London — Libya's output recovery obscures the fragility of its outlook, against a backdrop of political uncertainty and a worsening security situation.
Despite Libyan crude output recently surging to a five-year high of around 1.15 million b/d and expectations that production will average just over 1 million b/d next year, the critical risk of civil conflict is unlikely to fall anytime soon.
Areas like the southwest of the country where the Sharara and El Feel oil fields are located remain particularly prone to outages caused by chronic fuel shortages and security problems.
"It is inaccurate to look at the NOC's [National Oil Corporation] production levels as an indicator because protests and disruptions occur even when production is high," said Iliasse Sdiqui, a lead analyst at Whispering Bell, a risk management firm.
In mid-December production was averaging close to 700,000 b/d after armed groups occupied the Sharara field, outlining how vulnerable the country remains to disruptions.
The worry is, with presidential and legislative elections due in 2019, it seems highly likely that various groups will increasingly focus on controlling the country's oil infrastructure. That means a very high risk of an armed attack on key pipelines and production facilities.
"It is a vicious cycle really, because it all stems from political uncertainty, budgets allocated to the NOC to be precise, which then translates at the local level into grievances and perceptions that a particular area is being neglected, resulting in protests and shutdowns," said Sdiqui.
One of the biggest bones of contention is the allocation of oil revenues to different parts of the country and the government.
"Beyond protests fueled by local grievances and the threat of attack, the distribution and allocation of revenues generated by oil sales is the main source of instability, and to which no durable solution has yet been found," added Sdiqui.
The ambitions of General Khalifa Haftar from the Libyan National Army to rule Libya ahead of next year's elections add another element of unpredictability to Libya's political future.
Haftar consolidated his hold over eastern ports in the oil crescent in June and July this year and he retains considerable leverage in the oil sector.
But it is not all grim. Libya's recent production boost has confounded most analysts and there is some hope that international oil companies are gradually coming round to the idea of returning to a country that has seen its production double in the past two years.
BP and Eni recently announced their intention to resume exploration activities, while OMV and Repsol are also hoping to increase their upstream presence.
Production has averaged 946,363 b/d from January to November this year, compared with 807,500 in 2018, according to S&P Global Platts OPEC survey data. This compares with just below 400,000 b/d in 2016 and 2015. Prior to the civil war that began in 2011, Libya produced some 1.6 million b/d.
Fernando Ferreira, a senior analyst at Rapidan Energy Group, said NOC Chairman Mustafa Sanalla had done a good job lobbying IOCs to increase their investments in the oil sector, adding that there is likely to be increased interest in Libyan projects in 2019.
Matt Reed, vice president of Foreign Reports, a Middle East consultancy, said that the success of Sanalla could make NOC a more appealing target for shakedowns.
"Production and revenue are way up this year, and that isn't lost on potential spoilers. The elections planned for next year will have huge repercussions for the oil industry. If Haftar doesn't get the result he wants, but his men still control major terminals, what then?"
The North African country must hope find a political solution that allows its oil industry to build on and sustain its recent recovery.