Published on November 22, 2014
Libya once held the position of the leading oil exporter in the Arab world, offsetting the power of Western oil giants who had control over the post-war oil and gas exploration. The emergence of Libya pushed oil firms to hand over royalties and control over production as well pricing choices.
Libyan crude accounted for two per cent of oil supplies and played a major role in the downstream energy markets of France, Italy and Spain. This explains why Brent crude surged to $128 when Britain and France commenced Nato’s bombing mission in the midst of an uprising against the Gaddasi regime in April 2011. Saudi Arabia even boosted its oil production in order to avert a supply shock and to recompense for the loss of Libya crude oil.
Never-ending political crises, however, has led to a steep decline in Libyan crude production to 200,000 barrels per day from 1.5 million barrels per day in 2011 after insurgents blockaded Libyan oil ports. Although the oil exports have resumed, Libya currently sells into a sluggish market where Brent is around $80 per barrel. Majority of the oil and gas production firms who left Libya in 2011-12 are reluctant to return. Libya’s export markets in Europe and Asia have moved to Algeria, Iraq, Saudi Arabia and Kuwait. The present oil, appointed by a militia government, is not recognized by the Arab league, the EU, US or the UN.
Libya’s current output touches 800,000 barrels per day, and the country will find it difficult to attract foreign investors. Libya’s largest oilfield, 340 barrels per day Shahara oilfield has been shut down by rival groups. Libya has two rival governments, one in Tobruk and the other in Tripoli. Both these governments are backed oil revenues. The political crisis in the country has weakened the Sahel and has resulted in French military intervention in Mali, the Maghreb and Egypt’s Western Desert.
Despite calls for the UN and EU peacekeeping forces to stabilise Libya, the world is hardly doing anything to reinstate the nation’s sovereign institutions. Libyan light sweet crude was in favoured by refineries in Italy, Spain and France as the transportation costs across the Mediterranean were lower than from that of the Gulf of Guinea or the Gulf ports. However, Libya is short on resources because of the Gaddafi regime.
The Gaddafi regime, nevertheless, managed to ensure that Libya produced 1.6 million barrels per day and guaranteed security for oil companies. Foreign oil firms have left Libya because of the lack of security and resources. Energy accounts for 60 per cent of Libya’s GDP and lack of investment will lead to major economic issues.
