The future of North Africa’s leading oil and gas producer Libya is once again under threat. International media reports that Libya’s strongman General Khalifa Haftar, leader of the LNA, the largest and strongest military power in the country, has had a stroke. Libyan and Arab news sites stumble over each other predicting the death or incapacitation of the Libyan military strongman, which would without doubt increase internal instability and could lead to a renewed power struggle in eastern Libya.
Political initiatives led by several Arab countries, the UN, U.S. and EU, are to all intense and purposes null and void at present, as without clarity about the power of the LNA these deals may well fall apart. A potential removal of Haftar from the delicate balance of power that has been created in Libya will also put anti-IS and Al Qaeda military operations in doubt.
The first signs of upheaval following the news of Hafar’s stroke are already apparent, with the LNA’s second-in-command, Abdelrazak Al Nadhuri, surviving a car bomb in Libya’s eastern city of Benghazi on Wednesday. The LNA reported that Al Nadhuri "escaped unharmed from a terrorist assassination attempt after a car bomb exploded... as his convoy passed" the Sidi Khalifa district at the eastern entrance to Benghazi. A Syrian and Sudanese national were caught in the explosion.
The attack came directly after the first press statements that Haftar had been hit by a stroke or was in coma. While Haftar has been largely out of the public eye in the last few weeks, French officials have reiterated that he is health and that he received a medical treatment in Paris. Related: The Bullish And Bearish Case For Oil
The possible removal of Haftar will lead not only to unrest in his powerbase, the Eastern Region of Libya, but will likely cause instability within the LNA itself as the military strongman has not officially appointed any successor or second-in-command. A possible succession battle may take place between three potential successors that are reported to be waiting for their own chance to gain power.
Haftar's sons, Khaled and Saddam, each heading their own powerful and well-equipped brigades in the LNA, are slated to be first-in-line. Haftar’s closest ally and cousin Oun Furjani, could also be vying for power. Some sources within the LNA also have stated that General Abdussalam al-Hasi, who is commander of special operations, could play a significant role.
Haftar will also be missed the upcoming military operations by the LNA, which is backed by Egypt, the UAE, and Russia, and the still existing Western Libya based Libyan government, which is supported by the EU and UN. In the south of Libya, Daesh and Al Qaeda are still powers to be reckoned with, while under the radar an old Libyan power player has emerged again. Saif Ghadaffi, son of the former Libyan dictator, has entered the political fray and has openly stated that he will be running for office in the next elections. Despite his father being forcibly removed from office, Saif Ghadaffi seems to be enjoying support in wide regions of Libya. Some groups have already stated that Saif could be the only politician with the power to reunite Libya and bring back stability and prosperity.
In the coming weeks, the situation in Libya will slowly become clear. If Haftar’s role is over, the respective factions and militant groups will need to reassess their options. The Egypt-UAE LNA front will most probably survive but will struggle to replace Haftar. Other players, such as Qatar, EU/NATO and Russia will need to reassess their options once it become clear where power is held.
The Libyan situation will be of great concern to OPEC, as the oil group’s projections are largely based on stability in the country being upheld by the LNA. A renewed instability will serve to severely impact Libya’s ability to increase its production. Haftar’s LNA is, at present, the main oil and gas power broker in the country, controlling the so-called “oil crescent” in the Gulf of Sirte. The LNA and its allies control not only the oil and gas production but also the export capabilities of the country, as they manage four major ports.
It is through its control of a majority of Libya’s oil industry that the LNA has been able to increase production from 300-500,000 bpd to the current 1 million bpd. A power struggle would lead to lower production levels and export capacity. The most optimistic scenarios show that instability would remove around 200,000 bpd or more from the market. Looking at the current tightness of the oil market, that would cause oil prices to spike even higher. Some OPEC producers would be looking at such a scenario with a smile, but if oil prices go too high or spike too quickly we may see the same scenario that caused the last price collapse some years ago.
Increased instability in Libya is a very worrying sign for the region, with the possibility of a renewed implosion of governing structures. For the oil market, this geopolitical uncertainty, alongside the possible collapse of the Iran nuclear deal next month, is sure to drive oil prices higher. The bulls will be happy, but in the long-term, higher oil prices will boost not only U.S. shale volumes but also non-OPEC production. Not even Saudi Arabia, reportedly pushing for an oil price of $100 per barrel to support the Aramco IPO, will be happy with this situation.
By Cyril Widdershoven for Oilprice.com
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