Libya to Resume Oil Exports After 6-Month Blockade

Libya to Resume Oil Exports After 6-Month Blockade

Reprinted from the FT 12/07/2020

The decision comes at a difficult time for a wider market that has been hard hit by the pandemic. Protesters gather in front of Libya’s National Oil Company in February over halt in production. Libya will resume crude oil exports for the first time in six months, the head of the country’s state energy company said on Friday, indicating that a long-running blockade that has cost the strife-ridden Opec member $6.4bn is coming to an end.

Mustafa Sanalla, who has struggled to free Libya’s main economic lifeline as forces battle for control of the country, said the National Oil Corporation was now in a position to lift force majeure, although he cautioned production would remain depressed because of technical problems. “We are very glad finally to be able to take this important step,” said Mr. Sanalla. The decision follows UN and US-led talks with foreign backers of renegade general Khalifa Haftar, who controls eastern Libya, the NOC, and the UN-backed government in Tripoli to strike a deal to get the embargo lifted. The NOC did not give details of the agreement and it was not clear whether forces loyal to Gen Haftar would allow the company to resume full production.

The forces that protect oil facilities are made up of militias and tribal fighters who are loyal to rival Libyan factions and the NOC last month said it was concerned that Russian and Sudanese mercenaries aligned to Gen Haftar had moved into Sharara, the country’s largest oilfield in the south. But Mr. Sanalla said the lifting of the force majeure was an “important step to national recovery” adding that the first tanker, the Kriti Bastion, would load from the port of Es Sider.

Mustafa Sanalla, head of Libya’s national oil company, warned that restoring full output would take time. Tanker tracking data shows the vessel arrived at the port on Thursday, which lies in the east of the country. Forces loyal to Gen Haftar imposed the embargo in January as the eastern commander laid siege to Tripoli in an attempt to topple the UN-backed government.

The return of exports, while a boon for Libya, comes at a difficult time for the wider oil market that has been hard hit by the coronavirus pandemic, with demand falling sharply. The prospect of increased supply weighed down on oil prices on Friday, with Brent crude oil falling more than 2 per cent to $41.38 a barrel, while traders were also eyeing rising Covid-19 cases in the US.

Brent had traded near $70 a barrel at the start of the year. The embargo caused Libya’s oil production to collapse from about 1.2m barrels a day to less than 100,000 b/d at a time when Opec members, led by Saudi Arabia, and Russia — a backer of Gen Haftar — have slashed production to stabilise the oil price.

Mr. Sanalla told the Financial Times last week that he believed foreign powers were looking to delay the return of Libya’s oil. Libya oil chief says foreign powers hampering efforts to end embargo The NOC chairman is looking to secure funding and investment to restore production quickly.

“On the top of the $6.5bn in lost production we as a nation have suffered, NOC faces huge extra costs to repair infrastructure damage,” said Mr. Sanalla. Libya’s civil conflict has morphed into a proxy war awash with foreign mercenaries since Gen Haftar launched an offensive on the capital last year. Mr. Sanalla, a technocrat who has long sought to keep the NOC independent from warring factions, had proposed that the Libyan parties and their foreign backers would agree to a deal that would see the embargo lifted and the oil revenue frozen for a set period in the NOC’s account rather than transferred to the Libyan central bank. The initiative was designed to address concerns about the distribution of the country’s oil wealth and a lack of transparency about how the money is spent while keeping the oil facilities out of the conflict.

The bank has faced mounting criticisms from all factions over a lack of transparency, concerns about corruption, and the inequitable use of petrodollars. But Mr. Sanalla is also looking to attract investment and funds for the country’s dilapidated oil sector. “For NOC, the work has just started,” Mr. Sanalla said. “Our infrastructure has suffered lasting damage, and our focus now must be on maintenance and securing a budget for the work to be done. We also must take steps to ensure Libya’s oil production is never again held to ransom.”