Oil prices rise on reports of production shutdown in Libya

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Oil prices rose to their highest level in nearly two weeks on Monday after reports that Libyan production had been halted due to political wrangling between its two governments.

Brent crude futures rose 2.5 percent to $80.97 a barrel by midday in New York, while the U.S. benchmark West Texas Intermediate gained nearly 3 percent to 77 .04 dollars.

Tensions were also high in the Middle East. The Israeli military launched a wave of airstrikes in southern Lebanon on Sunday, sparking fears of an escalation in regional tensions, but news from Libya sent oil prices sharply higher, analysts said.

“In recent weeks, oil prices have played down geopolitical risks as there has been no major supply disruption. That could change,” said Phil Flynn of Price Futures Group.

Libya exports about 1 million barrels a day of crude oil, according to OPEC figures, with most of the production in the east of the country.

The oil-exporting North African country has been in chaos since the 2011 NATO-backed uprising that toppled Muammer Gaddafi.

On Monday, the country’s eastern government, which is not recognized internationally, said it would halt all production and exports, in what analysts say is part of a widening power struggle between the two rival factions of regarding the position of the central bank governor.

Abdul Hamid Dbeibeh, prime minister of the Tripoli government in the west, sought to replace Sadiq al-Kabir, governor of Libya’s Central Bank. The central bank holds billions of dollars in oil revenue, which is Libya’s only source of income.

Kabir, who is backed by the eastern parliament, has refused to resign, although a delegation from Dbeibeh’s government is said to have taken over the bank’s headquarters. He also has the support of Khalifa Haftar, the warlord who controls eastern Libya.

“The oil shutdown is a negotiating tactic,” said Wolfram Lacher, a Libya specialist at the German Institute for International and Security Affairs. “Everybody will now negotiate for CBL leadership.”

He said it was “clear by now” that Dbeibeh’s attempt to replace Kabir and the CBL board “didn’t work” and that although the government delegation had physical control of the bank’s headquarters, it was unable to run it.

“To do this would require recognition by foreign partners of the new leadership as legitimate, and that depends on domestic acceptance of this change,” he said. “The move is seen as completely illegal.”

Repeated attempts by the UN to hold elections and unite the country under one government have failed. According to UN Security Council resolutions, only the central bank in Tripoli is authorized to control and pay oil revenues. Kabir has been in his position since 2012.