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Questionable Libyan Oil Deal Could Further Escalate Oil War

Libyan Militias

TRIPOLI--Tripoli-based National Oil Corporation of Libya (NOC) chairman Mustafa Sanalla has protested to the U.N. envoy to Libya Martin Kobler over a deal struck with militia strongman and Petrol Facilities Guards (PFG) head Ibrahim Jadran to resume Libyan oil exports through the key terminals of Ras Lanuf, Es Sider and Zueitina.

In a letter obtained by Oilprice.com, Sanalla describes the deal as a big mistake that essentially rewards Jadran for his blockade of Libyan oil exports for three years, which resulted in US$100 billion in losses to the Libyan government.

UN envoy Kobler flew to Ras Lanuf on 21 July to meet with the controversial PFG leader, after which the two announced in a joint press conference that oil exports would now be resumed through the ports.

Immediately after the deal was announced, tribes in control of the inland areas where Libya’s eastern oil fields are located balked, with the eastern Supreme Council moving to distance itself from any deal made with Jadran’s PFG militia.

The Council stated that it fully recognized only the Libyan House of Representatives (HoR) and its military leadership, commanded by General Khalifa Haftar, who is already in control of the key eastern oilfields, including Al-Bahi and Dahra (operated by Waha Oil Co.); Zala, Intisar and Sabah (operated by Zueitina Oil Co.); and the Al-Mabrok field (operated by Total SA), among others.

Sanalla has warned of the negative consequences of the deal with Jadran for the legitimacy of the Presidency Council (PC), which is backed by the UN. The end result is that the PFG, which is basically a militia, will be fully funded and empowered to control Libya’s oil and has won this position by holding the country’s output hostage for three years through the blockade of the export terminals.

The deal cut with Jadran will create further instability in Libya as Sanalla threatens to withdraw his recognition of the Presidency Council. Related: Why Are Oil Producers Rushing To The STACK?

According to Sanalla, the PC should financially assist the legal institution belonging to the NOC rather than financially assisting militias.

“The NOC delivers all oil income to the Central Bank of Libya as its institutions are paid through the Finance Ministry, as any other governmental board,” he noted in the letter.

By making this point, Sanalla was referring in part to the struggle going in with the Arabic Gulf Oil Co (AGOCO)., which is suffering from financial hardship to the point that it may be forced to halt operations entirely at the the Sarir and Masela oilfields. Already there is talk that 100,000 barrels of daily production will be frozen at Sarir due to lack of income from production amid a long-running port blockade.

The media office manager of AGOCO Osama Al-Aribihas told Oilprice.com that the company has held a number of meetings recently to find ways to reduce expenses to a minimum to keep it afloat. In normal circumstances, AGOCO can produce 350,000 barrels per day, exported through the far eastern Hariga port. Related: Is This A Game Changer For The US Oil Industry?

The Hariga port was shut down for several days recently by armed men protesting over unpaid salaries.

Sanalla mentioned this incident in his letter to Kobler as well, warning that many armed factions will now take cue from Jadran’s success in using militia tactics to force a deal with the new government—and Libya has plenty of militias who will certainly be watching closely and making plans to hijack Libya’s oil.

Funding and emboldening militias to liberate Libya’s oil will backfire before those who want their hands on it have time to solidify their control. It didn’t work in the Niger Delta, and it hasn’t worked in Libya since Gaddafi’s overthrow.

By Moutaz Ali for Oilprice.com

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