The political crises in Iraq, Libya and Sudan have prevented Brent crude oil prices from falling below $100 even though the US and EU have now eased sanctions on Iran and President Rohani has even attended Davos to invite multinational corporations (notably oil and gas supermajors) back . Iran inflation rate has dropped to 30 per cent  and the rial actually rose against the dollar in the Tehran currency bazaar after the Geneva interim nuclear freeze deal last month.However, the world energy markets are now most at risk from a supply shock from Libya. Libya’s oil wealth was squandered by the Gaddafi regime and its economy destroyed by its People’s Committees, Green Book and socialist central planning. However, Colonel Gaddafi maintained oil production at 1.6 million barrels a day (MBD) and political control over Libya’s oil terminals and refineries even in the Gulf of Sirte was concentrated in the Tripoli government. This repressive, centralised model broke down after Nato intervened to prevent the regime’s imminent assault on Benghazi and began a bombing campaign that culminated in the capture and execution of Muammar Gaddafi in October 2011.
However, the collapse of the Gaddafi regime reignited tribal and separatist forces in Libya. Tripoli’s control over the Sahara and Gulf of Sirte oilfields was wrested away by armed militias. Oil production plummeted as low as 200,000 barrels last summer . Rebel militias and oil workers union seized control of oil export terminals on the Mediterranean coast and shut down production, a crisis for Italian and Spanish refineries whose feedstock is the light sweet Libyan crude that the Gaddafi regime gladly sold to ENI, Reposal and Total etc.
The battle over Libyan oil infrastructure between the Tripoli government and militias  has now escalated and began to unnerve world oil markets. The geopolitical risk premium in Brent crude rose at least $2 a barrel last week due to events in Libya. The Libyan Navy even fired on a Maltese flag oil tanker that loaded contraband crude from a rebel held oil terminal on the Libyan coast. This militia calls itself the “official government of Cyrenaica” and has even contacted oil trading firms in London, Geneva and Singapore with offers to sell contraband Libyan crude via tanker. This is a challenge to the Libyan state and the National Oil Company’s legal monopoly on oil exports. If militias can seize oilfields and sell crude oil from their own illegal ports, than Libya has ceased to exist as a sovereign state.
The Libyan political crisis has now led to the resignation of five Cabinet Ministers, including the Oil Minister. The confrontation between Tripoli and the militias have undermined foreign investment in North Africa’s leading oil and gas exporter. The risk of a new civil war between Tripoli and the militia held oil ports in the east has never been higher as rebel leader Ibrahim Jedran will not allow Cyrenaica’s oil wealth, (60 per cent of Libyan exports in the Gaddafi era) to be exploited by a government based in Tripoli. Ironically, Ibrahim Jedran once commanded a 30,000 man Petroleum Guard created to protect the oil ports he shut down.
Oil and gas exports are 90 per cent of Libyan government revenue, so the Tripoli government has been financially bankrupted by the separatist militias in the east. Libya’s eastern province is estimated to own 76 billion barrels, Africa’s largest proven reserves. However, security is a nightmare and Shell has exited
Oil and gas dependence, tribal/sectarian rivalries and the repressive Gaddafi regime led to disaster in Libya.
By Sarie Khalid
The writer is a Dubai-based research analyst in energy and GCC economics.