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Did Libya's Oil Bubble Burst Already?

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Posted on Wed, 28 March 2012 23:32 | 0

Libyan crude oil production has witnessed a notable uptick since major combat operations ended last year. In mid-2011, at the height of the international conflict, it looked as if the loss of Libyan crude oil could unravel any hopes of a global economic recovery. Crude oil prices have in general increased during the first four months of 2012, though some optimism was expressed because of Libya's return. With Tripoli headed for its first free election in 40 years, however, nothing is certain regarding the former OPEC giant.

OPEC said in its monthly report for March that crude oil production was inching closer to pre-war levels of around 1.6 million barrels per day. Italian energy company Eni said that not only was oil production about 20 percent shy of the 1.6 million bpd mark but offshore exploration had resumed for the first time since Moammar Gadhafi's regime collapsed last year.

Most of Libyan oil production was shut down because of last year's conflict. From January to February, production jumped by a whopping 25 percent. But things are rarely as good as they seem in the Middle East. The energy sector in Iraq, a few elections into a war-won democracy, is more or less handicapped by internal political rivalries and Libya appears to be no different.

It's emerging democracies, not dictatorships, that are often the most violent of states as formerly repressed actors jockey for power. Leftovers from the civil war in Libya last year are in part to blame for the military coup reported in Mali in mid-March. At home, tribal feuds and separatist ambitions could make the Iraq analogies even more relevant. More than a dozen people were killed in clashes this week, roughly one year after NATO operations against Gadhafi's regime began.

Most analysts and world leaders had expressed surprise at the pace at which Libya's oil production was rebounding.  Analysts at this year's energy conference in Houston, however, warned not to "expect much" from Libya. The transitional government, meanwhile, has formed a committee looking into allegations of corruption in the country's oil industry before Gadhafi's regime collapsed and in June, the country is expected to hold its first round of elections in a contest pitting Islamists against secular parties. But if regional models in Egypt prove anything, it's that democracies in countries accustomed to dictatorships rarely lead to anything resembling a national consensus right away. Opposition is unifying, but that consensus erodes once the target of dissent is removed.

Tripoli said it might take a closer look at its existing agreements with international oil companies, which presumably includes Italy's Eni. OPEC in its March report warned that if interim leaders in post-revolutionary countries can't maintain political order, any chance of economic recovery is in danger. With the next monthly report due out in a few short weeks, don't be surprised if OPEC is less optimistic about the prospects for Libyan oil.

By. Daniel J. Graeber of Oilprice.com


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