Libya’s oil production has yet to suffer disruptions, even as oil prices have climbed on fears of potential outages. However, the longer fighting drags on, the more likely Libya’s oil production and export facilities will be impacted, according to global risk consultancy Verisk Maplecroft.
The assault on Tripoli by Khalifa Haftar and the Libyan National Army (LNA) has apparently stalled, at least for now. Haftar had been confident of a swift victory, having the superior military force. However, various factions have united around the internationally-recognized Government of National Accord (GNA), all with a common enemy in Haftar. The fighting, at this point, has been fought to a stalemate.
Remarkably, there is little evidence that Libya’s oil production or export facilities have been impacted, although they are mostly located away from the capital. Yet, numerous times in the past Libya has seen massive disruptions to its oil flows over seemingly more minor events.
But even as Haftar’s LNA has provided security to oil installations, helping to ensure their continued operation, the longer the fighting drags on in Tripoli, the more likely it is that there will be an outage. The LNA maintains stability at Libya’s oil fields by essentially sub-contracting and otherwise paying off local militias. Getting bogged down in a stalemate in Tripoli will sap the LNA of resources and stretch supply lines. It will also likely end the payments that the internationally-recognized GNA in Tripoli had been sending the LNA in exchange for security at the oil fields.
All of that means that the LNA will drain itself of funds needed to maintain security. For instance, the outage at the Sharara oil field – Libya’s largest – between December and February came as a result of a salary dispute and grievances over the lack of investment, according to Verisk Maplecroft. A Tuareg militia group had been responsible for the site’s security disrupted operations. Related: Oil Could Fall To $40 If OPEC Abandons Its Deal
That highlights the fragility of Libya’s oil renaissance. “The diversion of LNA financial and military resources to the north-west will weaken its ability to maintain the local alliances it relies on to maintain oil site security,” Hamish Kinnear, Senior MENA Analyst at Verisk Maplecroft, wrote in an analysis on April 12.
In the case of the Sharara field earlier this year, the LNA received praise for securing the field and bringing it back online. The LNA did this by installing a separate Tuareg group. “If the LNA neglects to maintain its payments to this local group, which is increasingly likely as it commits attention and resources to the Tripoli offensive, Brigade 173 may opt to carry out its own occupation of the oil site,” Kinnear of Verisk Maplecroft wrote.
Moreover, the government in Tripoli could finance the takeover of the site by some other group in order to deal a blow to the LNA. Again, that could also cause an outage.
Verisk Maplecroft says that a larger threat to Libya’s oil exports would be a disruption at one of the handful of export terminals on the coast. The “GNA-aligned militias or independent groups, emboldened by an LNA setback in Tripoli, may consider a renewed assault on the Oil Crescent ports,” Kinnear warned. Related: The 2020 Elections Could Be A Turning Point For Oil & Gas
Alternatively, while several of Libya’s largest ports are in the east, far from the fighting in Tripoli, there is one port nearby. The Zawiya port is currently under the control of the GNA, but if Haftar’s LNA continues to expend resources while bogged down on the outskirts of Tripoli, it may shift its focus to the Zawiya port, Verisk Maplecroft says. “A failure to successfully take and occupy Tripoli will induce the LNA to seek advances elsewhere in the north-west. Zawiya, which hosts a refinery capable of producing oil products that can ease pressure on stretched LNA supply lines, will be high on the list of targets,” Hamish Kinnear wrote.
For now, the oil continues to flow. “However, for the reasons outlined above, wider contagion from the faltering Tripoli offensive will exacerbate disruption risks at all stages of the supply chain,” Kinnear concluded.
By Nick Cunningham of Oilprice.com
More Top Reads From Oilprice.com:
- Could This Be The Next High Profile Permian Takeover?
- Oil Could Fall To $40 If OPEC Abandons Its Deal
- Artificial Intelligence Is Transforming Oil Trade