How Long Will Libya’s Oil Crisis Last? Political Tensions, Blockades, and Future Scenarios for the Energy Sector

August has been a month of significant developments, intensifying situations across various fronts, including energy, the economy and state finances, as well as politics and security. The oil sector and fuel supplies have been particularly affected, leading to a fuel crisis and nearly halting Libya’s oil production. In this article, we evaluate the impact of these developments on the energy sector and explore potential future scenarios for this crisis.

A closer look

August began with the shutdown of al-Sharara, Libya’s largest oil field, operated by Akakus —a joint venture between the National Oil Corporation (NOC) and several international oil companies, including the Spanish giant Repsol. This already had cost Libya 180 million Libyan Dinars (LYD) per day - around $30 million.

Political tensions then escalated with the Higher Council of States’ (HCS) elections. The disputed results led former head Mohamed Takala to reject the outcome and call for a re-vote. As it became apparent that Government of National Unity (GNU) Prime Minister Abdulhamid Dabaiba and his allies had lost both the political and financial battles in the HCS and Tripoli, they resorted to military escalation and attempts to assert control by force.

In response, the eastern-based House of Representatives (HoR) swiftly implemented preemptive measures to counter potential moves by Dabaiba and his allies in the Presidential Council (PC). These measures included reaffirming the withdrawal of confidence from the GNU led by Dabaiba and declaring that the mandate of the executive authority, including the PC, had expired. This preemptive action was intended to address reports that the Presidential Council was preparing to rule by decree on several key issues, including appointing a new Central Bank of Libya (CBL) Governor, dissolving both the House of Representatives and the Higher Council of States, and declaring a state of emergency. However, it was clear that the PC was acting on instructions from Dabaiba, and its authority did not extend beyond Tripoli. The aftermath of these decisions revealed that their power was limited, leading to major disruptions and uncertainty in the country.

The oil blockade

In response to the GNU and PC’s moves, the Libyan National Army (LNA), the HoR and the eastern-based Government of National Stability (GNS) led by Osama Hamad, declared that they would order the shutdown of all oil production and exports from areas under their control — which account for over 85% of Libya’s oil production and exports — if the GNU and the PC moved ahead with the forceful removal of the CBL Governor Saddiq al-Kabir. Indeed, that is precisely what has happened.

The current blockade is now costing closer to $40 million per day in lost revenues. At LIBYA DESK we have always maintained that politically-motivated oil blockades tend to last long, usually for months, given that the root causes behind the shutdown are difficult to resolve in a short space of time. However, this time, there are two main new unknowns at play.