Libya's oil and the war to control it since dictator Gaddafi’s demise explained

A member of the Libyan National Army carries his weapon during clashes to recover oil ports in Ras Lanuf. (File photo: Reuters)

Libya has been in a long civil war for the best part of a decade, following the toppling of former Libyan dictator Colonel Muammar Gaddafi in 2011.

There are a significant number of internal factions and external powers involved in the fighting. Turkey, for instance, has been sending mercenaries and weapons daily to the Tripoli-based Government of National Accord (GNA). The motives for Turkish interference in Libya are unclear, although experts have suggested that it may be a move to secure the country’s rich hydrocarbon assets.

The struggle to control these oil supplies has been at the center of the country’s unrest since 2011. Libya is home to 48.4 billion barrels of proven oil reserves – Africa’s largest proven reserves – making the country an important player in global hydrocarbon markets.

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What happens in Libya therefore has a significant impact on world oil markets – and affects other countries across the world.

“Libyan production is important globally as it roughly can amount for more than 1 percent of the world’s output when at full scale. A range of 1-1.3 million barrels per day (bpd) is significant in today’s price environment and having it back on production mode can heavily weight on prices and balances,” said Rystad Energy analyst Nishant Bhushan.

The civil war, however, has pummeled the Libyan oil industry, with state oil producer National Oil Corporation (NOC) reporting losses in the billions of dollars as oil assets were blocked by General Khalifa Haftar’s Libyan National Army (LNA) earlier this year.

The LNA, supported by an international consortium including Russia, France, the UAE, and Egypt, closed ports earlier this year to deny a key source of revenue to the GNA, which had been using funds from oil exploitation to purchase weapons.

The closures also meant a dramatic decline in Libyan oil production.

“Rystad Energy currently estimates that civil unrest and port closures have caused Libyan oil production to shrink to 150,000-100,000 bpd since February 2020, compared to pre-blockade production levels of nearly 1.3 million bpd,” Bhushan added.

The countries production has likely fallen further, Bhushan said, down to around 60-70,000 bpd.

The damage caused by the war has also left Libya’s oil infrastructure in tatters, with its capacity in to hold crude oil in storage dropping from over 25 million barrels before 2011 to around a paltry 6 to 7 million barrels.

This has compounded the issue of blockades as it leads to a costly complete shutdown in production every time an oil terminal or port comes under attack, Bhushan explained.

The eastern Mediterranean

Off Libya’s coast is the eastern Mediterranean sea, a region which has slowly emerged as an unlikely natural gas hotspot.

Countries with costal access have all begun building infrastructure to develop the massive gas deposits found. Even countries that have a history of conflict and tension have begun rethinking diplomatic ties and put old hostilities aside to develop the gas reserves.

However, a deal signed between Turkey, which has been vocal in its ambition to become a natural gas hub, and the GNA disrupted over eastern Mediterranean countries’ plans to develop the gas.

Just over a month prior to an announcement by Turkish president Erdogan that he would send troops to support the GNA, GNA Prime Minister Fayez al-Sarraj signed the maritime deal, handing 200 miles of eastern Mediterranean sea over to Ankara for gas exploration.

Mahmoud AlAun, a Libyan economic analyst and former director of Malita Oil Company, told Al Arabiya on Monday that close examination of official Turkish statements on Libya reveals the country’s true motives.

The GNA now appears unable to reject any of Turkey’s offers for military and political support, he said.

Furthermore, Turkey is moving to get the largest possible stake it can in reconstruction projects, trade deals, and, crucially, the management of Libya’s vast oil wells.

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Last Update: Wednesday, 24 June 2020 KSA 16:46 - GMT 13:46
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