds of oil revenue it has enjoyed.

Previous attempts to buy off Mr Asari have failed and created tensions with other militants, who demand their share of local contracts, such as transporting oil workers through the maze of creeks that make up the delta. Many commentators say that he will demand a high price for cooperation but struggle to control the many factions.

Elsewhere in Nigeria, where most people live off less than 50p a day and life expectancy has fallen to 46, young militants are also mobilising and demanding action.

In northern Kano state young, middle-class Muslims have joined a local “Taleban” organisation that killed a sheikh allied to a discredited state governor and fought pitched battles with the security services. There is also a growing well of potential recruits. In the narrow streets of Kano city’s slums, dozens of children now attend madrassas in preference to decrepit state-run schools.

“I have met these people and they are intolerant and fanatical. I fear for the future,” Aminu Abu’Bakr, a local journalist, said. “They see the Government as having done nothing for the people.”

Across the country there is little evidence of government expenditure, other than the plush homes of politicians and their business allies and government buildings in the purpose-built “bubble capital” of Abuja. Official figures, released in 2005, estimated that some £200 billion had been stolen by corrupt politicians between independence from Britain in 1960 up to the return of civilian rule in 1999.

In the nightclubs and restaurants of the capital, Lagos, the elite drink only champagne. Bottle after bottle is ordered into the early hours at prices higher than most people’s annual income. The men are dressed in the latest rap artist bling while their girlfriends parade in designer labels.

World leaders are so anxious about insecurity in Nigeria that they invited the new President to the recent G8 summit in Germany to press their concerns. The move angered activists, who said that it showed that oil was more important to the West than concerns over his democratic credentials.

Deep in the territory controlled by the Movement for the Emancipation of the Niger Delta it is not hard to understand the anger of the local Ijaw people. Chief Eso Sulyeman, a leader in his seventies, recalls fondly the days before oil was discovered in 1953. “Then we could fish everywhere and grow crops in the soil. It is all ruined now,” he told The Times. “The oil has brought us, the local people, nothing,” His village has no power, no piped water and no real infrastructure. He supports the militant youths who have attacked oil installations and kidnapped scores of foreign oil workers.

Daniel Laywei, 23, who cannot afford £150 in fees to finish secondary school, said: “They have everything here, but we have nothing. It annoys us.”

The cost of liquid gold

2m barrels of oil extracted daily from the Niger Delta

80 foreign workers kidnapped in the past three months

70% of government revenue comes from oil and gas

20% of GDP made up of oil and gas

95% of foreign exchange earnings come from oil and gas

60% of the Nigerian population is below the poverty line

Sources: UN, World Bank, CIA

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