Could Libya’s massive oil shutdown last for months?

Every episode of the late 70s/early 80s cult soap opera “Soap” began by recounting a bizarre series of events, followed by the line, “Confused? You won’t be after this week’s episode.” The events behind every oil shutdown in Libya since the ouster of longtime leader Muammar Gaddafi in 2011 make “Soap’s” introductions crystal clear. The reasons leading up to the latest shutdowns of the country’s oil fields are no different, and given their dazzling complexity, the current standoff between key players may be some time away from being resolved.

It is pertinent to note at this point that before Gaddafi was deposed as leader, Libya could easily produce around 1.65 million barrels per day (bpd) of mainly high-quality light, sweet crude oil. Production was also on an upward trend at that time, from around 1.4 million bpd in 2000. Although this output level was well below the peak levels of over 3 million bpd reached in the late 1960s, prior to 2011 the National Oil Corporation (NOC) had plans to roll out enhanced oil recovery (EOR) techniques to increase crude oil production from maturing oil fields. There was also significant interest from a number of international oil companies (IOCs) to get involved in expanding production from existing fields and exploring new oil and gas opportunities. After all, Libya still has 48 billion barrels of proven crude oil reserves – the largest in Africa.

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Following Gaddafi’s forced ouster from power, the power vacuum 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 US$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 very clear that this agreement would be contingent on certain measures being taken to more fairly distribute revenues from oil sales between the main warring factions. 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 legal source in Washington who works closely with the presidential administration on energy affairs, where 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. As a result, Libya has repeatedly been the victim of closures of some or all of its oil fields, for various spurious reasons that simply disguise 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, apparently triggered by the arrest of Saddam Haftar, the son of General Haftar. The younger Haftar had been briefly detained at Naples airport after his name appeared on a European Union database for an arrest warrant issued in Spain for alleged arms smuggling. This followed comments by former UN Special Envoy for Libya Abdoulaye Bathily that the country was becoming a mafia state dominated by gangs involved in smuggling operations, particularly for arms. Last September, General Haftar did indeed travel to Moscow for talks 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 that were disguised as wind turbine equipment.

A month later, the current shutdown 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 capital Tripoli in western Libya, want al-Kabir gone. In a televised statement on August 26, the separate Government of National Stability (GNS) – based in Benghazi in the east and dominated by General 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. By the next day, several major Libyan oil fields were offline, including the 70,000 bpd El-Feel field. Meanwhile, oil majors Sirte and Waha said in statements that they were gradually cutting 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.

By Simon Watkins for Oilprice.com

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