The Libyan oil industry has reached its third stage. During the first stage, production reached its peak and three million barrels were pumped per day in the 1960s. The second phase was accompanied by Moammar Gadhafi’s arrival to power and the tightened control resulting from the nationalization of the oil industry.
The oil industry in Libya was negatively affected by the regime’s strained relations with the outside world, as it suffered from the imposed economic embargo and sanctions as well as from the declining Western investments, which are usually coupled with technology and modern management.
During the current and third stage, the Libyan oil industry is affected by the deterioration of the political situation and the emergence of militia control, thus leading to a significant decline in production volume and to the freezing of production development plans.
According to Swiss research center Petromatrix, this stage is witnessing the decomposition of the Libyan state, where rival militias — estimated to be about a quarter million strong and well-armed — are headed toward controlling the resources of the country, especially oil.
In mid-December 2013, while Libyan members of parliament [MPs] were attending a regular session, about 30 militia members stormed the parliament hall and fired shots into the air. They closed the doors and demanded MPs to withdraw confidence from the members of the government headed by Ali Zeidan. Zeidan himself was kidnapped for a short period last summer, which shows the extent of the deterioration of the security situation and the government's inability to protect its leaders and institutions that are supposed to establish the new Libya.
Instead of moving to democratization and building state institutions, Libya seems closer to disintegration and is headed toward militia rivalry control. The situation has prompted Italian Foreign Minister Emma Bonino to tell La Repubblica newspaper that Libya has spun out of the central control and that the situation is constantly degenerating. Observers have linked this statement to widespread assumptions that the Italian Eni oil company, which has a remarkable presence in the Libyan oil industry, is about to shut down its offices.
Emergence of militias
More than two years after the overthrow of former Libyan leader Moammar Gadhafi with the effective support of NATO through airstrikes that had targeted regime forces, the most pressing issue seems to be the spread of security and the imposition of the prestige of the state. This prestige has been eroded at the geographic, political and oil industry levels.
The oil industry is the backbone of the Libyan entity. It represents 96% of the country's revenue and 98% of its foreign currency revenue, which is about $4 billion a month and is used by the government to arrange its affairs, including paying the salaries of many militia members.
Political consensus has required the army to absorb the militias that have contributed to Ghadafi's overthrow. It also requires paying the salaries of militia members from this revenue. Information from multiple sources indicate that secular and liberal groups are supporting the militias of Zintan, while the Islamist alliance focuses on supporting those of Misrata. This results from the weak conviction of the possibility to build state institutions on professional grounds, especially with the participation of NATO in the reconstruction and rehabilitation process.
Naturally, reservations and question marks have come to include the Western role in the formation of the new Libya, in addition to the involvement of elements affiliated with the previous regime in this reconstruction process. Those militias have not given up on their organizations or on the agenda of their leaderships to achieve political goals set by their leaders and supporters from within the government and parliament. The former regime’s unfair practices, which generated a sense of injustice (be it real or imaginary) for both regional and zonal reasons, provide sufficient reasons to continue carrying weapons.
Some groups have taken hold of oil facilities such as ports, where shipments are loaded to overseas markets, such as the two ports of Sidra and Ra's Lanuf, which represent an outlet for about 60% of Libyan oil exports. Other groups have taken hold of the Harika Port in Tobruk. Also, there were some groups that closed down the pipeline that carries gas to Italy. In Cyrenaica, an independent oil and gas body was announced, separate from the central government. Cyrenaica is known for its vast oil reserves, especially in the area stretching from the east of Tripoli to the borders with Egypt.
These steps have sometimes led to the emergence of a black market that encouraged some to attempt to sell oil directly without government control. This prompted Prime Minister Zeidan to threaten to bomb any carrier that enters Libyan ports without the knowledge or permission of Tripoli. This is yet to be seen. Western countries are taking part in training programs. For instance, the United States is training special forces, but the attack carried out by some militias on these training centers and the confiscation of some sensitive devices have caused these training programs to stop and prompted trainers to leave.
On the other hand, the European Union, especially Britain, continues its training missions to prevent Libya from becoming an al-Qaeda stronghold, due to its oil wealth and proximity to Europe. As much as 70% of Libya’s gas and oil exports are channeled to the European market. In 2011, the International Energy Agency (IEA) pumped 60 million barrels of strategic reserves into the markets out of fear of the effect of the decline in Libyan oil production. The step was the first of its kind since 2005, when Hurricane Katrina hit the Gulf of Mexico in the United States and reserves were pumped to ensure that there would not be any fear of price-affecting supply depletion.
Decline in oil production
With its proven oil reserves amounting to about 48 billion barrels, Libya ranks ninth globally in reserves. The good quality of its light oil and proximity to European markets specifically give the country additional advantages. However, political instability and security tensions have led to a decline in oil production to less than one-third of its amount — 1.6 million barrels a day — before Gadhafi’s fall. When oil ports were shut down last summer, production dropped to less than 200,000 barrels a day.
Before the revolution, Libya had plans to raise production to 1.7 million barrels a day as a first stage. The second stage was to reach two million barrels a day through focusing on a program that increases oil extraction rates from production fields. To do this, suitable technology and many investments were needed, and it was important to make up for years of economic bans and sanctions. Libya was accused of terrorism from the 1980s until 2004, when an agreement was reached to compensate the families of the Lockerbie victims. The ban was lifted, thus allowing oil companies to return to Libya.
This development program that dates back to 2009 determined 24 fields and encouraged foreign companies to work in them to add 775,000 barrels a day to production. However, the deterioration of the security and political situation and the absence of a clear legal environment (the enforced law dates back to 1955) do not encourage companies to invest, despite their return to the Libyan oil scene after the sanctions were lifted. Libya has been an OPEC member since 1962 and is an old oil country. Still, oil drilling operations can be more active, because estimated proven reserves make around one-third of African reserves, and 80% of the discovered oil is concentrated in four main sedimentary basins: Marzouk, Ghadames, Barka and Kafra. Consequently, this allows more space for exploration and drilling, and there was hope to proceed with such operations after Gadhafi’s regime had been overthrown. However, the regime that followed has not made any significant changes regarding the sovereignty of the rule of law.
According to some [human] rights’ organizations, militias follow the same torture techniques and detain no less than 8,000 prisoners from the former regime’s advocates and from [the militias’] political opponents. On that note, Human Rights Watch issued a report last month about Libya and called for asserting the sovereignty of the law in the country.
However, law enforcement requires imposing the prestige of the state first. As a result, there have been ideas about allowing the formation of UN forces under Chapter VII to be able to use force and face militias. Prime Minister Zeidan has supported this tendency, which seems possible, as Libya can afford to spend on such an operation. However, Zeidan has not managed to garner internal political support to proceed with the operation. The United States is also not ready to send troops for this purpose at a time when President Barack Obama’s administration is working on reducing its military presence abroad.
The choice left is to resort to bilateral agreements with some European countries and nominate France to repeat its experience in Mali, but at the right cost.
Having 6 million people in a country that can easily produce two million barrels a day has opened the door wide to Libya’s rise as a new hot spot. This is in favor of the country’s inhabitants, the region as a whole and oil production. However, these hopes soon evaporated and were replaced by fear that the government might not even be able to pay the salaries of its employees, including the members of different militias. As a result, the situation might deteriorate and more conflicts may take over and emerge, if the extended transitional phase is not taken advantage of to reach national consensus and a constitution and conduct new elections before the end of the year.
The above article was translated from As-Safir Al-Arabi, a special supplement of As-Safir newspaper whose content is provided through a joint venture of As-Safir and Al-Monitor.