Libya Fighting Has Erupted Again. Here’s the Oil Impact
Outlet pipes and fuel storage tanks are seen at the Zawiya oil refinery near Tripoli, Libya. (Photographer: Shawn Baldwin/Bloomberg)

Libya Fighting Has Erupted Again. Here’s the Oil Impact

(Bloomberg) -- Amid fighting near the Libyan capital of Tripoli, the risk of oil-supply outages from the OPEC member remains high. The country has been in disarray since Muammar Qaddafi was ousted as head of state and killed in 2011. Oil output has surged in 2019, but continuing battles are a reminder that reliable crude flows require a political solution to end eight years of strife.

1. What’s the risk to oil?

Warlord Khalifa Haftar, who controls the east and south of the country, has used control over oil ports to exert political pressure on the United Nations-backed, internationally recognized government of Prime Minister Fayez al-Sarraj. His self-styled Libyan National Army, supported by Russia, Egypt and the United Arab Emirates, mounted a surprise assault on Tripoli in early April to purge what he called terrorist groups. Lethal clashes including air strikes prompted appeals by U.S. Secretary of State Michael Pompeo and the European Union to halt the offensive. Haftar has more recently soothed oil markets by promising that Libya’s National Oil Corp., or NOC, has the “exclusive” right to export the county’s crude.

2. Could Haftar take the capital?

That’s unclear. His ragtag forces are better organized than those of rivals and easily took over the south, including the biggest oilfield, Sharara, through negotiations rather than fighting. However, resistance to Haftar runs deep in Tripoli, and militias there are more powerful than in the south. The battle for control of Tripoli could lead to some of the bloodiest fighting since the 2011 civil war. Even Haftar’s foreign supporters have expressed public concern about the latest violence. In an interview with Bloomberg News, Haftar vowed to continue fighting after retreating from the strategic city of Gharyan, about 80 kilometers (50 miles) south of Tripoli.

3. What would a Haftar victory mean?

Probably a unified Libya under his rule. Haftar already controls not just the nation’s strongest military force but more than one million barrels of oil production a day -- the source of most of the country’s income. About 50 kilometers (31 miles) west of Tripoli is Zawiya, home to a major refinery and oil-export terminal. If Haftar took charge there, he would essentially control Libya’s oil industry. That would let him deliver gains to his supporters in the east who claim that too much wealth is concentrated, and squandered, in the west. But the warlord says that his foremost objectives are political and that he’s not interested in exporting oil on his own.

Libya Fighting Has Erupted Again. Here’s the Oil Impact

4. Have oil exports been affected?

Major oilfields and export terminals are far from the clashes. But history shows that military activity anywhere in Libya can cause dramatic swings in output. In June 2018, Libya’s crude shipments were suspended for weeks after Haftar captured two export terminals in eastern Libya from the Tripoli-based National Oil Corp. and transferred them to a rival oil authority. Exports dropped by 800,000 barrels a day, and Libya lost almost $1 billion before he handed the terminals back. Foreign buyers have so far refused to deal with the eastern company and purchase oil only from the Tripoli NOC. Haftar has now affirmed that Tripoli has the sole right to sell Libya’s oil.

Libya Fighting Has Erupted Again. Here’s the Oil Impact

5. How’s this affecting energy markets?

The escalating conflict helped push oil prices above $70 a barrel. Libya was pumping 1.2 million barrels a day before the Tripoli clashes. A drop in production of half a million barrels a day, on top of coordinated curbs by other OPEC members, could cause prices to spike above $80, by one calculation. European refiners are the biggest buyers of Libyan crude, so they would have to find new suppliers if exports are affected.

6. What’s the U.S. position?

President Donald Trump indicated in a phone call with Haftar in April that the U.S. now supports an assault on Tripoli to topple the government, according to American officials familiar with the matter. An earlier call from National Security Adviser John Bolton also left Haftar with the impression he had a U.S. green light for an advance on Tripoli, according to diplomats. These accounts go beyond a White House statement about an April 15 call between Trump and Haftar. The statement revealed that Trump had undercut al-Sarraj’s government by tacitly recognizing Haftar as a Libyan leader.

7. What about a political solution?

UN mediation efforts were faltering even before the U.S. changed its stance. Al-Sarraj has accused Haftar of backtracking on promises to work toward a political compromise, and militias loyal to Tripoli have vowed to confront Haftar’s offensive. The fighting caused the UN to indefinitely delay a planned peace conference to reconcile the feuding factions.

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