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Scott Belinksi

Scott Belinksi

Scott Belinksi is an international energy consultant currently based in Moscow. His interests and areas of expertise include Eastern European politics, shale gas, deep-water drilling…

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The Real Reason Europe Finally Attempts To Stabilize Libya

After years of reticence to reengage as the situation in Libya increasingly spiralled out of control, the European powers—and particularly France and Italy—are finally wading into the debate over how to put an end to the civil war which has wracked the country for the better part of a decade. The ball is currently in Rome’s court, with the Italian government organizing a conference in Sicily on November 12-13 to “find a common solution, even though there will be different opinions around the table.”

Why the about face? Beyond the issue of migration, volatile oil prices, coupled with uncertainty over the ultimate fate of Iranian crude, are the international community added incentive to take the country seriously: analysts are increasingly looking to Libya and Nigeria as the only swing producers that could keep oil under the $100 mark.

The fluctuations in the oil markets are obviously more complex than that, but Libya’s growing output has nonetheless been able to stave off some unexpected production declines – such as the 150,000 bpd drop in Iranian production that was offset by Libya’s 100,000 bpd jump. Saudi Arabia boasts that its total spare capacity is in excess of 1.3 million bpd, but that won’t cover the almost 2 million bpd Iran exported in August. With the Trump administration’s Iran sanctions kicking back in November 5, Libya’s importance to the stability of the global oil markets will only increase in importance.

As Libya’s role grows, so does Europe’s new-look engagement. While the Italians are sending out invitations to Sicily, the French are continuing to push for the December 10 elections they got the opposing sides to agree to back in May. Rather than encouraging immediate elections, the Italian government promised $5 billion of investment in exchange for Libya cracking down on migrants in the Mediterranean.

Related: South Korea Cuts Iran Oil Imports To Zero

Against this backdrop, it doesn’t take a cynic to see mercantilist motives as the driving force behind the newfound impetus to fix Libya, the country with Africa’s biggest oil reserves. France would love to install a diplomatic ally in North Africa, while oil titan Eni — 30% owned by the Italian state — just acquired a controlling stake in BP’s Libyan assets. Given that Eni hopes to resume oil and gas exploration, there’s an urgent need to resolve rampant corruption and instability in the Libyan oil sector. A few days ago, chairman Mustafa Sanalla of the Tripoli-based national oil company claimed BP and Eni could help his country expand production by “hundreds of thousands of barrels” from the first quarter of next year. Of course, Sanalla’s company is just one of two rival “national” firms in Libya.

Regardless of their motivations, Western attempts to begin repairing the damage they caused in Libya are a welcome change to the status quo of interminable instability.

Oil: the solution to Libya’s problems or another layer of the crisis?

Libya’s oil crisis is merely a reflection of the wider schism in the country, effectively split down its geographical centre as the civil war drags on. There are two administrations: the UN-backed Government of National Accord in Tripoli to the west, and an unofficial body in the east backed by military commander Khalifa Haftar, who acts as a de facto ruler and is usually present when the two sides sit down to talk. Each side is backed by a litany of militias, and the picture is muddied even further by city-states and rogue tribal clans.

Related: What Will OPEC Do To Calm Stormy Oil Markets?

After Gaddafi’s ouster, oil was intended to lubricate the reconciliation process. Under a UN-approved system, crude is produced in the mineral-rich east before being sold by the state oil company on the other side of the country. This system purports to ensure that all oil is sold by Libya’s National Oil Corporation (NOC) and not by the myriad rebel groups. This past June, however, Haftar’s Libyan National Army (LNA) reclaimed four key ports from rival militias and turned off the taps, freezing nearly all of Libya’s oil production for over a fortnight and causing global prices to soar.

Barrels of corruption

His motivation, Haftar's supporters insisted, was to stop the loss of oil money to corruption and keep it out of the hands of terrorist groups. That said, the conflict over the ports also fit into a longer-term East-West battle over the control and distribution of proceeds. Haftar eventually relinquished control in response to demands led by Donald Trump. As part of the agreement to reopen the ports and meet Haftar’s demands, representatives from the UN, France, Italy, the US and UK reportedly agreed that Libya’s oil industry, along with the country’s official — and unofficial — central banks, should be the subject of a wide-ranging corruption investigation under UN oversight.

Despite the acrimony of this past summer, it seems Haftar’s move may finally have moved the needle on Libya’s internal oil feud. Earlier this week, Benghazi played host to an “oil and gas exhibition and forum” that secured the participation of both of Libya’s rival national oil corporations. Even Sanalla delivered an address in which he insisted “Benghazi city will play a prominent and important role for the oil and gas sector in the region and probably the world.”

Even with these positive steps, corruption in the Libyan oil sector remains a systemic problem. Misused oil revenues have turned Libya’s natural resource wealth into yet another vector for conflict. Cleaning up the industry and reconciling the competing sides will be integral to any effort to bring about a long-term resolution to the crisis – and, perhaps more importantly for the country’s Western interlocutors, make sure the country maintains its capacity to act as a swing oil producer.

By Scott Belinksi for Oilprice.com

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  • Chuck Carter on November 02 2018 said:
    We seem to have the idea that using more and selling more natural gas
    overseas is just simply wonderful.
    Does ANYBODY realize that the abundant supplies will NOT last forever.
    We need to look at natural resources rationally. Our usage at home will only
    increase overtime, so it very important to keep production at home.
    Chuck Carter, Murfreesboro, TN.

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