Commodities

Want Cheaper Oil? Pray for Stability in Libya


Want Cheaper Oil? Pray for Stability in Libya

Photograph by Mohammed Elshaiky/Anadolu Agency via Getty Images

Now that Libya’s government has wrested control of its ports back from armed rebels, the country is finally starting to export crude oil again. Libya’s oil has essentially been trapped since militias seized its three largest ports last summer in an attempt to grab a share of the country’s oil revenue.

On Tuesday, a ship bound for France began loading as much as 850,000 barrels of crude at Libya’s easternmost port of Hariga. This is the second shipment of oil to be loaded at Hariga in the last two weeks. On April 16, a ship called the Aegean Dignity began loading crude for export for the first time since rebels took over the port last July. In an interview with Bloomberg News at the time, the ship’s manager said that the crew “didn’t see any people with guns or soldiers” at the port trying to interfere. Which is usually good news.

Libya desperately needs to start exporting oil again. Its economy is more dependent on oil than any other in the world. The oil and gas industry makes up more than 70 percent of Libya’s economy and generates almost all government revenue. All told, the rebels’ 8-month seizure of the country’s ports cost Libya $14 billion in lost export revenue, according to Libya’s official news agency, LANA.

The country’s oil production has been crippled as a result, falling to about 200,000 barrels a day, from 1.6 million before the government lost control of its ports.

The steady decline of Libyan oil productionData: BloombergThe steady decline of Libyan oil production

The news out of Libya over the past two months has ranged from the tragic to the straight-up bizarre. In March, a North Korean-flagged tanker named the Morning Glory pulled into port and began loading crude oil. Then-Prime Minister Ali Zeidan threatened to bomb the ship if it tried to leave. When it did, the Morning Glory was able to break a government blockade, seemingly escaping with several million dollars of ill-gotten crude. A few days later, a team of U.S. Navy SEALs boarded the ship in the Mediterranean Sea and, well, that ended that.

Though the first shipments of oil suggest things may be improving, Libya’s still a mess. For the second time in six weeks, gunmen stormed the country’s parliament this week. Libya currently has no prime minister. Zeidan was sacked in the wake of the tanker fiasco, and his successor resigned after his family was attacked. While the political chaos certainly makes it harder to ramp up exports, it’s not impossible. Oil prices have slid for the past few days, in part because of expectations that more Libyan crude will hit the market.

If Libya, with the largest oil reserve in Africa, gets back to its historical norm of exporting a million barrels a day, that could bring some relief from higher summer oil prices. Eric Lee, an oil analyst at Citi Research says increased Libyan exports could take $5 or $10 off the price of crude by this summer. While that wouldn’t make a huge difference in gasoline prices, it could dampen what is usually a seasonal rise in pump prices during the late spring and summer.

Right now, Libya is at the back of the pack of OPEC producers, well off its ordinary role as one of the organization’s biggest exporters. With the situation in Ukraine unsettling markets, the world could use some stability in Libya.

Philips_190
Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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