The Fuse

A Brief History of Disputed Libyan Oil Sales

May 02, 2016

Guest Post by Matthew M. Reed | @matthewmreed

Matthew M. Reed is Vice President of Foreign Reports, Inc., a Washington, DC-based consulting firm focused on oil and politics in the Middle East.

Twice in two years, Libyan oil has been loaded onto tankers and reached the high seas, in spite of protests from the powers that be in Tripoli. In both cases the international community came to the rescue and stopped the “illicit” cargoes. Both episodes, in March 2014 and April 2016, underscored the weakness of recognized governments, which are dependent on foreign powers to protect their resources and revenue. Today, even as an upstart NOC in the east boasts about exports, it stands virtually no chance of selling oil in commercial volumes.

Today, even as an upstart NOC in the east boasts about exports, it stands virtually no chance of selling oil in commercial volumes.

The first unofficial attempt to sell Libyan crude was made in the summer of 2013 when a revolutionary-turned-guard-turned-activist, Ibrahim Jadran, shut down Libyan export terminals and announced his intention to sell oil on behalf of the country’s eastern region. Commonly called Barqa, eastern Libya was chronically underdeveloped during four decades of Muammar Qaddafi’s misrule—in spite of the fact that most of the country’s oil is located there. Since Jadran was the commander responsible for guarding major oil terminals in the Sirte basin, no one could stop his men from blockading the ports. The central government issued countless threats but never mustered the force to stop them.

In August 2013, Jadran came close to selling oil the first time, but the tanker was turned away at the last minute by Libya’s scrappy navy. Jadran came close to selling oil again in January 2014 but that tanker was also turned away with warning shots. His luck changed two months later when a North Korean-flagged tanker, the Morning Glory, docked at the Es-Sider terminal. Some of Jadran’s men boarded the ship and it was loaded with oil. Before it could depart, pro-government naval forces intercepted the tanker and escorted it west for a time. But in the dead of night and in rough seas, the Morning Glory broke for open water; Libya’s lame navy couldn’t keep up. The ship’s captain, who claimed to be unaware that the cargo was illegal, later called it a hijacking.

Tripoli, for its part, was powerless to stop it, and Prime Minister Ali Zeidan was ousted as a result. He was replaced by his Defense Minister, Abdullah al-Thinni, who could only ask for international help. That help came in the form of U.S. Navy SEALs who recaptured the ship on March 16 without firing a shot. Days later, the UN Security Council adopted Resolution 2146 authorizing member states to interdict stolen oil if asked to do so by the government in Tripoli, which was—at that time—Libya’s sole government.

The Morning Glory, its crew, cargo and hijackers, were all turned over to Tripoli. Jadran gave up on selling oil after the UN resolution was adopted, but he kept control of the oil terminals. The negotiations that followed succeeded in June and were sealed with a handshake in July when Jadran and Prime Minister Thinni agreed to end the blockade. Oil production ramped up steadily thereafter, rising from about 250,000 b/d to 1 million barrels per day (mbd) in late October.

It appeared there was finally some room for optimism for Libya’s industry, but it wasn’t long after the blockade ended that Libya’s national politics went off the rails.

It appeared there was finally some room for optimism for Libya’s industry, but it wasn’t long after the blockade ended that Libya’s national politics went off the rails. Elections held in June 2014 had sidelined those who were blamed for paralyzing the previous parliament elected in 2012, and civil war kicked off in August when the losers purged the capital and later re-imposed the old parliament. Prime Minister Thinni, his cabinet, and the elected parliament ultimately settled in the east, where they enjoyed international recognition but exercised very little power. Oil production began falling off in late 2014 when the civil war compromised fields and damaged terminals.

Ever since the civil war broke out, the National Oil Corporation (NOC) and the Central Bank have claimed to be independent: Libya’s NOC continued managing day-to-day oil operations and sales, and the Central Bank handled oil revenues, while the two rival governments laid claim to them. With the fall in oil prices and exports, spending was slashed so that only salaries, subsidies and critical imports were being paid by the Central Bank. Prime Minister Thinni found himself officially recognized—but also completely broke and mired in war.

Prime Minister Thinni found himself officially recognized—but also completely broke and mired in war.

This predicament led authorities in the east to weigh alternatives, even though the U.S. and EU rejected the notion from day one. In November 2014, the eastern government named a new NOC chief and in April 2015 an entirely new NOC was unveiled, which was designed to sidestep the Central Bank completely. For months, foreign diplomats urged Prime Minister Thinni not to go down this path because they felt it represented de facto partition: By their reckoning it would only make Libya harder to put back together later. Joint statements and warnings were ultimately issued, culminating in the explicit endorsement of Libya’s “original” institutions in December 2015. (The full text and list of Rome communique signees is available here.) From then on, foreign powers insisted that all business must be done with the NOC and all oil revenues must be entrusted to the Central Bank, which is to serve the UN-backed unity government that took shape in early 2016.

Undeterred, the Eastern NOC insisted it had buyers, even though it floundered for more than a year. In September 2015 the Eastern NOC hosted a conference in Malta that fell flat. Major foreign companies and traders avoided it—they remain convinced that doing business with the original NOC is safest, because the process is decades-old, even if the NOC’s status is contested. By all accounts the Eastern NOC inspired little confidence. Reporting going back a year paints it as clueless, lacking the technical and legal credibility of the NOC in Tripoli.

Yet the Eastern NOC eventually overcame the learning curve. Rumors swirled in late 2015 about possible sales but the first real proof of progress came in February 2016 when the original NOC in Tripoli issued a warning about illicit sales. The Eastern NOC wasted no time boasting about its new deals, and its chief Naji al-Maghrebi claimed that exports would start in mid-February and that 10 contracts were already signed. Rumors continued to mount thereafter.

On March 31, the day after the UN-backed unity government entered Tripoli and after weeks of speculation about Maghrebi’s dealmaking, the UN doubled down on the 2014 resolution which authorized interdiction. Resolution 2278 was adopted unanimously. It called on the Libyan government, meaning the unity government of Prime Minister-in-waiting Fayez Sarraj, to request interdiction for any cargo deemed stolen.

Rumors swirled in late 2015 about possible sales but the first real proof of progress came in February 2016 when the original NOC in Tripoli issued a warning about illicit sales.

On April 25, the Eastern NOC gambled anyway, in spite of the international community telegraphing exactly what would happen. 650,000 barrels of crude were loaded onto the Distya Ameya, an Indian-flagged tanker chartered by a firm in the UAE. The ship left port headed for Malta, where it was denied access. Indian authorities later reached the crew and instructed it not to unload. The latest reports suggest the tanker will soon arrive in western Libya, where it will deliver the oil to a refinery outside Tripoli, just like the Morning Glory did in 2014.

The Eastern NOC admits it hasn’t been paid yet, which is normal given that 30-day credit terms are standard for the industry. But Maghrebi insists more sales are coming. “We will keep on selling as long as there are customers,” he told the Financial Times last week. “Only today I got inquiries from companies in China and Russia. These countries are great powers and can defend their rights.” Maghrebi failed to mention that China and Russia voted in favor of UNSC Resolution 2278.

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