Libyan oil can seriously change world prices

Libyan oil can seriously change world prices

Oil prices have started to fall this past week, and the reason for this is quite surprising. From a source of instability, Libya can become a valuable partner for Europe because it also has natural gas.

The US has been negotiating with Saudi Arabia to get the kingdom to produce more oil, but the Saudis have yet to take a significant step in that direction. Instead, production from Libya is helping to lower oil prices, which currently sell for around $100 a barrel.

Some experts claim that the oil from Libya could prove to be not only key to solving the crisis in the international oil markets, but also a way to stabilize the political situation in the country itself more permanently.

Additional oil without limits

Ben Fishman, an expert on Libya at the University of Washington, says the US needs to do more when it comes to stabilizing Libyan politics and exporting more Libyan oil to international markets.

Stabilizing oil production in Libya, which is no longer limited by OPEC production ceilings, could add another half to a million barrels of oil per day to the world market.

However, Libyans have faced political instability, civil war and violent conflict since former dictator Muammar Gaddafi was ousted in 2011. The Libyan oil never stopped flowing though. This is because the country is extremely dependent on revenue from this raw material. Oil-related products account for about 94% of exports and about 60% of national income.

Internal problems

Over the past few years, oil revenues have fluctuated widely, largely due to military blockades of local oil facilities and export terminals organized by tribal groups. All this came amid disputes over who should head the country’s crucial National Oil Corporation (NOC), the only organization allowed to export oil abroad.

The latest blockade ended in mid-July when the government in western Libya agreed to appoint Farhat Bengdara as the new head of the NOC. Bengdara is considered an ally of General Khalifa Haftar, an influential militia leader in eastern Libya. The tribal groups that blocked oil facilities are also allied with Haftar, and Bengdara’s appointment was seen as a signal that the western Libyan government would be able to restore vital oil flows.

Libya’s oil ministry previously announced that the country would aim to produce 2 to 2.5 million barrels per day over the next five years. Adding that much oil to the market would cause a significant change in world prices.

Libyan gas must also be considered. Thanks to its geographical proximity to Europe, Libya has the potential to become a serious supplier for the Old Continent. Currently, the majority of Libyan gas is consumed by Italy, and in April the Italian ambassador to Libya said that with sufficient investment, it is possible to increase Libya’s gas exports by 30%.

From a source of instability to a valued partner

Tarek Megerisi, an expert on Libya issues at the European Council on Foreign Policy, believes that if the Europeans help Libya, “they can weaken Russian positions, stabilize a key energy route between North Africa and Europe and turn Libya from a source of instability in a valuable partner”.

Russia is just one of the countries trying to exert influence in Libya. The others are Turkey, the UAE and Egypt, all of which are seen as increasingly friendly to Russia. The UAE is accused of being the main driver of the NOC leadership change, and Russian mercenaries from the notorious Wagner Group support General Haftar and are located near oil facilities in eastern Libya.

There is no easy answer

“Resource sharing dialogue is the prerequisite for long-term stability. Blockades of oil sources in Libya are being used as a tool of economic warfare. Anyone who is concerned about the long-term stability of Libya and the long-term stability of its gas and oil sector should not allows this kind of thing,” says Emadeddin Badi of the Atlantic Council.

It could also be an important first step towards a real resolution of the political problems in Libya itself, which have once again deepened since the annulment of the elections last December. Recently, there have been protests again, caused by rising prices and political impasse.