Libya’s fragile peace poses major threat to oil market

The economic pain for many countries being caused by still-high crude oil (and gas) prices may be exacerbated by another extensive series of blockades of key oil facilities in Libya.

This follows the very recent failed attempt by Fathi Bashagha – appointed Prime Minister of the ‘alternative government’ in the east of the country three months ago – to take over power in Tripoli. Bashagha, and the Nawasi Brigade militia who accompanied him, were eventually driven out of the city by various other of many factions fighting there. This occurred amid the ongoing refusal of the Government of National Unity’s (GNU) Prime Minister, Abdul Hamid Dbeibah, to hand over power until such a time as a properly elected government is voted into office by the people of Libya.

Bashagha is unlikely to stop his current attempts to seize power, given the distinct possibility that talks held in Egypt at the behest of U.N. envoy Stephanie Williams to reach an agreement on a new constitutional framework and a timeline for elections might see him sidelined.

Since the removal of long-time leader, Muammar Gaddafi, in 2011, the multi-factional civil conflict that has ensued found genuine relief only in the September 2020 agreement. However, a key part of this deal was an in-principle agreement to look into establishing a commission not only to determine how oil revenues across Libya are distributed but also to consider the implementation of a number of measures designed to stabilize the country’s perilous financial position.

Both before this 2020 agreement and after it began to break down, Libya’s oil sector has been subject to various-scale blockades of its key oil facilities, and even now around half or slightly more of Libya’s oil production is offline, according to various estimates. Prior to this, following the National Oil Company (NOC) declaring a legal state of ‘force majeure’ because “it is impossible to implement its commitments towards the oil market,” Libyan crude oil production had seen an extended loss of around 550,000 bpd of its oil production as a result of blockades on major fields and export terminals.

Before Gaddafi’s removal in 2011, Libya had been easily able to produce around 1.65 million bpd of mostly high-quality light, sweet crude oil. Production had additionally been on a rising production trajectory, up from about 1.4 million bpd in 2000, albeit well below the peak levels of more than 3 million bpd achieved in the late 1960s. Even up until the most recent major production blockades of its western fields and eastern ports ended, Libya had been producing around 1.2 million bpd. From that level, there still appeared scope to increase this to the 2.1 million bpd targeted by Libya’s Oil Ministry, and to hit the informal interim targets of 1.45 million bpd by the end of 2022, and 1.6 million bpd by the end of 2023.

Earlier this year, the Oil Ministry had begun discussing exploration and development options with several international oil companies, with an agreement of sorts being struck with TotalEnergies. The second deal was the approval by Libya’s GNU of the sale of the 8.16 percent stake in the country’s giant Waha oil concessions held by the U.S.’s Hess Corporation to the remaining stakeholders – again, TotalEnergies (with a 16.3 percent share), and also ConocoPhillips (also 16.3 percent), each of which was offered first refusal on half of Hess’s stake.


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