Could Libya’s Huge Oil Shutdown Last For Months?

Every episode of the late 1970s/early 1980s soap opera series “Soap” began with an account of a bizarre series of events, followed by the phrase “Confused? You won’t be after this week’s episode.’ The events behind every oil stoppage in Libya that has occurred since longtime leader Muammar Gaddafi was ousted in 2011 make the introduction of “Soap” seem crystal clear. The reasons behind the latest shutdowns of the country’s oil fields are no different, and given their staggering complexity, it may be a long time before the current conflict between the main actors involved is resolved.

It is pertinent to note at this point that before Gaddafi was ousted as leader, Libya was easily able to produce about 1.65 million barrels per day (bpd) of light, sweet, high-quality crude oil. Production was also trending upward at that time, from about 1.4 million bpd in 2000. Although this production level was well below the peak levels of more than 3 million bpd reached in the late 1960s, The National Oil Corporation (NOC) had plans in place prior to 2011 to implement enhanced oil recovery (EOR) techniques to increase crude oil production in mature oil fields. There has also been a lot of interest from a large number of international oil companies (IOCs) to be involved in expanding production on existing fields and exploring new oil and gas opportunities. After all, Libya still has 48 billion barrels of proven crude oil reserves – the largest in Africa.

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Following Gaddafi’s forced ouster from the top job, the power vacuum created absorbed several factions warring for the bulk of this vast oil wealth. By 2020, two major power blocs had emerged – one being the rebel Libyan National Army (LNA), commanded by General Khalifa Haftar, and the other being elements of the Government of National Accord (GNA), then recognized by the United Nations (UN). A near-total shutdown of Libya’s oil-producing fields took place between January 18 and September 18 of that year (conservatively estimated to have cost the country $9.8 billion in lost oil revenue) before a agreement between the two parties to end the dispute. . Crucially, however, Haftar has made it abundantly clear that this deal will depend on taking steps to more fairly distribute revenue from oil sales among the main warring factions. Very shortly after this request by Haftar, the then Deputy Prime Minister of the GNA, Ahmed Maiteeq, said that an agreement in principle had been reached to establish a commission to determine by the end of 2020 how those oil revenues will be dispersed .

To address the fact that the GNA was effectively in control of the NOC and by extension the Central Bank of Libya (where the revenues are physically held), the commission was also tasked with “preparing a unified budget that meets the needs of each . party … and the reconciliation of any dispute regarding budget allocations … and shall request the Central Bank (of Tripoli) to cover the monthly or quarterly payments approved in the budget without any delay and as soon as the joint technical committee requests the transfer.” According to a Washington-based legal source who works closely with the Presidential Administration on energy matters OilPrice.com at the time, the NOC had been working on “alternative banking arrangements for oil revenues that may or may not involve contributing to the eventual dispersal of multiple players (other than Haftar and his LNA, and elements of the UN-recognized GNA). “

However, the details of this were never worked out and no replacement ideas have surfaced since. As a result, Libya has been subjected to repeated shutdowns of some or all of its oil fields, for various spurious reasons that simply cover up attempts to grab assets by the various factions involved in the conflict. In the run-up to the current major shutdown, for example, a smaller one began in the first half of August, apparently caused by the arrest of Saddam Haftar, the son of General Haftar. The young Haftar was briefly detained at Naples airport after his name appeared in a European Union database on an arrest warrant issued in Spain for alleged arms smuggling. This followed comments by former UN special envoy to Libya, Abdoulaye Bathily, that the country was becoming a mafia state dominated by gangs involved in smuggling operations, particularly for arms. Indeed, last September, General Haftar traveled to Moscow for talks with Russian President Vladimir Putin, whose Wagner mercenaries provide support to LNA forces in Libya. Also in early July, Italian authorities seized two Chinese-made military drones that were destined for Libya and disguised as wind turbine equipment.

One month on, the current shutdown stems from efforts to oust the current Governor of the Central Bank of Libya, Sadiq al-Kabir. General Haftar and his LNA forces in the east of the country (where most of Libya’s large oil fields are located) oppose al-Kabir’s removal. Prime Minister Abdul Hamid Dbeibah and his internationally recognized Government of National Unity (GNU), based in the western Libyan capital Tripoli, want al-Kabir gone. In a televised broadcast on August 26, the breakaway Government of National Stability (GNS) – based in Benghazi in the east and dominated by General Haftar’s followers – said a “force majeure” would apply to all oil fields, terminals and facilities. in the oil crescent, south and southeast, effectively halting the country’s oil production. The next day, several key Libyan oil fields were offline, including the 70,000 bpd El-Feel field. Meanwhile, oil companies Sirte and Waha both said in statements that they are gradually reducing their joint production of about 200,000 bpd of oil. At the end of last week, Libya’s crude output fell more than 60 percent from the average of 1.15 million bpd it had pumped in July. The last time such a shutdown was enforced as rigorously by the same forces as it is now was the 2020 shutdown that lasted eight months.

By Simon Watkins for Oilprice.com

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