For some time now the Kurdish region of northern Iraq has defied the central government in Baghdad by declaring independence and working to create its own government, oil company, and setting up its own energy deals with international oil companies and even other countries. As it has creeped inexorably towards independence, Kurdistan has shown that controlling large hydrocarbon reserves can come in very handy when looking for support.
This situation with the KRG seems to have provided an example to rebels in Libya. Having taken control of the country’s oil rich regions of the east, the rebels have now declared a new government of Cyrenaica which intends to operate independently of Tripoli, a feat not impossible due to its control of huge oil and natural gas fields, as well as exporting infrastructure on the Mediterranean coast.
Following the declaration of the new government of Cyrenaica on the 24th of October, the new Prime Minister of the region, Abd-Rabbo al-Barassi, announced the formation of an independent oil company, the Libyan Oil and Gas Corporation, to set up energy deals with foreign organisations. For the time being the new firm will be based in the Mediterranean port city of Tobruk, before moving to Libya’s second biggest city, Benghazi.
Related article: Libya's Oil May be its Downfall
Ali Zeidan, the Prime Minister of the interim Libyan government until a new leader is chosen following the toppling of Muammar Gaddafi in 2011, stated that strikes at oil facilities across the eastern region have managed to disrupt much of Libya’s oil industry, reducing exports by about 60% and putting the government under economic pressure.
Angry that the rebels have taken some of the country’s oil fields as hostage in order to serve their political interests, Zeidan has vowed to take action if they do not step down and hand control back over to the government.
Shortly after the new oil firm was announced by the government of Cyrenaica, Zeidan issued an ultimatum deadline: lift the siege of oil and gas facilities within ten days or face action.
Libya’s current oil output has been slashed to a fraction of its total capacity of 1.6 million barrels a day, far below its potential output, and if Tripoli is not careful with how it reacts to the new government of Cyrenaica, it could see some of its most valuable energy assets stolen from under its nose, in very much the same way the KRG did with Baghdad.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com