Just a few months ago Libya’s oil production slipped below 200 thousand barrels a day. Since then, output has tripled, even though forces opposed to the recognized government captured oil terminals in September and Libya now has four governments, if you include ISIS. It’s business as usual for the National Oil Corp. (NOC) despite these extraordinary circumstances.
So what happened?
From 2013 until last month oil production was held hostage by Ibrahim Jadran, a regional commander of militias hired to protect oil facilities after Muammar Qaddafi was ousted.
From 2013 until last month oil production was held hostage by Ibrahim Jadran, a regional commander of militias hired to protect oil facilities after Muammar Qaddafi was ousted. For three years, he blockaded some of Libya’s most important oil terminals, forcing the NOC to shut down fields which would have otherwise produced oil for export. That changed last month, however, when forces loyal to controversial strongman Khalifa Haftar captured oil terminals along the Gulf of Sirte–including all three under Jadran’s control.
Jadran promoted himself as a “federalist” at first but over time he became known as a greedy opportunist. Back in 2013, he demanded a new constitution and a revenue-sharing scheme that would improve the country’s historically-deprived eastern province. Yet Libya’s weak government was in no position to deliver on his demands back then. It couldn’t muster the force to take back the terminals and the constitution was entrusted to an apolitical drafting council.
It wasn’t long before Jadran got the bright idea to sell oil himself. He tried and failed three times, most spectacularly in March 2014 when his men hijacked a tanker, loaded it with oil, and sailed for international waters. The UN immediately blacklisted illicit oil sales from Libya. The ship was captured by U.S. commandos and redirected to a government-controlled port. Jadran sobered up after that. His rhetoric lost its edge and a new interim government, led by Abdullah al-Thinni, paid him off to reopen the terminals. That year oil production tripled from July, when a deal was reached, to late October, when it hit 1 million b/d.
Jadran’s loyalty lasted so long as he was paid. Unfortunately for him and the NOC, that wasn’t very long. Civil war erupted at about the same time production started to recover in 2014. Earlier that year, in May, Haftar and his forces launched Operation Dignity to purge Islamists. Then in July, Islamists and revolutionaries were handily defeated in parliamentary elections. These setbacks inspired them to take over the capital in August-September, where they installed the old parliament, plus a friendly government under the banner of Libya Dawn. Meanwhile, Thinni and the new parliament found safety in the east under Haftar’s protection.
By the end of 2014, Libya was split down the middle. That left the country’s most important institutions to pick sides. Which government should they serve? Instead of choosing, the Central Bank, which handles oil revenues, and the NOC, which handles daily oil operations and exports, swore to remain independent. Thinni’s interim government was left scrambling to finance a war that the Central Bank refused to pay for. Thinni responded by establishing his own NOC in the east. It failed to sell oil several times over two years, most recently in April.
When Libya’s newest government arrived in Tripoli in March this year, Jadran concluded that it had the best chance of selling oil, so he quickly sided with the UN-backed “unity” government led by Prime Minister-designate Fayez Sarraj.
All the while, Jadran’s loyalties were questioned. He denounced Dawn in Tripoli, openly resented Haftar and reluctantly backed Thinni’s interim government because there was a chance it might pay him. Throughout 2015 and into early 2016, he kept hopes alive for independent exports from the east. But when Libya’s newest government arrived in Tripoli in March this year, Jadran concluded that it had the best chance of selling oil, so he quickly sided with the UN-backed “unity” government led by Prime Minister-designate Fayez Sarraj. Even then the NOC in Tripoli blamed him for delays. It said he refused to let them restart exports–either because he wanted money up front or he wanted a better deal from the rival NOC. It wasn’t until July, when the two NOCs officially reunified, that Jadran and undisputed NOC chief Mustafa Sanalla appeared to be on the same page finally.
The honeymoon didn’t last long. Production climbed through August but Haftar’s forces pounced in mid-September. Jadran became a fugitive thereafter. One might naturally expect Haftar, who opposes the UN project, to immediately halt Libya’s oil recovery to turn the screws on Tripoli–or to sell oil now that he controls the spigot. But Haftar is busy taking credit for “liberating” the terminals from Jadran, whom all sides agree was a crook. NOC has been allowed return to work. Today production is hovering around 600 thousand b/d–and another 300 thousand b/d might return if NOC can reach a deal with separate factions in the west who shut down fields and pipelines in 2014.
For Haftar and his allies in the east, the recovery of Libya’s oil sector demonstrates that his faction is the strongest and most decisive–even if it isn’t directly benefiting from oil sales. Judging by Jadran’s experience and the eastern NOC’s repeated failures, Haftar must know he has no chance of selling oil outside official channels, so he’s using the takeover of terminals to improve his political standing while reserving the right to halt exports whenever he sees fit. Whereas Jadran figured he could make a fortune selling oil, Haftar now enjoys tremendous leverage over his political opponents because he controls the oil.
It remains to be seen how long this arrangement can last. For now Libya’s unlikely production surge of 400 thousand b/d is complicating OPEC-led talks aimed at balancing markets and raising oil prices. Worse yet from a market perspective, OPEC’s quest for balance may soon need to account for an additional 300 thousand b/d if those western fields finally restart.