Libya conflict: what are the implications for the oil industry?

03 June 2019

Although Libya’s security environment is clearly at risk from the conflict, the economy and hydrocarbons industry may also be impacted by disruption to oil exports. This blog explores the imminent risks to Libya’s trading and investment environments during this period of conflict, with a particular focus on the oil industry.

Who controls Libya’s oil?

Haftar, and by deputation, the LNA, control the vast majority of Libya’s oil and gas infrastructure. The LNA’s dominance extends over approximately two-thirds of Libya’s total hydrocarbons production and oil export terminals which currently process 1.1million barrels per day (b/d). 

However, the National Oil Corporation (NOC), headquartered in Tripoli, is responsible for managing the nation’s oil exports. Haftar also doesn’t control the flow of oil revenues, which are still managed by the Central Bank of Libya (CBL), based in Tripoli. CBL is aligned with the GNA and therefore, the GNA still has a firm grip on Libya’s oil revenues. 

To date, Haftar has not attempted to take full control of oil exports and revenue in 2019. However, as the conflict between the GNA and LNA intensifies over Tripoli, Haftar may try to cut off exports from the capital and redirect exports to the parallel NOC based in the Eastern city of Benghazi. 

The majority of Libya’s national oil infrastructure is based in Eastern Libya and the NOC in Benghazi is heavily allied with General Haftar’s LNA forces.

Although the United Nations Security Council (UNSC) has explicitly barred any Libyan oil sales except through the National Oil Corporation headquartered in Tripoli, Russia, Egypt, the UAE and the USA among others in the international community, have stated that their primary interest lies in maintaining access to Libyan oil exports.

Libya has the largest oil reserves in Africa. Crude petroleum exports account for US$14.1 billion of Libya’s US$16.1 billion total exports per annum. In December 2018 alone, the US imported 3,758 barrels of Libyan crude oil, out of the total 220,059 barrels it imported that month.

This illustrates the dependence of the international community on Libyan crude oil, as the US is only Libya’s fifth most important export destination. Given that so many countries are dependent on Libyan natural gas and oil reserves, a significant number are likely to facilitate oil exports in the Eastern Libya. 

However, the short-term implications for Libya’s oil and gas firms, as well as the global hydrocarbons market, would be significant. In the summer of 2018, Haftar captured several export terminals and briefly transferred their operation to the alternative, Benghazi-based NOC. This ultimately caused a drop in Libyan oil production of over 800,000b/d, severely decreasing oil exports.

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Impact on the global oil industry

A hugely complex, large-scale export transition from Tripoli to the East could cause a significant global supply shock, which would likely lead to a rise in oil prices. When Haftar rerouted oil exports to Eastern Libya in 2018, global oil prices rose by over US$10 per barrel. Prices increased from approximately US$60 per barrel in January 2018 to approximately US$73 in June and July 2018.

Although falling Venezuelan and Iranian oil production were also instrumental in the rise of global oil prices in 2018, Libya’s supply contractions significantly contributed to the trend.

The Brent Crude oil marker has been closing above US$70 per barrel since the initiation of the current conflict, implying that there is concern within the market that an escalation in the conflict could threaten Libya’s oil supply.

Oil prices had been averaging at around US$50 per barrel prior to the current conflict, from December 2018, through till early February 2019. Brent has also forecasted a rise in global crude oil prices to approximately US$90 per barrel by September 2019.

Aerial view from Tripoli Libya

In 2018 Haftar’s Eastern allies attempted to set up a Benghazi-based export and revenue control centre. However, this and the Eastern NOC have struggled to get off the ground due to a lack of international recognition. However, this was prior to the recent conflict over Tripoli which threatens the international community’s access to Libyan oil. 

It remains uncertain as to whether Haftar could realistically redirect the exportation of oil products to his powerbase in Eastern Libya. However, there are factors which make this more likely. These include the fact that Haftar has powerful international allies, willing to import from Eastern Libya, his support from the NOC in this region, and rising tensions in the capital. and The Eastern NOC have struggled to get off the ground due to a lack of international recognition. However, this was prior to the recent conflict over Tripoli which threatens the international community’s access to Libyan oil.

Despite possible disruption to oil-related activities in Libya, the outlook for international oil firms and their investors could be positive. A rise in prices will provide support to profit-margins for many international oil and gas companies, if they are not transacting significant business in Libya.

However, multiple European oil refinement firms have a presence in Libya. As shareholders and oil field operators, they would be likely to face downside risks from disruption to the sector. Affected firms would include a French “super major” oil company with a 16.3% stake in Libyan Waha oil.  

General disruption to Libya’s oil production supply lines and exports around Tripoli, on the back of conflict, can also not be ruled out, especially if fighting continues over the next months. This would also have the effect of decreasing Libyan oil exports.

In particular, major disruption at the Zawiya Port (west of Tripoli), which is the main export terminal for the Sharara oilfield would cause a partial or total shutdown of the field, which produces 315,000 barrels per day.

It is also likely that the neighbouring El Feel oil field would also be shut down, causing Libya’s oil industry to lose revenues from a further 70,000 b/d. This severe blow to exports would be detrimental to Libya’s economy. Exports of crude petroleum account for 87.6% of the country’s US$16.1 billion total exports per annum.

5 Key Takeaways

  • If the LNA, under Haftar, seizes control of Libya’s oil revenues and export management, they are likely to relocate them to Eastern Libya. 
  • This move will likely be supported by members of the international community who depend on Libyan oil supply, although it will cause Libyan oil exports to decline in the short term. 
  • This could contribute to rising global oil prices.
  • General disruption to oil production and exports caused by conflict surrounding Tripoli would also decrease exports, thus impacting Libya’s economy.
  • This will have an impact on a number of European firms operating in Libya’s hydrocarbons industry.
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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.

    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)121 626 7837.

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