Immeasurable dangers facing Libya's economy over perpetual oil shutdown

Published December 15th, 2013 - 03:00 GMT
The six-month shutdown of Libya's oil industry by rogue militias and disgruntled tribesmen has forced the government to dip into the country's foreign reserves, a
The six-month shutdown of Libya's oil industry by rogue militias and disgruntled tribesmen has forced the government to dip into the country's foreign reserves, a

The six-month shutdown of Libya's oil industry by rogue militias and disgruntled tribesmen has forced the government to dip into the country's foreign reserves, a move that will likely exacerbate the political turmoil that led to the shutdown if no settlement is soon found.

Prime Minister Ali Zeidan said he expects three Libyan oil ports on the Mediterranean to reopen Sunday, allowing vital exports to resume, restoring the flow of state revenues, however those ambitions did not see the light. 

This followed negotiations with tribal leaders in the east, the crucible of the unrest that followed the fall of longtime dictator Moammar Gadhafi in August 2011.

But Ibrahim Jadran, the charismatic warlord in eastern Libya where 60 percent of the country's oil is, said that won't happen unless the government meets his demands for a larger share of oil revenue for the increasingly lawless region and more political power.

Zeidan flatly refuses to deal with Jadran's regional autonomy movement, the driving force behind the closure of the ports of Ras Lanuf, es-Sider and Zueitina, as well as other facilities.

Jadran, a key leader in the 2011 revolution against Gadhafi, is based in Benghazi where powerful Islamist militias hold sway.

If the ports remain closed, as seems likely, Zeidan's harassed government faces an intensification of the crisis that officials say is currently costing Libya some $130 million a day in lost oil revenue.

Access to oil revenue is at the root of the current power struggles that have shut down production, Oxford Analytica observed.

The interest groups involved are divided on regional, tribal, ethnic and ideological lines, and the risks of escalation have been amplified by the huge quantities of weapons stockpiled around the country during the era of Moammar Gadhafi.

Oxford Analytica noted government finances are not in any immediate danger.

But it warned that eventually the loss of oil revenue will constrain the government's ability to keep on paying public salaries -- including those of the militias -- and financing the distribution of subsidized goods.

That, in theory, should spur politicians, militia warlords and tribal leaders to negotiate a settlement of the oil crisis that began in June.

Then, disgruntled oil industry workers and the 30,000-strong Petroleum Facilities Guard, which includes large numbers of ex-militiamen, began closing energy facilities to back demands for higher pay, replacement of managers alleged to be corrupt or linked to the Gadhafi regime and greater regional autonomy.

But there are wider, more intractable political problems involved in the unrest that go beyond the issue of greater autonomy for eastern Libya, known of Cyrenaica, the southern Fezzan region and the western region, the ancient Roman province of Tripolitania.

Many Libyans see the government and oil ministry as too much under the sway of the country's offshoot of the Muslim Brotherhood, which lost the popular historic July 2012 legislative elections but is seen as exerting undue influence, observed Tripoli-based analyst Borzou Daragahi.

Corruption scandals that have emerged since the uprising have also contributed to the sense that some Libyans have gained more than others from the revolution.

While Jadran is seen as a rebel warlord and an outlaw by Zeidan's government, he's a Robin Hood to his loyalists, Daragahi noted.

Meantime, he's holding Libya's all-important oil industry hostage.

Oil Minister Abdelbari al-Arusi said Dec. 7 Libya has lost more than $7.3 billion due to the shutdown, during which production slumped from 1.3 million bpd to around 210,000 barrels per day -- with half of that being used to keep the 120,000 bpd Zawiya refinery running to provide fuel for the domestic market.

Libya is also losing its regular oil customers as a result of the disruptions.

We're facing a big problem because oil from Algeria and oil from Nigeria has entered the Mediterranean market, al-Arusi said. We've started looking for new markets in East Asia to offset the loss.

With Libya's woes showing no sign of abating, Oxford Analytica said the government will probably be able to cover this year's budget shortfall through borrowing, but the drop in oil revenue is likely to result in a balance of payments deficit which would erode foreign reserves currently listed as $128 billion.

Libya is not in imminent danger of financial collapse, it noted, but if the political crisis continues to stunt oil output, foreign exchange reserves will deplete to dangerous levels within two to three years.

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