COMMODITIES 2025: Oil shutdown spells further chaos in ‘mafia state’ Libya

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Libyan oil output rallied in November to 1.17 million b/d, according to S&P Global Commodity Insights estimates, the highest production figure since October 2022. But given the country's volatile security situation and fractured politics, the revival is unlikely to last very long, Libya watchers say.

Libya contains Africa's largest oil and gas reserves, but was plunged into chaos with the overthrow of Moammar Qadhafi in 2011 and is yet to recover. In 2014, it split between rival governments in the west and east.

With strong production coming on the heels of a weeks-long oil shutdown, prompted by a row over the leadership of the Libyan Central Bank that ended in early October, analysts say the crucial sector will continue to be at the mercy of political actors in the year to come.

"If someone understands what will happen on a political level in 2025, then you will understand what will happen in the oil and gas sector," said a Tripoli-based industry source, speaking on condition of anonymity. "The National Oil Company wants to say production is rising and things are stable, but 2025 will be similar to 2024."

Big issues on the agenda include negotiations between state-owned NOC and foreign companies for key projects, the impact of Syrian President Bashar al-Assad's fall on Libya's political stability and the fragile truce between western-based Prime Minister Abdul Hamid al-Dbeiba and eastern warlord Khalifa Haftar.

"2025 offers mixed prospects for Libya's oil and gas sector," said Hamish Kinnear, senior analyst at Verisk Maplecroft. "On the one hand, Libya's output is hitting record levels and IOCs are resuming exploration work -- the sector is experiencing its strongest performance since the 2011 civil war. On the other hand, the recent central bank crisis and oil and gas shutdown show how Libya's intractable political strife can trigger sudden disruptions."

'Mafia state'

Because oil revenue underpins around 93% of government spending, the sector has become a microcosm of the political feuds that dominate the country. "Libya is a mafia state," Hafed al-Ghwell, a senior fellow at the SAIS Foreign Policy Institute, told a recent webinar. "You have family mafias, bureaucratic mafias, tribal mafias and regional mafias."

With different factions battling for control of key institutions, the heads of the NOC and the Central Bank have an outsized role in Libyan politics.

Tim Eaton, senior research fellow at Chatham House, said crude-for-fuel swaps by the NOC in recent months had cut revenue to the Central Bank, "effectively creating a black hole in the public finances". Nevertheless, Eaton said, "access to the oil sector seems to be the settlement on which Libya's rival players have agreed, and that is what is keeping things calm."

In August that blew up, when efforts by Dbeiba's Tripoli government to oust Siddiq al-Kabir, the central bank governor, led Haftar's faction to shut oil fields, including the 300,000 b/d Sharara and 90,000 b/d El-Feel fields, for over five weeks, driving up differentials for Med-bound crudes. UN-brokered talks eventually led to the appointment of Naji Essa as the bank's governor and the lifting of the blockade.

It was the worst shutdown of 2024 -- but not the only one. In January, protests at Sharara and El-Feel prompted a force majeure declaration by NOC. The 37,000 b/d Wafa field and associated Greenstream gas pipeline to Europe were shut briefly in February, while in August, before the full-scale shutdown, the Sharara field was shut on the orders of Haftar's son, Commodity Insights reported, in response to a European arrest warrant. On Dec. 15, the Zawiya refinery shut for the second time since September due to clashes between armed groups.

Libya also had two feuding oil ministers -- Mohammed Aoun and Khalifa Abdulsadek -- for months in 2024, adding to the sense of chaos in the sector. Although both faced corruption investigations, Dbeiba moved to sack Aoun, despite that authority resting with the House of Representatives.

Production increase

NOC recently pushed its 2 million b/d output target to 2028, despite seeing production rebound post-shutdown. In its most recent update, NOC said production hit 1.422 million b/d on Dec. 5, but analysts dispute whether such single-day highs can be sustained.

Libya exported 1.1 million b/d of crude, mostly to Europe, in November, according to data from S&P Global Commodities at Sea. Its flagship Es Sider crude grade was last assessed on Nov. 17 at a $1.20/b discount to Dated Brent, having fallen from a $1/b premium at the height of the shutdown.

Meanwhile, IOCs have lifted force majeure and resumed operations, eager to export more of Libya's coveted light, sweet crude. Italy's Eni, BP, Austria's OMV and Spain's Repsol have all committed to new exploration.

"It's fair to say that Libya's prospects are improving," said Kinnear, with a "de-escalation of hostilities clearing the way for more reliable oil and gas production."

However, the threat of shutdowns endures. "Clearly blockades will continue to be used in a political fashion," Eaton said.

In addition, key oil and gas projects continue to be dragged into political rows, including the NC-7 gas development and Waha field negotiations, which were publicly opposed by Aoun on the grounds that they offered overly favorable terms to IOCs.

And a well-placed source said IOCs were bristling at efforts by Turkey to lock down oil and gas assets in Libya, where Ankara sent troops in 2020 to shore up the Tripoli government. A Turkish firm is among the NC-7 suitors, while Turkish energy minister Alparslan Bayraktar said in September that Ankara was considering undertaking exploration efforts in Libya's Ghadames Basin.

"Turkey seems to have a degree of comfort and confidence in its ability to maintain relationships with both east and west and has been seeking to actively develop its commercial interests," Eaton said. "It is seen to be an increasingly major player in the oil sector [and] those efforts will continue."

Syria impact

For now, the fragile truce between Haftar and Dbeiba, cemented in an agreement that saw Farhat Bengdara appointed NOC head in 2022, remains in place.

However, efforts by international partners including the UN to steer the country toward long-delayed elections have come up short.

Muddying the waters is the fall of Syria's Assad in December. Assad's forces, forced to flee amid a rebel takeover, have been reaching air bases in eastern Libya with Russian protection, sources said, although the claims could not be independently verified.

"The blow to Russia's regional influence dealt by Assad's ousting could upset the precarious balance of power in Libya, which is broadly split between a Turkey-backed Tripoli administration and a Russia-backed eastern administration," said Kinnear.

"Ankara may in 2025 seek greater influence throughout Libya at Russia's expense, as Moscow struggles to maintain its bases in Syria and supply links to Haftar."