By Jason Pack and Rhiannon Smith
The European economy may be about to get a boost from an unlikely source. On September 28, OPEC announced that it had reached an understanding to cut its members oil output.
If finalized at the next OPEC summit on November 30 and then implemented, this decision would drive up petroleum prices, putting the squeeze on Southern Europe’s struggling oil-dependent economies, especially Italy, Spain, Portugal and Greece.
Fortunately for the Continent’s shaky recovery, there is a chance that the oil could continue to flow.
Libya — along with Nigeria and Iran — has been granted an exemption from these cuts, as they currently have far less market share than they traditionally occupy. And while steady increases in Iranian production have been built into the markets’ and OPEC’s models, until very recently, it seemed that Libya was so mired in civil strife that increasing production was a far-flung fantasy. But due to recent power shifts, Libya now has both the incentive — and potentially the capacity — to reopen the taps.
As recently as a month ago, control of Libya’s key oil crescent ports was divided. For the past two years, the Libyan militia leader Ibrahim Jadhran held the country’s two highest capacity oil ports, Ras Lanuf and Sidra, keeping them offline. But control of two other critical ports — Zuetina and Brega, then the region’s only operational port — was contested.
On September 11, however, the balance of power shifted, as the rogue general Khalifa Haftar attacked Jadhran’s forces, consolidating control of all four ports. Since then, Libya’s oil production has slowly but steadily increased. Barring a dramatic shift in political alliances — always a possibility in Libya — this trend seems set to continue. For Libya, the incentives to increase production are mammoth and for once the major stakeholders in the country are all able to benefit from increased flows of cash.
The Libyan economy is in shambles and its sovereign assets are swiftly wasting away. The revenues that increased production would bring — especially at a time when other producers are cutting back — would be enormously beneficial for the foundering U.N.-backed government.
Indeed, although Haftar’s victories in the oil crescent do not mark a significant step toward national unity, they do imply an economic alliance. Haftar has long been considered an opponent of the UN-backed government in Tripoli, but with his control of the ports, that has partially changed, and he was quickly able to secure a deal in which oil would be exported under the banner of the National Oil Corporation (NOC), the government oil company.
On 21 September, international exports of stored crude resumed from Ras Lanuf for the first time since 2014, and on 6 October, they also resumed from Zuetina. And there are signs that Sidra will soon be operational, as other oil fields are coming back on line. The government has charged the NOC with carrying out much-needed repairs and maintenance, turning the until-recently moribund ports into hives of activity. There are also reports of external contractors resuming work in Libya.
Meanwhile, while Jadhran has attempted to reclaim the ports, Haftar has proven to be the stronger of the two. Jadhran’s counterattack against Ras Lanuf and Sidra on 18 September was easily routed. Most of Jadhran’s supporters have defected, including the tribal sheikhs who had previously backed him. His remaining loyalists are fragmented and few. Meanwhile, the Islamic State, which last year held swaths of coastal territory along the western edge of the oil crescent has already been essentially defeated. Its area of influence and operation is limited to one square km in the center of Sirte.
As a result, Libyan oil production is on the rise. In early October, it reached 500,000 barrels per day, up from 260,000 in August. The revenues from exports flow to the UN-backed Presidential Council through the Central Bank of Libya (CBL). The NOC has said it plans to increase production and exports to 900,000 barrels per day by the end of the year, and while Libyan estimations of future production should usually be taken with a grain of salt, this time, it seems completely possible.
To be sure, production figures could once again plunge as quickly as they rose. And yet, there’s reason to imagine that it will not. With the Islamic State and Jadhran’s forces marginalized, for the first time since 2014, the country’s main political players are all in a position to benefit from the flowing oil. And that’s good news for Europe — especially for the crisis-mired southern countries, which are largely dependent on the type of sweet crude that Libya exports.
Jason Pack is President of Libya-Analysis, Founder of EyeOnISISinLibya.com and North Africa Analyst at Risk Intelligence.
Rhiannon Smith is Managing Director of Libya-Analysis and Deputy Director of EyeOnISISinLibya.com