By Austin Ekeinde

PORT HARCOURT, Nigeria, Oct 6 (Reuters) - Nigeria's military said on Monday it was making significant progress curbing crude oil theft, an illegal trade worth millions of dollars a day and the financial lifeline for militants in Africa's top producer.

A joint military task force of air, sea and ground forces, has been on the offensive against criminal gangs in the Niger Delta, a vast network of mangrove creeks and the industrial heart of the world's eighth biggest oil exporter.

Nigeria and its partners, including international oil firms like Royal Dutch Shell <RDSa.L> and Chevron <CVX.N>, lose a sizeable portion of potential revenues each year to oil theft, known locally as "bunkering".

Some estimates put the amount of crude stolen from the region at 100,000 barrels per day, equivalent to around $9 million daily or $3.3 billion a year at today's prices.

"Right now we have brought illegal bunkering to its knees. It has been drastically reduced," Brigadier-General Wuyep Rimtip, head of the military taskforce in the western Niger Delta, told Reuters.

He said the military had destroyed more than 100 illegal bunkering locations last month alone. As a result, he had received death threats by text message from aggrieved oil thieves asking how they were supposed to earn a living.

In the most recent raid on Friday, a military patrol recovered four hidden barges loaded with stolen crude and petroleum products following a firefight with gunmen.

The armed forces have been using gunboats and helicopters to patrol the waterways in recent weeks, trying to flush out criminal gangs whose camps -- tucked away among narrow creeks -- are virtually invisible from the air.

FUNDING FOR ARMS

Unrest in the Niger Delta has cut the OPEC member's oil output by around a fifth since early 2006, largely as a result of a campaign of pipeline bombings by the main militant group, the Movement for the Emancipation of the Niger Delta (MEND).

MEND carried out six straight days of attacks on oil installations last month, but the violence was largely limited to Rivers state in the eastern Delta. The group has since declared a ceasefire after an appeal by elders.

The militants say they are fighting for greater development for impoverished villagers, who have seen their land polluted by five decades of oil extraction. But the military says the violence is fuelled by the fight for control of bunkering.

"There is a connection between militancy and illegal bunkering. It is their main source of sustenance," Rimtip said.

"They use the proceeds from the sale of stolen petroleum products, whether refined or crude, to procure arms and take care of their needs," he said.

Bunkering is part of a network of highly organised crime which can often involve collusion between mafia-like gangs, local government officials, international shipping agents and members of the armed forces, security experts say.

Thieves drill into pipelines or hijack barges loaded with oil, often using militant attacks as cover, before shipping the spoils out of Nigeria to be sold on the international market.

President Umaru Yar'Adua called at a summit of leaders from the Group of Eight rich nations in July for a co-ordinated global clampdown on the theft and smuggling of crude oil.

He said the trade should be treated in a similar way to "blood diamonds" -- gems sourced from war-torn countries.

(For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/ ) (Writing by Nick Tattersall; Editing by Matthew Tostevin)

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