Libya Set For Strong Comeback To Global Oil Markets

Libya could soon return to the world oil market in a big way, if the agreement between the UN-recognized Government of National Accord (GNA) in Tripoli and General Khalifa Haftar's Libyan National Army (LNA) in the East of the country is maintained.

Libya’s production plummeted from 1.2 million bpd in January to under 200,000 bpd in recent months, after tribal militias and the LNA blockaded key ports on the East of the country – Brega, Zuetina, and Hariga — in an attempt to starve the UN-backed GNA of revenue. Should the conditional agreement stick, Libya could see production reach 500,000 barrels per day (bpd) as soon as this weekend and up to 1,000,000 bpd in the fourth quarter, per Bloomberg.

Libya, an OPEC member, is home to the largest oil reserves in Africa. The country is exempt from the cartel’s latest crude production limit agreement (reached between the market maker Saudi Arabia and the non-member Russia in April) which aims to cut supplies by 7.7 million bpd by December of this year in an effort to buoy anemic oil prices.

Despite a potential decline in the flow of crude caused by the Armenian-Azerbaijani conflict in Nagorno-Karabakh (the main export oil pipeline Baku-Tbilisi-Ceyhan runs not far from the Karabakh border) global prices remain weak. Brent crude futures fell $1.64, or 3.9%, to $40.66 a barrel Thursday on renewed coronavirus fears and news of increased production from OPEC, which added 160,000 bpd in September from August numbers.

Will The Agreement Hold?

The agreement between the warring parties in Libya was reached by representatives of the Western and Eastern regions in mid-September. The GNA government, based in Tripoli, is supported by the U.S., some EU members, Turkey and Qatar. In the East, General Haftar’s LNA out of Tobruk is supported by the UAE, Egypt, and Russia. France is sympathetic.

According to the media, the deal was brokered directly between General Haftar’s son Khaled and GNA Deputy Prime Minister Ahmed Maiteeq, who is heading the Peace Commission. Per the agreement, the LNA ended its blockade of key oil export infrastructure mid last month. It also provides for the commencement of the Commission to oversee oil revenues and ensure equitable distribution of resources, as well as a number of specific measures to stabilize the financial situation in Libya.

The agreement, although only intended for a one-month period so far, contains elements of more permanent arrangements that benefit both the GNA and the Western region LNA, as well as the tribes that inhabit all areas of Libya: the launch of the exchange rate adjustment mechanism of the dinar, including leveling the exchange rate throughout the country; the opening of a system of national payments between Libyan banks; and more. Maiteeq called the agreement concluded under the new Commission (“the Libyan-Libyan initiative”).

If the parties fulfill their obligations to improve the socio-economic situation of the Libyan people, it will increase the authority and popularity of General Haftar as well as GNA Vice Premier Ahmed Maiteeq, the architect of the agreement and head of the Commission. Mr. Maiteeq is a longtime businessman and prominent politician — he hails from a wealthy family and was elected Prime Minister in 2015. With the new agreement holding, Maiteeq has achieved what current GNA Prime Minister Fayez al-Sarraj has been unable to accomplish for many months. It is still unclear whether al-Sarraj will sign off on the deal, however, as he is maneuvering to remain a power-broker after stepping down this fall.

The Brotherhood and Its Allies

The success of the deal may also depend on the role of Muslim brotherhood factions within the GNA. The Muslim Brotherhood-affiliated Khaled Al-Mishri, the Chairman of the Council of State, and Tripoli’s Interior Minister Fathi Bashagha, are senior politicians within the GNA that maintain strong links to the Islamist extremist group and are supported by the Turkish Government and the Qatari Court. Al-Mishri has rejected peace initiatives by the neighboring President of Tunis and was accused of being on the Qatari payroll. Bashagha was suspended by al-Sarraj amidst allegations of close ties to Turkey and abuse of power while suppressing demonstrations in Tripoli. Moreover, The Muslim Brotherhood has no interest in seeing a lasting peace between both parties, preferring instead to undermine talks and continue to maneuver to build up its influence in Libya.

Hoping to be the first in the distribution of new production contracts, many geopolitical players (including Turkey, Qatar, Italy, Egypt, Russia, France and UAE) seek to support different Libyan factions in these negotiations.  

At the moment, there are several parallel diplomatic platforms on Libya, where they discuss the future political arrangements of the country. So far, neither the negotiations in Morocco, nor the Geneva consultations, nor the Berlin agreements, nor the Russian-Turkish negotiations have achieved substantive results.

The current agreement will cover the existing reserves, negotiations on a single budget, and the re-launch of the banking clearing system inside Libya. However, there are also those who oppose this agreement. In addition to the Muslim Brotherhood, El-Mishri and Basagha, and other actors are hoping to derail the revenue-sharing deal. Libya’s National Oil Corporation (NOC), perhaps the third most powerful party in Libya after the warring governments, views the plan as a threat to its monopoly on oil decision-making. The NOC is the only entity in the country authorized by the UN Security Council to export oil and says it will not lift force majeure restrictions on installations where armed groups remained.

Turkey, a bastion of the Muslim Brotherhood and increasingly destabilizing geopolitical force in the region, has not publicly opposed the agreement yet. It could be that Ankara’s interests in Libya – which center around controversial maritime borders and deep sea drilling rights in the Eastern Mediterranean – are better served if the GNA government (which backs their claims) is well-funded. But as evidenced by its positioning in Libya, Syria, Qatar, and now Armenia, Turkey’s foreign policy can be described as neo-imperialist or neo-Ottoman. Never before has the country been so diplomatically isolated, with many identifying its overt support for the extremist Muslim Brotherhood as a driver of the Arab countries’ collective diplomatic shift towards Israel. Turkey’s role in Libya must be circumscribed by the international community if stability and reconciliation is the ultimate goal.

The international community, including the United Nations and the parties involved should hope that the Maiteeq-GNA/Haftar- LNA agreement will allow the provision of diplomatic and technical assistance so that oil revenues may finally reach the long-suffering people of Libya – and keep the oil price down in the difficult global economic recovery from COVID-19.