Could Libya’s massive oil shutdown last for months?

Each episode of the late 70s/early 80s cult soap opera “Soap” began by recounting a bizarre series of events, followed by the phrase, “Confused? After this week’s episode, you won’t be.”

The events behind every oil shutdown in Libya since the ouster of longtime leader Muammar Gaddafi in 2011 make the introductions to ‘Soap’ crystal clear.

The reasons that led to the recent closure of the country’s oil fields are no different. Given its dazzling complexity, it may take some time before the current standoff between the main parties involved is resolved.

It is pertinent to note at this point that before Gaddafi was deposed as leader, Libya could easily produce about 1.65 million barrels per day (bpd) of mainly high-quality light, sweet crude oil. Production at that time was also on an upward trend, from about 1.4 million bpd in 2000.

Although this production level was well below the peak levels of more than 3 million barrels per day reached in the late 1960s, the National Oil Corporation (NOC) had plans in place before 2011 to implement enhanced oil recovery (EOR) techniques to increase crude oil production from maturing oil fields.

There was also considerable interest from a large number of international oil companies (IOCs) to get involved in expanding production from existing fields and exploring new opportunities in oil and gas. After all, Libya still has 48 billion barrels of proven crude oil reserves – the largest in Africa.

After Gaddafi was forced out of the top job, the power vacuum that emerged sucked in multiple factions fighting over the bulk of this vast oil wealth. By 2020, two broad power blocs had emerged – one was the rebel Libyan National Army (LNA) commanded by General Khalifa Haftar, and the other were elements of the then United Nations (UN)-recognized Government of National Accord (GNA).

A near-total blockade of Libya’s oil fields had lasted from January 18 to September 18 of that year (conservatively costing the country $9.8 billion in lost oil revenues) before an agreement was reached between the two sides to end the dispute. Crucially, however, Haftar made it abundantly clear that this agreement would be conditional on certain measures that would more fairly distribute revenues from oil sales between the main warring parties.

Shortly after Haftar’s demand, then-GNA Deputy Prime Minister Ahmed Maiteeq said an agreement in principle had been reached to set up a commission to determine how oil revenues would be distributed before the end of 2020.

To address the fact that the GNA effectively influenced the NOC and, by extension, the Central Bank of Libya (where the revenues are physically held), the committee was also tasked with “drawing up a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will oblige the Central Bank (in 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 legal source who works closely with the presidential administration on energy issues, with whom he has spoken OliePrijs.com At the time, the NOC was working on “alternative banking arrangements for the oil revenues that may or may not involve the participation in the final distribution of more players (than Haftar and his LNA, and the UN-recognized elements of the GNA).”

The details of this were never worked out, however, and no replacement ideas have emerged since then. As a result, Libya has been the subject of repeated closures of some or all of its oil fields, for various spurious reasons that simply mask attempts to seize assets by various warring parties. In the run-up to the current major closure, for example, a smaller closure began in the first half of August that was apparently triggered by the capture of Saddam Haftar, the son of General Haftar.

The younger Haftar was briefly detained at Naples airport after his name surfaced 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 weapons.

Last September, General Haftar traveled to Moscow to talk with Russian President Vladimir Putin, whose Wagner mercenaries are supporting LNA forces in Libya.

In early July, Italian authorities also seized two Chinese military drones destined for Libya and disguised as wind turbine equipment.

A month later, the current closure is the result of attempts to remove 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 major 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 separate Government of National Stability (GNS) – based in Benghazi in the east and dominated by Gen. Haftar’s followers – said it would declare “force majeure” on all oil fields, terminals and facilities in the oil circle, south and southeast, effectively shutting down the country’s oil production.

The next day, several key Libyan oil fields were offline, including the 70,000 bpd El-Feel field. Meanwhile, the Sirte and Waha oil companies both said in statements that they were gradually reducing their combined output of about 200,000 bpd of oil.

By the end of last week, Libya’s crude output had fallen by more than 60 percent from the average 1.15 million bpd it had been pumping in July. The last time such a shutdown was so rigorously enforced by the same forces as this one was the 2020 shutdown, which lasted eight months.