GNA prime minister al-Sarraj warns of a coming financial and budgetary crisis for 2020 if Haftar's oil blockade continues.
Haftar-aligned forces shut down all oil terminals in the territory they control on January 18th, as a show of force and in order to pressure the GNA to share oil revenues more equitably with the Tobruk eastern government. Haftar and his backers claim that although the east produces most of Libya's oil, they see little of the revenue. That is, since the National Oil Corporation and Central Bank, the only actors who deal in Libyan oil and collect the revenues, are based in Tripoli, even if they are neutral bodies.
Losses to date have exceeded $1.4 billion, with over $50 million in losses for ever day the blockade continues. That does not take into account the long-term damage the blockade causes the infrastructure.
Libya's National Oil Corporation reports that production has plummeted to around 164,000 barrels per day, from a pre-blockade level of around 1.2 million bpd. Given that oil production is Libya's main source of income, this could have serious consequences for the country's stability, beyond the current fighting.
GNA Foreign Minister Mohamed Siyala expressed Libya’s desire to bring Chinese companies back and for China to reopen its Tripoli embassy. Siyala met with an assistant Chinese foreign minister on the sidelines of the African Union summit in Ethiopia. For his part, the Chinese official expressed a willingness to strengthen relations. He noted that China only recognises the GNA and will not cooperate with parallel governmental or economic institutions in eastern Libya.
Oil has become the new conflict in Libya’s ongoing civil war. Since January 18, the day before the Berlin conference, and as we have reported multiple times, Haftar ordered his forces to halt oil exports from all terminals under his control, specifically from Hariga, Brega, Ras Lanuf, Zueitina and Es Sider.
One of the militia leaders undertaking this task told AFP that the closure is “designed to dry up the sources of terrorism financing”. The GNA in Tripoli currently collects all of Libya’s official oil revenues, even though most of it is exported through the East. The revenues are collected and distributed through the NOC – National Oil Corporation and Central Bank. The Eastern Tobruk government claims it does not receive a fair distribution of the revenues, spurring their move to shut down all exports until this is adjusted.
GNA Prime Minister al-Sarraj has so far rejected these demands, claiming the move is meant to pressure the GNA into collapsing, a claim affirmed by some LNA tribal leaders. The UN sponsored an oil and economic centred meeting in Tunis in early January to try and sort out some of these issues. There was also hope that the Berlin meeting and UN sponsored process might also establish a mechanism to more fairly distributed the oil revenues.
As of February 4, Bloomberg reports that production has dropped to only 200,000 barrels per day (bpd), from a height of 1.3 million bpd, the lowest levels since Gaddafi’s overthrow in 2011. This amounts to a loss of between half a million to a million barrels a day in losses, or around $55 million. NOC Chair Mustaffa Sanalla warns this could totally bring down Libya’s oil production if it continues, as the stoppages cause damage to the pumping and refining infrastructure.
In the short and midterm, it doesn’t seem that either side is willing to back down. It is here that the international community must intervene to prevent continued hardships for the Libyan people and irreversible damage to Libya’s oil infrastructure, which could severely harm the economy and growth prospects post conflict. Otherwise, there might not be another option than giving in to Haftar’s demands and negotiating a more equitable revenue sharing agreement between the sides.
Although the world’s attention is focused on reaching a truce at this time, it might be preferable to shift the focus to ending the oil blockade as a first step in bringing the conflict to an end.
Mustaffa Sanalla, chairman of Libya’s NOC – National Oil Corporation, is warning as loud as he can that Haftar’s blockade on Libya’s oil infrastructure will soon lead to disaster. Sanalla further warns that the world powers will be themselves complicit in Libya’s collapse – a collapse of rule of law – if they fail to act to pressure Haftar to allow the oil sector to get back online. However, he claimed, too many Western powers seem content to watch as countries that committed to uphold the embargo openly break their promises.
Sanallah said his country was facing “a disaster and a nightmare”, as the blockade of Libya’s oil ports and refineries continues. Production, which was at 1.3 million bpd is down to 260,000 bpd and could soon drop as low as 70,000. The cumulative losses so far amount to nearly $450 million. As Libya’s cash reserves deplete, both governments, the Tripoli-based GNA and Tobruk based House of Representatives will find it increasingly difficult to pay 1.3 million public sector salaries. At the same time, there could be long-term damage to the oil pipelines themselves, as crude oil left in pipes corrodes irreparably corrodes them.
Sanalla’s voice is increasingly important. As the conflict drags out and another effort to spark a political process is likely to falter, he is seen as one of the few “neutral voices” left in the country with a high standing domestically and internationally.
“The international community has to understand that if it tolerates or even rewards those who break the law in Libya, then it will be complicit in the end of the rule of law in our country. And that means more corruption, more crime, more injustice and more poverty.” Sanalla cautioned.
He further called out countries who were “happy when they secure agreement from wide range of countries … calling for ceasefires and political settlements. But they know that many of those countries will sign anything and then continue to supply weapons to the war fighters…(and who) poison…social media with their sophisticated disinformation campaigns, undermining the ..solutions they” officially support.
Sanalla called for “not just words but action from UN security council…pride themselves on their support for rule of law” “world superpowers have to give the facts to the Libyan people about responsibility for the shutdown of the oilfields”. Sanalla warned that if blockaders were rewarded “you will see it repeated, not just in Libya but potentially across the whole of the Middle East…people who feel they have a grievance decide its worth trying an oil blockade”.
Libya’s oil production is set to reach the lowest levels since Gaddafi’s overthrow in 2011, according to the National Oil Corporation – the NOC. As the two sides travelled to Berlin almost a week ago for the first serious cease fire and peace talks, tribal elements backing Haftar forced a shutdown of production facilities and have caused power blackouts in parts of the country.
NOC Chair Mustaffa Sanalla told The Financial Times that output had already dropped from pre-Gaddafi levels of 1.3 million barrels per day (bpd) to around 400,000 bpd since Haftar’s offensive. Since the blockade Friday, that production is expected to plummet to a mere 72,000 bpd “within days” or even weeks”, according to the Financial Times.
According to Turkish media reports, this has led to a loss of over $255 million in just the first six days since the facilities were closed, an average daily loss of nearly $43 million.
Haftar’s LNA already controlled most of Libya’s key oil terminals, and prior to the Berlin conference, shut down most of Libya’s crude exports, a key source of government income, in order to increase pressure on the GNA to end its new cooperation agreements with Ankara, and remind world powers that he and not the GNA controls the majority of Libya’s infrastructure and resources.
According to Sanalla, the loss of gas production, which is a byproduct of the crude oil extraction process, has affected the flow of gas to power stations, causing nation-wide shortages. It has also affected petrochemical production, which also makes use of natural gas, to allow the diversion of gas to the power stations.
Sanalla noted that most of Libya’s energy reserves are onshore and the country has limited storage capacity, with no export routes. He further warned that the reduced production will severely deplete Libya’s cash reserves.
The interruption to oil flow could disrupt Sanalla’s plans to raise Libya’s oil output to 1.5 million bpd within the year and to 2.5 million bpd over the next decade. Such incidences, and the ensuing chaos also discourage protentional foreign investors, crucial to grow and update the sector.
According to Libya’s Central Bank, Libya’s oil and gas revenues decreased by 6% in 2019. A majority of state income comes from oil and gas revenues. Revenue fell to 31.4 billion Libyan Dinars (USD 22.49 billion) in 2019, down from 33.5 billion dinars in 2018.
Although the Tobruk-based government established a parallel central bank and controls most of Libya's oil production, the Tripoli-based central bank retains control over oil revenue, which is channelled through the National Oil Corporation.
Continued fighting over weekend may cause disruptions to oil production. Fighting near Zawiya port in western Libya forced the National Oil Corporation to announce it was considering closing the refinery and evacuating staff. A missile nearly hit the refinery on Friday. The NOC also said it was considering closing the El Sharara oilfield, which exports its crude oil through Zawiya port. Throughout the weekend, three bombs fell close to the oil storage tanks.
Zawiya is Libya’s largest functioning refinery, serving the Tripoli region and west and south of Libya.
Zawiya’s refinery itself has a capacity of 120,000 bpd, which the NOC plans to double in the coming years, and is critical for process the oil that comes from El Sharara, estimated at 300,000 bpd. Libya’s oil sector is struggling as is to engage outside investment due to the fighting, and having to shut it down again would be disastrous. El Sharara only resumed production in August.
Libyan oil production has been hit hard since fighting first began, with NOC Chairman Mustaffa Sanalla saying the country would need $60 billion in investment to develop and improve its refining sector.
Libya's National Oil Corporation (NOC) announced it had approved the acquisition of Marathon Oil Libya Limited's stake in the Waha concessions by the French oil giant Total, which amount to over %16 percent of the company. NOC said that Total would invest USD 650 million to develop Waha, to help increase production by 180,000 barrels per day (bpd). NOC further added that Total would invest an additional USD 150 million to "support social responsibility and sustainable development programmes in the areas adjacent to oil operations."
Along with Total's 16.33% holdings, the NOC maintains 59.18%, ConocoPhillips holds 16.33% and Hess holds 8.16% of the Waha Oil Company.
The massive influx of Libyans displaced around Tripoli due to the fighting into more central areas in the city is causing housing costs to skyrocket, posing a challenge to many Libyans. Around 120,000 have been displaced from their homes since the latest round of fighting began in April, according to UN estimates.
A two-bedroom in Tripoli rose from from around 1500 dinars a month (around $2500) before the renewed fighting in April to twice that price or more. In addition, tenants are being asked to leave considerable cash deposits months in advance, something that has become more difficult given the economic downturn. Also, although Libya's liquidity crisis has improved, salaries are often delayed, for those who have jobs.
Despite the influx from the outskirts of Tripoli, there has been little new construction since fighting began in 2011, and the cost for a two-bedroom has tripled in cost since 2014.
As the conflict continues and Libya's economy struggles, the reopening of a plastic manufacturing plant in Ras Lanuf provides an economic boost and some hope.
Libya's economy is largely dependent on energy resources, which due to the ongoing conflict and lack of investment in infrastructure, is struggling to maintain production. However, beyond energy, there are few bright spots in the economy.
The plastic manufacturer, operated by RASCO - Ras Lanuf Oil and Gas Processing Company, is a NOC subsidiary. It had been shut down for the past 8 years due to the fighting. The port was blockaded throughout the fighting, and attacked by ISIS fighters. According to Reuters, it reopened in October at a production capacity of 80,000 tonnes per year, with plans to double the output in coming years.