Only a Cease-Fire Will Protect Libya’s Oil

(Bloomberg Opinion) -- For a month now, forces loyal to the self-styled Libyan National Army (LNA), the armed group commanded by Khalifa Haftar, have tried to seize control of the Libyan capital Tripoli. Like much of western Libya, Tripoli is held by Haftar’s rival, the UN-backed Government of National Accord (GNA). Symbolically, Libya’s main oil terminals are located almost halfway between the LNA’s stronghold in the east of the country and the GNA’s western base.

As Chairman of the Libyan National Oil Corp., I cannot foresee any scenario, other than an immediate ceasefire, in which Libya’s oil exports are not severely impacted by the conflict.

The fighting is already impacting the oil sector, threatening our ability to maintain production – and more importantly, to ensure the safety of our employees. On April 10, a bomb struck one of our facilities in the outskirts of Tripoli, causing a fire to break out. We are experiencing supply shortages at fields in the south and the west of the country, which need fuel and catering in order to sustain operations. The war has forced Libya’s oil aviation service, Petro Air, to halt many of its flights, affecting crew changes at a number of fields.

It also creates a deep sense of unease amongst our workers, who see no route to safety in the case of security or medical emergencies. Two weeks ago a colleague was abducted near Sirte, and others have received threats to their lives by telephone. In Tripoli, key personnel cannot cross the city from their homes into our headquarters due to the fighting. Larger projects have been disrupted by the evacuation from Libya of international oil company staff.

It is also proving increasingly difficult to preserve our neutrality in the conflict. For example, our airport at Sidra was seized by the LNA and warships have been berthed at one of our terminals. On another occasion, LNA fighters attempted to commandeer our vessels for military purposes, posing a significant threat to our loading capabilities. We expect more pressure from belligerent parties to utilize our property and fields. While we are as determined as ever to oppose attempts to depict NOC as partisan in this conflict, we are in no position to resist this sort of military pressure.

Alarmingly, I have seen documentation proving that attempts are now being made to sell Libya’s oil illegally through parallel entities. Without doubt, the breaking of NOC’s monopoly on exports would result in a prolonged civil war with an array of actors arming and funding themselves through oil money.

It is no secret that the Islamic State was resurgent in Libya even before this latest round of violence. It has regrouped in the remote south, where we have critical infrastructure producing up to 370,000 barrels per day. Its attacks in the area are increasingly brazen, and we are receiving daily field reports of terrorists in the vicinity. In September, I was lucky to escape with my life when IS militants besieged our headquarters in Tripoli, armed with guns, grenades and explosive belts. Two NOC employees were not so fortunate; the deaths of Bachir Massoud and Wahid Dardour haunt me to this day. The ongoing turmoil gives IS the opportunity to grasp for Libya’s riches.

Even if one side in the LNA/GNA conflict were to prevail and consolidate power, we are certain that oil fields will continue to be contested. As the economic engine, Libya’s oil is strategically valuable and symbolically significant. Oil assets are the natural targets for those who aspire to power and those who wish to frustrate them, as has been demonstrated repeatedly since the 2011 revolution. Furthermore, the fields in the south of the country are located near to desperately poor communities which have long been neglected by both sides of the conflict, therefore alliances in that region will continually shift and re-shape.

Over the past two years we managed to increase production from 255,000 bpd in August 2016 (and 377,000 bpd for 2016 as a whole) to 1.26 million bpd in March 2019. This happened because neither side had control over the entirety of Libya’s oil system. Instead, a “dual-key” system emerged. The LNA handled security at the ports and some of the fields, and therefore had its hands on the taps of Libya’s oil export routes. But the GNA, with the support of UN resolutions, had the sole authority to determine which exports were legal.

This created a remarkably stable foundation for raising production. It forced cooperation between the two sides and generated a natural equilibrium. It also represented the separation of security from civilian financial and administrative control. This arrangement set a positive precedent for Libya’s future more generally.

What we are now seeing in Tripoli is a fight for control of oil facilities with a winner-take-all outcome. What is certain is that the losers will transform the oil sector into an arena for endless reprisal attacks.

Only a ceasefire and a return to the dual-key system will return stability to Libya’s oil sector. Libya’s civil conflict has raged for too long, and it is tempting to seek to break the deadlock once and for all. However, a violent swing of the pendulum, one way or the other, threatens to take offline much of Libya’s oil production – and along with it, Libya’s prospects for a peaceful and prosperous future.

To contact the editor responsible for this story: Bobby Ghosh at aghosh73@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mustafa Sanalla is the chairman of the Libyan National Oil Corp.

©2019 Bloomberg L.P.