Libya’s war-torn oil industry is being held hostage

Libya’s oil industry, the lifeblood of its economy, has once again been held hostage by a political schism, as the re-emergence of parallel administrations has forced many hydrocarbon plants to close.

This week, the National Oil Company (NOC) has declared a halt to operations at two major oil export terminals and several oil fields, halving production to about 600,000 barrels per day in a country on Africa’s largest oil reserves.

The latest in a series of political rifts since the fall of Moammar Gaddafi in 2011 opened in February, when the parliament in eastern Libya elected a new prime minister, former Interior Minister Fathi Bashagha.

It represented a direct challenge to the unity government based in Tripoli and painstakingly joined through UN-led talks a little more than a year ago.

The prime minister who was installed in the process, Abdul Hamid Mohammed Dbeibah, has said he will only hand over power to an elected administration, but votes scheduled for December have been shelved indefinitely.

In line with the eastern camp, the groups disrupting the oil facilities want power transferred to Bashagha.

He is in turn supported by Khalifa Haftar, the eastern military strong man who led a failed attempt to conquer Tripoli 2019-20 and who has control over several oil installations.

“The closure of oil fields is a direct manifestation of the acute political crisis that is currently taking place between the pro-Haftar camp and the pro-Dbeibah camp,” said Jalel Harchaoui, a Libyan researcher.

Haftar’s and his allies’ top commanders have “deliberately staged an oil blockade with the aim of increasing Western pressure on Dbeibah” to quit, he said.

Russia connection

Libya’s oil maneuvers come as oil and gas prices have risen due to Russia’s hydrocarbon-rich invasion of Ukraine, which has made European governments particularly anxious to diversify their supplies and desperate for lower costs.

The shutdowns in Libya put further pressure on global supply and constitute a further source of upward price pressure – and Russia is a prominent place among Haftar’s military supporters.

Hamish Kinnear, an analyst at Verisk Maplecroft, sees Haftar’s move as a “turbulent method of exerting economic pressure” on Dbeibah’s government, in an attempt to force its resignation.

But Dbeibah on Tuesday reiterated his consistent line that he will only step aside for a elected successor.

He also ordered the public prosecutor to initiate an investigation into the oil blockades.

Haftar’s strategy is not new – his forces had previously blocked oil fields in early 2020, but the failure of his offensive against Tripoli months later forced him to end the blockade.

That episode resulted in about $ 10 billion in losses for Libya’s oil industry.

‘Spark’

The “spark” that sparked Libya’s latest oil crisis was an “agreement reached between the NOC and the Dbeibah government on April 13,” Harchaoui said.

That agreement involved the transfer of “$ 8 billion” of oil revenues to the Tripoli government’s coffers, he explained.

For the newly emerging parallel government, this means a “deliberate waste of public money”, misguided to whet a narrow political and personal appetite.

NOC made the agreement on the basis that it would “receive emergency funding allocations from the Ministry of Finance for its activities in return,” Kinnear said.

Harchaoui noted that “this exchange of courtesy was considered to have strengthened Dbeibah’s economic viability.”

Consequently, “Haftar and his followers want to suffocate” his government to the point that it collapses into ruin.

On Tuesday, US Ambassador to Libya Richard Norland and a finance minister warned the governor of Libya’s central bank to use oil revenues for “political” purposes, according to the Washington embassy in Tripoli.

With so much attention focused on Ukraine, the risk of a new conflict in Libya seems to be intensifying.

“It is still possible that we will see a peaceful transition,” Harchaoui said.

“But given the speed with which Haftar is losing patience, we are also in a situation that can easily degenerate.”

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