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Global Risk Insights

Global Risk Insights

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Libyan Oil Production Struggles to Restart

Nearly a month after oilfield strikes cut Libya’s production to just 10% of capacity, the Zintan tribal militia has re-opened a critical pipeline, carrying oil from two major western fields to Mediterranean ports outside of Tripoli. As a result, Libyan oil production has climbed to 263,000 barrels a day from just 100,000 earlier this week. However, production remains far below post-revolution capacity of 1.6 million barrels per day.

The blockades originated in the east as strikers charged Libya’s national oil company with corruption and demanded greater autonomy for the region. The strikes then moved westward. Armed groups previously employed by the government seized the oilfields they were meant to protect, expressing anger at losing their jobs to government-trained personnel and demanding more wages.

The Libyan government has floundered in its attempts to lift the blockades partially because there is no singular grievance or coherent demand by the protesting militias. Oscillating between negotiating and threats of force, Prime Minister Ali Zeidan issued warrants for the arrest of strike leaders and hinted ominously at the possibility of military action. His government also appointed a crisis committee to negotiate with the local governing councils allied with protesting militias. Until a few days ago, neither of these methods appeared effective.

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The blockades have had severe consequences for both the Libyan government and the Libyan people. Oil exports comprise 95% of the country’s export earnings, 75% of government revenues, and 60% of Libya’s GDP. The $130 million lost per day in revenues constrains the government’s ability to provide much-needed services to its citizens. Energy shortages caused by the blockades have cut off some neighbourhoods’ access to electricity and water, negatively affecting citizens’ day-to-day life and their ability to do business.

The international implications of the strikes also do not bode well for Zeidan’s government. As Libya’s main source of revenue, oil is critical for the country’s recovery, economic growth, and lasting stability. Counting on Libya’s vast reserves to draw in investment, Zeidan’s government intends to hold an auction for exploratory rights in the middle of next year. This would be the first such auction since 2011. However, the ongoing protests have made many foreign oil companies nervous enough to downsize operations or withdraw completely.

In an effort to reassure global investors, Deputy Oil Minister Omar al-Shakmak told BBC Africa that “we know a situation like this is not encouraging for investment, but I assure you this is temporary.” The Libyan government is even considering making terms more favourable for foreign investors in order to draw in much needed investment.

The re-opening of the western pipeline following talks between the Zintan militia and Zeidan’s government may ease foreign oil companies’ fears to some extent. However, it is unclear what Zeidan promised the Zintan militia, aside from a general 20% increase in civil servant salaries. It is also unclear whether the re-opening is an indicator that other strikes may soon end, or if it is simply a temporary measure.

Though one blockade has lifted, Libya’s oil supply still remains at one-third of capacity. The inability of the government to end the rest of the protests betrays the weakness of the Libyan armed forces. Some foreign investors doubt that the government forces can provide the same security the local militias had, let alone to oust them. Such doubt exists even within Zeidan’s cabinet. Interior Minister Mohammed al-Sheikh stepped down last month, accusing Zeidan of relying on tribal support rather than attempting to build a national army and police force and criticizing his failure to address the widespread violence. Significantly, reports out of Libya indicate that Zeidan was recently captured and held at the Interior Ministry for several hours, ostensibly by militia groups peripherally attached to the government. This is indicative of the fluidity of the circles of power in Libya, and the inherent instability of Zeidan’s own position.

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Recognizing his government’s inability to restore security on its own, Prime Minister Zeidan has been reaching out to the international community for help. He has asked for arms and ammunition, as well as a broader commitment to help train Libyan troops and police and reintegrate militias into normal life. NATO and the US have expressed their willingness to train Libyan soldiers, but a firm plan to do so has yet to be announced.

The grievances of the strikers are many and varied, and demand more than a quick fix. Calls for greater autonomy, more equal distribution of oil revenues, and better living standards can be met, but only with time and a serious commitment to the democratic process. If the remaining oilfield protests continue, it is likely security concerns will dissuade foreign investors from purchasing exploration rights and may cause current investors to leave the country. Even more disheartening, continued strikes are likely to compromise the stability of Libya’s newly-democratic regime and derail the peacebuilding process, further clouding the business climate.

By Marina Mellis

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