Libya Faces Looming Crisis As Oil Output Slows To Trickle

September 12, 2013

So it seemed Libya’s oil industry had survived intact and wouldn’t be roiling international markets. As recently as April, the country was producing 1.4 million barrels per day, just a bit off its pre-war levels.

But now the oil sector is crippled by strikes; its crude exports are down to a trickle; and the country is running out of money to pay civil servants.

An Unexpected Hit

Libyan oil exports have plunged because of strikes at oil terminals on the northeastern coast. Supply has also been disrupted in the country’s southern fields.

Worker strikes in Africa’s largest oil producer first began in May, but that labor dispute was quickly resolved.

“It came out of nowhere,” says Stuart Elliott, a senior managing editor at Platts, a news organization that covers the global energy sector.

Then in mid-July, armed guards took over the oil terminals in the coastal northeast that they were supposed to protect. The bulk of Libya’s oil is produced in the east. The oil is carried by pipelines to these terminals on the Mediterranean coast and are then exported. But the government no longer had control of the terminals, so production fell, as did exports.

At the same time, tribespeople took control of two fields in the country’s south. This meant little oil could flow to the terminals on the nation’s northwest coast.

The demands of the strikers and the tribespeople range from more pay, to more jobs to protests over corruption.

“These are two separate groups of people. No one knows who’s in charge of what,” Elliott says. “It’s a double whammy.”

The protests have had their effect: In early September, Libya’s output fell to just 150,000 barrels per day, though it has the capacity to produce 1.6 million barrels per day. Exports fell to 80,000 barrels per day.

The challenges in the oil sector are in many ways reflective of the challenges facing Libya. The heady days of post-Gadhafi optimism have given way to the troubles that have accompanied political developments across many Arab Spring countries. Libya’s central government, army and police are weak; armed militias are influential in large parts of the country.

“It’s really hurt the country,” says Frederic Wehrey, a former U.S. military attaché in Libya who is now a senior associate at the Carnegie Endowment for International Peace.

He says he is worried because the militias are paid by the government, but with the oil money, which accounts for 60 percent of gross domestic product. With oil revenue on the decline, he says, “it’s hard to say what will happen.”

Libya’s finance minister says the country is losing $130 million a day because of the disruption, but he adds there’s enough money to pay salaries at least until the end of the year.

Impact On World Markets

Oil prices spiked last month amid news of the Libyan protests, but have fallen since then, partly offset by increased production from fellow OPEC member Saudi Arabia.

“The market can cope without Libyan oil,” Platts’ Elliott says, but he points out that when Libyan production was halted during the civil war that toppled Gadhafi, Western governments released emergency oil stocks to balance the market.

The implications for Libya are more severe: Customers could start looking elsewhere for crude.

“You can’t rely on Libya in the short-term and even in the medium-term,” Elliott says. “There are no guarantees it won’t be shut down again.”

In a bid to end the disruption, Prime Minister Ali Zeidan hinted this week at military action — a move that could deepen divisions in a country already split along tribal and regional lines.

Elliott says that could only make matters worse.

“For Libya,” he says, “it’s looking pretty bleak.”

Western Countries Offer Assistance

The Carnegie Endowment’s Wehrey says there is a “bright light” despite the seeming doom and gloom.

“The situation has spurred the U.S. and other Western governments to play more of a role in the security situation,” he says.

Some NATO members have agreed to train a Libyan military force; the U.S. says it’s committed to training Libyan soldiers.

Wehrey also say that while the unrest could worsen, Libya won’t likely slide into civil war.

“The saving grace is that there is a balance of weakness between all these groups,” he says. “No one group dominates the others — and there’s a tenuous need for interdependence.”


Categories: Africa, Economics, Libya

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