Libya cut oil output by half

Libya cut oil output by half
Clashes between rival groups in Libya's key oil export ports have caused output to drop by nearly half, the head of the National Oil Company said. The Ras Lanuf and Al-Sidra..

Clashes between rival groups in Libya's key oil export ports have caused output to drop by nearly half, the head of the National Oil Company said.

The Ras Lanuf and Al-Sidra oil terminals have been closed since last Thursday when armed groups attacked oil facilities held by forces loyal to military strongman's Khalifa Haftar in eastern Libya.

Background

Libya is an oil-rich country in North Africa whose geography is mostly desert land. It has the 10th-largest proven oil reserves in the world. After being ruled for centuries by Carthaginian, Byzantine, and Ottoman empires, Libya was colonized by Italy in 1911. When Italy was defeated during the World War II, the future of Libya was uncertain. Eventually, it was decided that Libya would be a monarchy and the rule was handed to Sayyid Idris, Emir of Cyrenaica.

Libya has been in a state of political unrest since the former President of Libya, Muammar Gaddafi was killed in 2011. The two rival factions in Libya, General National Congress (GNC) under Nouri Abusahmain in Tripoli and the 2014 democratically elected House of Representative (HOR) in Tobruk under Aguila Saleh Issa, are currently in a tussle to assume total power over the state. Internationally, it is the Tobruk government that has been recognized as the official government in Libya.

The HOR, strongest in eastern Libya, enjoys the support of the Libyan National Army and has received support from Egypt and UAE. While the GNC is backed by Sudan, Turkey and Qatar. Tobruk is being backed by a military group called Operation Dignity, which is a coalition of eastern tribes and Tripoli has the support of Operation Dawn, an alliance of Islamic forces.

Neither of the rival groups has been able to gain full territorial control or gather popular support. The real power lies with the armed groups that have taken over political order and essentially also the law. Islamic extremism has been present in the eastern province of Cyrenaica for long and the Libyan Islamic fighting group has been trying to gain political power. Additionally, the emergence of the Islamic state militant group has further increased the criminal activities in the region. In February this year, Libya was attacked twice by the ISIS.

In 2014, the United Nations Support Mission in Libya (UNSML) launched an initiative to bring together the rival groups and establish a National Unity Government. However, peace talks have ultimately been unsuccessful.

Analysis

Libya's oil output has dropped by nearly half following clashes between rival groups in the country's key oil export ports, the head of the National Oil Company said. "Production has seen a reduction by 450,000 barrels per day, plus 70 million cubic feet of natural gas, equivalent to $33m in sales based on market prices," Mustafa Sanalla the head of Libya's National Oil Corporation (NOC) said.

The Ras Lanuf and Al-Sidra oil terminals have been closed since last Thursday when armed groups attacked oil facilities held by forces loyal to renegade general Khalifa Haftar in eastern Libya. Haftar's Libyan National Army has since launched an offensive to push the militias out of the area, with the violence causing "catastrophic damage", according to the state oil company.

Earlier this week, the NOC said fires caused by the clashes had destroyed two crude tanks, reducing storage capacity at the Ras Lanuf terminal by 400,000 barrels. "Maintenance teams are still dealing with the aftermath of the blaze and are trying to ascertain the extent of the damage to the terminal," Sanalla said.

Aside from oil infrastructure damaged by conflict, Sanalla said Libyan authorities were also struggling to "conquer the shocking scale" of fuel theft. "The smugglers think they can operate with impunity -- to the extent that the country is losing more than $750 million a year through domestic fuel smuggling alone," he said.

Libya's economy relies heavily on oil, with production at 1.6 million barrels a day under long-time Libyan ruler Muammar Gaddafi. The 2011 uprising against Gaddafi saw production fall to about 20% of that level, before recovering to over one million barrels a day by the end of 2017.

"Those that seek to disrupt NOC operations and sequester facilities for their own gain should be seen for what they are -- criminals," Sanalla said. "Libyan natural resources and oil and gas revenues must be a catalyst for reconstruction and national prosperity, not conflict," he added.

Assessment

Our assessment is that this the clash between the rival groups will result in the loss of hundreds of millions of dollars in construction costs, and billions in lost sales opportunities for Libya. Changes in supply due to the conflict could lead to oil supply shortages across the world. Libya's economy relies heavily on oil, with production at 1.6 million barrels per day under Gaddafi. His NATO-backed 2011 ouster saw production fall to about 20% of that level, before recovering to more than one million barrels per day by the end of 2017.

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