Geopolitics

Libyan Political Deadlock : Bad Business for its Oil Industry

November 8, 2017

Ingvild E. Rygg

 

Libya is currently spiralling downwards leaving Africa’s largest crude oil reserve to take a major hit. The national powerhouse being divided in three governments all fighting for international recognition and national legitimacy. After years of unreliable oil production since the revolution in 2011 and Gaddafi’s fall, Libya’s oil industry is unlikely to be rebuilt in the near future. The national oil industry will not prosper as long as it is on the front line in a violent battle between political actors and armed groups. Though worth noting; the political deadlock is unlikely to be resolved without the largely oil-based economy back on its feet leaving not only a political vacuum but as extended to the economic sector.

 

Before the 2011 uprising, Libyan socio-economic state was striving.  The country first discovered oil in the late 1950s and started exporting by 1961. Prior to the uprisings in 2011 in which toppled President Muammar Gaddafi, Libya’s oil production reached around 1.6 million barrels a day. The productions collapsed to zero and the country faced a financial crisis post 2011 as the oil exports made up 80% of Libyan GDP. Despite a slight increase in production after the first election in 2012, the production quickly declined as conflict once again erupted in 2014 as militias began fighting for the oil revenues.  

 

The production reached one million barrels per day July this year marking a high in production for four years. As of October 2017, however, the output is at about 660,000 barrels a day according to the state-run National Oil Corporation (NOC). The massive decrease of 35% in production from July to Octob in 3 months is due to an episode on August 19th, when a militia called the Rayayina Patrols Brigade took over facilities and pipelines that shut down the country’s largest oil field, the Sharara field, in addition to the Hamada and El Feel (or Elephant) deposits. Unfortunately, these annexations are not rare and have affected the national oil industry significantly throughout the past years.

 

The current political state is for obvious reasons massively influencing the oil sector.  After several elections and attempts of uniting the nation under one power seat, the nation is currently under three separate political entities, largely separated by geographical location. Two of them are situated in the west of the country, in Tripoli, and the final in the eastern parts of Libya.

The first of the three being the Presidential Council (PC), headed by Prime Minister Fayez al-Sarraj. It was born out of the UN-brokered Libyan Political Agreement (LPA) in December 2015. The PC presides over the Government of National Accord (GNA), which is based in Tripoli and currently internationally recognised as the sole legitimate executive authority.

The second centre of power is the House of Representatives (HoR), situated in the eastern towns of Tobruk and al-Bayda. The HoR is aligned with General Khalifa Haftar, an anti-radical-Islamist leading the Libyan National Army (LNA). Finally, the third centre of power is the Government of National Salvation (GNC), headed by Khalifa Gwhell, located in Tripoli.

 

Gen. Haftar has increased the LNA’s negotiation position in the complex political landscape by securing and controlling oil fields. Amongst other, in September 2016, Haftar took over the “oil crescent”, the Gulf of Sirte, resulting in a 50 % rise of oil exports due to reparations to damaged facilities and stable production conditions – marking a step forward for the Libyan economic state.

 

Alongside the HoR, Haftar has sought to undermine the GNA and rejected the UN brokered processes in the country. Further, the political landscape complicates further with the introduction of the fact that the NOC and Haftar are on opposing sides in the political divide, but that they are nonetheless seemingly working together in oil exports.

Closure of ports, blockades of critical oil and gas infrastructure, damage to facilities due to fighting, and shut-down of pipelines are just some of the consequences of the political uncertainty. Violent battles between various militias have resulted in disruptions in the production and subsequently – a decrease in the amount of oil extracted, processed, and exported. Militias use oil fields as a bargain for advantage, causing pipelines to regularly shut down. Furthermore, fields fully capable of producing oil has been closed simply due to the political unrest. An example of the economic losses caused by the political situation is that the Sharara oil field was closed for two years, just recently reopened in December 2016. This field alone has a production capacity of 330,000 barrels a day, a significant proportion of the overall national production capacity. Simply put, the country’s oil industry is being used as a playing card in a substantial and complicated political game.

 

Security risks concerning the various fractions of power and the potential for violent conflict threaten foreign oil companies from investing in the nation. Although with appropriate preparation and evaluation, foreign oil companies might well take the risk of investing in the country’s oil industry. One such preparation is considering the actors controlling the different oil fields. The infrastructure of the facilities is indeed contingent by the blockades by armed groups. As the political landscape fluctuates, the actors responsible might win or lose power and thus important channels of control on the ground might dissolve.

 

There is arguably no doubt that Libya is, at the moment, stuck in a vicious circle. With three governments currently fighting for legitimacy, Libya’s oil industry is not likely to be rebuilt in the near future as the facilities are being exploited for the yearning of political power.  A divided government is indeed bad business for the Libyan oil industry. At the same time, it is essential to stabilise the economy, an economy highly based on oil, in order to secure a peaceful and consistent political landscape. Aided by Salamé, there are intentions of holding parliamentary elections in the beginning of 2018. However, if the election does not allow all actors to participate, the likelihood of a stable and reliable outcome is minimal. For instance, Gen. Haftar, with his increasing power, must be included and accommodated in the future political talks. With regards to ‘saving Libya from itself’, Mustafa Sanalla, the head of NOC, is arguably correct in saying that Libya’s oil must be protected from its politics. Though as proved –  easier said than done. 

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