Libya announces the resume of oil exports after a six-month blockade

Losses are estimated at over $6 billion
Una vista de Ras Lanuf Oil and Gas Processing Company en Libia

PHOTO/REUTERS  -   Ras Lanuf Oil and Gas Processing Company in Libya

On January 17, the Libyan National Liberation Army (LNA), commanded by Marshal Jalifa Haftar, imposed a blockade on the country's oil exports, in another move in its offensive against the rival faction, the Government of National Unity (GNA), led by Prime Minister Fayez Sarraj. The reason the LNA took this step was because they accused the GNA of using oil revenues to finance loyalist armed groups fighting Haftar in the civil war, which has been raging since 2011. But this Friday, almost seven months later, the head of the National Oil Corporation (NOC), Mustafa Sanalla, announced that he has lifted "force majeure" on oil exports.

"We are very happy to finally take this important step towards national recovery, and I wish to thank all parties in the recent negotiations that have helped to achieve this successful outcome," said the company's president. "This should be recognized as an important moment of common national purpose to bring lasting peace and stability to the country," he said in a statement released by NOC.

The first ship to load crude oil from Libya will be the Bastion Kitri in the oil port of Es Sider, according to the NOC. The oil terminals of Hariga, Brega, Zueitina and Ras Lanuf have already started to reactivate their activity, according to Oil Price.

The decision has been taken after UN and US-led talks with Haftar's foreign sponsors, NOC and GNA, which reached an agreement to lift the embargo. However, it has not been specified whether the LNA, which controls most of the country's oilfields, which are in turn protected by mercenaries and militia deployed by its partners, such as Russia or Sudan, will agree to fully restore oil production. These units recently entered the Sharara field, the largest in the country, with an estimated production of 315 billion barrels per day (mbp).

As a result, Sanalla has shown moderate optimism. "For NOC, the work has just begun. Our infrastructure has suffered lasting damage and our focus must now be on maintenance and securing a budget to carry out the necessary work. We must also have measures in place to ensure that Libya's oil production is never strangled again," the boss said in the note. According to the Corporation, the costs of repairing the pipeline network, surface equipment and maintaining the wells will reach "billions of dinars".

The recovery of oil exports is "a blessing" for the North African country, as analysts David Sheppard and Andrew England explain in the Financial Times. It should be remembered, at this point, that black gold is key to the Libyan economy, basically for three reasons: it has the largest reserves on the African continent and ninths in the world; it represents four fifths of the GDP, along with the rest of the hydrocarbons; and it generates more than 90% of tax revenues, as well as up to 98% of export earnings.

This also caused oil to become "a determining factor in the Libyan civil war as rival authorities struggle for greater control of the oil fields and state revenues.

According to NOC estimates, the six-month blockade has caused losses valued at more than 6.4 billion euros. Before the closure, the country, which is also a member of the Organisation of Petroleum Exporting Countries (OPEC), was producing 1.2 million barrels per day and is projected to reach 2.1 mbp by 2024. Now, production is expected to reach 650,000 barrels per day by 2022, taking into account that current levels are only around 100,000.

Impact on oil prices

The resumption of exports "could cause OPEC+ a headache in the coming months as the NOC continues to withhold supply from the market," warned analyst Charles Kennedy in Oil Price. In fact, the announcement of the end of the blockade, linked to the record number of cases of coronavirus in the United States and the increase in oil reserves in that country, "scared the market about the trend in the recovery of demand. Prices fell by more than 1% on Friday, although they subsequently recovered positively. "The return of exports comes at a difficult time for the entire oil market, which has been hit by the coronavirus pandemic, with a sharp drop in demand. The prospect of greater supply weighed on barrel prices, with the Brent plummeting more than 2% to $41.38," explain Sheppard and England.

"The global market will have difficulty absorbing these additional Libyan barrels," says Again Capital analyst John Kilduff in World Oil.