Comments Off on In Libya, One Region’s Stability Is Key to Oil Supply

After a steep decline in oil production during the uprising that ended with the fall of Muammar Qaddafi’s long-standing regime at this time last year, Libya has restored its output to near pre-war levels. Now, it must address political conflicts that threaten this recovery, particularly in the eastern Cyrenaica region (map), which is home to four-fifths of Libya’s oil and had been politically marginalized under Qaddafi’s rule.

Sitting on Africa’s largest proven oil reserves (47 billion barrels), Libya is greatly valued in the European market, both for its high-quality, low-sulphur oil and for its proximity to Europe.  Close to 80 percent of that oil lies in Cyrenaica’s eastern Sirte basin.

Discontent in Cyrenaica over allocation of seats in the new National Assembly has already disrupted oil production once, when in the first week of July gunmen forced the shutdown of two oil terminals in the region to boycott the elections. And earlier in the year, protesters in Benghazi blocked the headquarters of Libya’s largest oil company, Arabian Gulf Oil Company (AGOCO), for two weeks, demanding jobs and financial transparency. These demands reflected complaints of similar protests that have been seen in Benghazi since the fall of Qaddafi.

Libya wants to ramp up its output from the current level of about 1.5 million barrels per day to more than twice that, which will mostly depend on foreign investment in new wells. But foreign investment, in turn, will hinge on Libya’s future political stability and security. Given Libya’s lingering security problems and the uncertainty surrounding the political transition, foreign companies have been reluctant to re-start business there despite the potential gains.

A peaceful transition of power on August 8 from the interim National Transitional Council to a newly elected National Assembly was a watershed for the Libya’s move toward democracy. But the power vacuum that emerged after the 2011 revolution gave rise to calls for regional autonomy within Libya. So far, regional divisions have not created a major threat to Libya’s stability or to its oil output­—the recent wave of attacks on Sufi shrines has become a much more pressing problem for the new government.  Still, Deputy Oil Minister Omar Shakmak conceded in late July that “no one can guarantee” a disruption like the oil terminal shutdown in Cyrenaica could not happen again.

Recent negotiations with eastern federalists held by Mahmoud Jibril, a leading politician in post-Qaddafi Libya whose liberal coalition won 39 seats in the new National Assembly, were reportedly “positive and constructive.” And there is hope that the choice of Mohammed Magarief, who is from the eastern city of Benghazi, as head of the National Assembly will help placate the concerns of easterners.

Oil production in Libya may face more interruptions down the road if those concerns are not ultimately addressed. Because reconstruction of the country largely hinges on oil sales, a prolonged disruption of oil production and an uneven distribution of oil revenue portend economic problems for all of Libya.

As Libya stands at crucial crossroads after its first democratic elections since 1964, it remains to be seen whether its next chapter will be a diversified economy with less dependence on oil and more political representation for all of its people.