Econostrum | Economic News in the Mediterranean

Libya's political crisis spills over into oil production

Written by Frédéric Dubessy on Thursday, April 21st 2022 à 11:00 | Read 325 times

The political dispute between Libya's two rival prime ministers is now impinging on the country's economy itself because of the blockage of oil infrastructure, which accounts for 97% of state revenues.

Libya's oil exports are at a standstill (photo: DR)
Libya's oil exports are at a standstill (photo: DR)
LIBYA. The political crisis in Libya, with two rival governments in power, is now having an impact on oil production. On a trip to Tunis, Fathi Bachagha, Prime Minister appointed by the Tobruk-based parliament, was unable to reach his country. He was blocked at the Tunisian border by the followers of the other Prime Minister Abdel Hamid Dbeibah. Appointed in March 2021 by the Libyan Political Dialogue Forum to ensure the interim and prepare national elections (presidential and legislative) which never took place after two postponements, he still refuses to leave his post.

In retaliation, Fathi Bachagha's supporters have decided to brandish the weapon of the oil manna again, as in the two civil wars. And when fields and terminals become hostages of Libyan politics, it is never a good sign. Resources generated by hydrocarbons contributed to 95% of Libya's GDP in 2021 with revenues reaching 103.4 billion Libyan dinars ($22.39 billion - €19.90 billion) according to the Central Bank of Libya (CBL).

Groups from the south and east of the country, citing political demands, have cut the valves in a first field, that of El Feel (South), Sunday 17 April 2022, followed the same day and the following days by those of the east: Abu Al-Tifl, al-Intissar, al-Nakhla, al-Sharara, Zouetina, al-Sarrir and Al Khaleej. As well as the North-West with Mellitah. They intend by these acts to push the international community to recognise Fathi Bachagha as Prime Minister while it continues to support Abdel Hamid Dbeibah. These groups are also demanding an "equitable distribution" of hydrocarbon revenues.

Fathi Bachagha supports them and has said he condemns "the waste of public money and the exploitation of Libya's wealth for the benefit of an outlawed government."

Oil production cut by half

According to the NOC (National Oil Corporation), "Libya is currently losing more than 550,000 barrels per day of oil production due to blockades of the main export fields and terminals". This is almost half of its daily production equivalent to 1.2 million barrels per day.

With 315,000 barrels per day produced, the Al-Charara field (900 km south of Tripoli) is the main supplier of the Zaouia refinery, located in the east of the country, which supplies the local market with fuel. Al-Charara is operated by Akakus, a joint venture between the NOC, Spain's Repsol, France's TotalEnergies, Austria's OMV and Norway's Statoil. The Zouetina oil terminal, which also had to stop its activities, exports a quarter of Libya's oil.

The National Hydrocarbons Company now says it is unable to meet its contractual commitments and is forced to declare a "state of force majeure" at the Brega oil terminal (east), which exports 60,000 barrels per day. This status allows it to be exonerated from its responsibility in the event of non-compliance with oil delivery contracts.

Fear of a new partition of the country

Given the current situation, resulting from the war in Ukraine and Western sanctions against Russia, this could not have come at a worse time. "At a time when oil prices are rising significantly due to the increase in global demand for oil, which is being exploited by all producing countries to increase their oil revenues, Libyan crude is being subjected to a wave of illegal shutdowns," laments an NOC statement. The same text insists that it "will result in serious damage to wells, reservoirs and surface equipment in the oil sector, as well as the loss of opportunities for the state treasury at prices that may not be repeated for decades."

The message of its president, Mustafa Sanalla, who has been warning for years about the importance of "neutralising" the oil sector and avoiding political conflict in the country, has not been heard. The institution now fears a return to the division between the West and the East and thus increased instability. This threat was also echoed by the UN in mid-March 2022. The NOC also wants to avoid at all costs a partition of its company.

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