Libya's oil supply under threat as rival governments jostle for power in Tripoli: sources

Libya's oil sector is on tenterhooks after clashes in Tripoli May 17 following the failed attempt by the Government of National Stability's Prime Minister Fathi Bashagha to take control of the country's capital, industry sources told S&P Global Commodity Insights.

This comes as Libyan crude production is languishing at around 800,000 b/d due to a series of oil blockades at its key terminals and infrastructure as tensions between Libya's two rival governments intensify.

The Government of National Unity's Prime Minister Abdul Hamid Dbeibah has refused to concede power after Fathi Bashagha was elected by the eastern-based House of Representatives in February. Dbeibah has said he will not step down until an elected government is voted to power.

Amid this, around a third of Libya's oil production remains offline as the thorny issue of distribution of oil revenues reared its head between the eastern and western governments of Libya.

Row on oil revenues

The Libyan oil sector will remain in a continuous state of flux in the second half of 2022 as the latest oil blockade is directly linked to the GNU/GNS power struggle, according to Iliasse Sdiqui, associate director at Whispering Bell, a risk management company covering North Africa.

"Steady oil production and exports will be difficult to achieve, despite US hopes that Libya will alleviate global supply concerns due to the conflict in Ukraine," Sdiqui said.

"The US is in favor of a Libyan-led mechanism to monitor oil revenues. However, such a mechanism is unlikely to receive unanimous approval given the current polarized political context," he added.

State-owned National Oil Corp. is currently looking to frame an oil revenue management mechanism with Bashagha's government and the GNU with the help of the US government.

On May 14, the US Embassy in Libya said it fully supports the temporary freeze on oil revenues in the NOC account of Libyan Foreign Bank, but the state-owned company has not yet taken this step.

Disruptions likely

Analysts at S&P Global Commodity Insights expect Libyan May crude supply to remain just over 800,000 b/d for May.

"With two self-proclaimed governments vying for oil revenues, Libyan supply is becoming less certain," they said in a recent note. "The disrupted terminals and fields remain shut as groups aligned with LNA's Haftar demand greater pressure on Dbeibah."

Crude exports from the 90,000 b/d Brega, 90,000 b/d Zueitina, and 70,000 b/d Mellitah terminals remain on force majeure, while production at the country's largest oil field Sharara remains low at around 80,000 b/d, impacting flow from the 250,000 b/d Zawiya port, according to sources. NOC had declared a force majeure on these exports in early May.

This blockade was carried out by forces loyal to the self-styled Libya National Army, which is currently supporting Bashagha.

Sdiqui said Bashagha's latest failure to establish a permanent presence in Tripoli places a burden on his relationship with LNA leader Khalifa Haftar.

"This in turn reinforces the utility of the oil blockade, making a resumption of production less likely in the next few weeks," he added. "While the blockade may have so far helped the GNS exert pressure on the Tripoli government, it can now be utilized by LNA's Khalifa Haftar to reinforce his posture amid fading GNS prospects."

Many of the country's institutions have regularly clashed on issues relating to the oil sector, which has been wrecked by civil war, militant unrest, and terrorist attacks over the past decade.

The eastern and the western parts of the country have regularly clashed on the distribution of oil revenues.

The dispute over the distribution of oil revenues was one of the main reasons for an eight-month-long Libyan National Army blockade of oil facilities in 2020, which dragged crude output to below 200,000 b/d.

Libya holds Africa's largest proven reserves of oil and its main light sweet Sharara and Es Sider export crudes have a high yield of middle distillates and gasoline, making them popular with refineries in Europe and China.