The market could be misinterpreting the Libyan oil blockade

Claims that Libya’s rival governments will soon resolve their differences and completely lift the blockade on oil exports imposed by the Haftar clan in the country’s east seem hard to believe. Two weeks ago we saw Libya’s oil exports drop by over 80% (week-on-week) and the NOC canceled cargoes. Over the past week, exports have risen to around 550,000 bpd, from the 1-1.2 million bpd Libya was exporting before the August 26 blockade. Kpler data on Thursday put Libya’s crude exports so far for September at 410,000 bpd, compared with about 1 million bpd before the blockades. Markets are most likely misreading this as “conflict resolution”, when the reality is that more oil money is being diverted to Benghazi in the run-up to a final showdown with Tripoli.

On Thursday, Libya’s oil and gas minister tried to distract everyone by announcing that the country plans to double its natural gas production to 4 billion cubic meters in the next 4-5 years. It’s a bold statement for a country that has already entered the cold phase of its next civil war.

In Tripoli, the “western government”, led by the Dbeibah clan, is digging in and securing the capital – at least, they’re trying to. They claimed this week to have secured full interior ministry control over 64 government offices in two central municipalities. What they mean by this is that they have struck a deal with their various militia supporters in these headquarters to hand over control to the interior ministry for a united front against the Haftar clan should they try to capture the city again.

The Haftar clan is also busy and still making money from oil through a private oil company based in Benghazi (Arkenu Oil) that is allowed to bypass the blockade and export to international markets. Argus media reported that Arkenu is scheduled to export 1 million barrels of crude oil from the port of Marsa el-Hariga to Trieste, Italy, chartered by Turkish trader BGN. This in itself is interesting, as Turkey has traditionally supported the Western government in Tripoli and was significantly responsible for the failure of Haftar’s latest attempt to take Tripoli. However, Turkish traders are making export deals with Haftar despite the blockade. That would mean the NOC is not in control in any way at this point, and international companies operating in Libya will pay particular attention to the exports they pass through. Observers will also be careful where that money goes. According to Argus, Arkenu’s oil sales go into the company’s foreign bank accounts, bypassing the Libyan state. In other words, Haftar bypasses the Central Bank and allows exports to generate revenue that can be directed to Benghazi. Therefore, the increase in exports does not necessarily mean that talks to mediate the crisis are going nowhere.