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First “Illegal” Shipment Of Oil Leaves Eastern Libya

A cargo of 650,000 barrels of crude left the Libyan port of Hariga yesterday, in the eastern part of the conflict-torn country, sparking what promises to be another phase in the conflict as the Islamic-leaning government in Tripoli vows to block the maneuver.

This premature attempt at crude oil exports could have huge implications for international efforts to unite the country under the new Government of National Accord (GNA), which was formed with UN support, because eastern Libya is controlled by a government based in Tobruk, which has not yet recognized the GNA of Fayez Serraj. Related: Coal And Steel May Have Been Given A Lifeline By China

The eastern government works with an eastern division of the Libyan National Oil Company (NOC). The western division of the NOC also has international backing and recognition as the original NOC, while the eastern one is considered a breakaway formation. The latter has been trying for a while to start its own oil exports but has not been successful so far, thanks to resistance from NOC’s international oil trading partners, including majors such as Glencore and Vitol Group.

Now, it seems, the breakaway NOC has managed to find a buyer in the face of another trading firm, UAE-based DSA Consultancy FZC.

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The export attempt drew international attention at the end of last week, when the first reports started coming in that an Indian tanker, the Distya Ameya, had docked at Hariga port and was waiting to be loaded before heading to Malta. Related: China Stockpiling Oil At Highest Rate In Over A Decade

Several Libyan and foreign officials expressed concern about the possibility of an “illegal” oil cargo leaving Libya’s eastern port, but this concern has not been enough to put a spoke in the eastern NOC’s wheels.

Now that the cargo has sailed, the only thing that is certain is that the road to Libya’s unification will be an extremely tough one. And it’s unclear whether this cargo will ever reach Malta. So far, as of the time of writing, it hasn’t. The Tripoli-based National Oil Co., which is controlled by the rival government in Tripoli, said it had taken steps to block the exports.

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Italian media reports now say that the Maltese authorities are keeping the cargo from making port in Malta, but other reports say that the tanker has not yet made any attempt to dock in Malta.

If it does dock in Malta, all bets are likely off for a unity government. Related: Why The Saudi Aramco IPO Will Not Be Enough

The core of the problem seems to be the legitimacy of the eastern government and the GNA. Both have international recognition, and even though the UN and the European Union—as well as the U.S.—have most recently thrown their support behind the GNA, the government in Tobruk still claims legitimacy. Since it was also recognized internationally, there isn’t much that one could say to that right now without igniting further hostility between the two governments. The wild card here is the so-called third government, also based in Tripoli and with clear Islamist leanings, which just last week reneged on its promise to resign after the arrival of the GNA.

Lack of oil export revenues could have been used as a lever against the eastern government but now that shippers and buyers for its oil have been found, this lever is gone. The eastern NOC considers the Tobruk government legal and it is very likely that after this initial success, it will continue to seek ways to export crude without the approval of the western NOC, the GNA, and the group of countries usually comprising the international community. Despite efforts from the U.S. and Europe, it is evident that there are some willing buyers of eastern Libyan oil.

This will considerably hamper the return of Libya to a unified state and the restoration of its oil output to pre-civil war levels. Bad as this is for Libya, the strife is putting upward pressure on global crude oil prices.

By Irina Slav for Oilprice.com

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