Via Frontera, an interesting look at Libya’s oil region and reserves:

The recent turmoil in Libya’s Oil Crescent – a region which stretches along the coast from Sirte to Ras Lanuf, and which extends down to the Jufra district – has underscored the competition for the control of state revenues, as Field Marshal Khalifa Haftar’s Libya National Army (LNA) has intensified its attempts to seize key national institutions ahead of the December 2018 presidential elections. Seven years after the fall of the Gaddafi regime, Libya remains locked in a cycle of offensives and counter-offensives between militias loyal to rival political groups.  Although oil production experienced a significant increase in 2017, continuing insecurity and the vulnerability of oil infrastructure to disruptions from armed groups and local protesters still largely constrain Libya’s oil potential.

 

Map of Libya’s oil and natural gas infrastructure (Source: U.S. Energy Information Administration)

A fragmented political landscape

According to the BP Statistical Review of World Energy 2018, Libya has the largest proven crude oil reserves in Africa, with 48.4bn barrels. The hydrocarbons sector constitutes the backbone of Libya’s economy: oil exports typically provide more than 90% of government revenue and over 95% of export earnings. The battle for the control of oil resources is at the center of a conflict pitting the country’s two rival administrations against each other, with armed groups fighting to strengthen their grip over the fragmented political landscape. Among all actors, the most important one is Marshal Haftar’s LNA. Other key actors include:

• The UN-backed Government of National Accord (GNA), headed by Fayez al-Sarraj and which has been based in Tripoli since March 2016. The GNA was born out of the signing of the UN-brokered Libyan Political Agreement (LPA), signed in December 2015. Despite being internationally recognized as Libya’s legitimate political entity, the GNA has failed to extend its authority much beyond its base in Tripoli.
• The Tobruk-based House of Representatives (HoR), Libya’s legislative authority under the LPA, and which has refused to hold a vote of confidence in the al-Sarraj government. Instead, the HoR has endorsed the rival administration of Abdullah al-Thinni, which operates from the eastern city of al-Bayda.
• The Libyan National Army (LNA), an anti-Islamist armed group formed in May 2014 and composed of several dozen local militias of eastern Libya (including the Zintani Revolutionaries Military Council, the Tripoli Revolutionary Council, the Qa’qa Brigade, al- Madani Brigade and the Sawa’iqa Brigade). The LNA is led by Field Marshal Khalifa Haftar, a retired Gaddafi-era general, who launched an military campaign named ‘Operation Dignity,’ targeting Islamist militias operating in eastern Libya. The LNA is sometimes described as the armed branch of the al-Thinni administration, although Haftar has his own political agenda, modeling himself after Egypt’s Abdel Fattah Al-Sisi, and figuring to play a key role in any settlement between Libya’s main political parties. On June 28, 2018, LNA announced the capture of the city of Derna, after defeating remaining militants from the al-Qaeda-affiliated militia Derna Protection Force. With the capture of Derna, the LNA now has effective control over all of eastern Libya as well as part of the south.
• The Benghazi Defense Brigades (BDB, Saraya Difaa al-Bengazhi) – a coalition of anti-Haftar fighters, which describes itself as a group of revolutionary fighters (thuwar) opposing the LNA in eastern Libya. The BDB comprises armed factions with connections to Ansar al-Sharia, an Islamist militia calling for the implementation of strict Sharia law across Libya, and was originally formed to support the Islamist Shura Council of Benghazi (ISCB), an umbrella of Islamist militias. The groups within the ISCB have varying degrees of affiliation with al-Qaeda in the Islamic Maghreb (AQIM), however their primary goal has been to resist Haftar.

The exacerbated competition for the control of oil revenues

Libya’s oil production has been subjected to fluctuations due to the volatile relationship between rival authorities in Tobruk and Tripoli. The country’s oil infrastructures have been separated, with different government factions and armed militias controlling the oil terminals. The National Oil Corporation (NOC) — a Tripoli-based state-run entity that has legal control over most of Libya’s oil resources — has expressed neutrality in the conflict, but its ability to manage the flow of exports was dented after eastern authorities established a rival NOC in 2014, which has begun to operate from the city of Benghazi. Although it never gained international recognition, the eastern NOC has made attempts to sign exploitation contracts with foreign firms. In August 2015, it sent invitations to several oil majors to attend a conference in Dubai, with the aim of “discussing legally signed agreements and contracts.” However, at the time of writing there have been no documented examples of oil sales from NOC east into the international oil market.

In April 2016, the dispute between the rival NOCs led to a three-week blockade of the Marsa el-Hariga port, a standoff which costed Libya $10 million a day. After particularly acute tensions following the el-Hariga blockade, the rival eastern and western branches of the NOC were unified in July 2016, in an attempt to avert a financial crisis, as Libya’s foreign reserves were growing dangerously depleted. According to the World Bank, between 2013 and 2016, Libya’s foreign exchange reserves fell from $109 billion to around $70 billion, considerably constraining the GNA’s financial position, and threatening the government’s ability to pay state-sector salaries.

The capture of oil fields by militias

Although an important development, the NOC reunification itself was not sufficient to ensure the revival of oil production. In early March 2012, leaders from the eastern region of Cyrenaica (or Barqa in Arabic) elected a regional governing council and issued a declaration of semi-autonomy from the government in Tripoli. The separatist push posed an immediate threat to the functioning of the oil industry, as Cyrenaica holds 60 percent of Libya’s crude reserves and boasts both the major sea port of Sirte and Benghazi, the country’s second largest city. The movement was led by Ibrahim al-Jathran, a former rebel fighter who commanded the “Hamza” brigade during the uprising against Gaddafi, which fought along the coast from Ajdabiyah to the Gaddafi’s homeland Sirte area.

Often referred to as a federalist, al-Jathran can be better described a political pragmatist, who has alternately allied himself with both the HoR and the western authorities in Tripoli. Determined in his struggle for Cyrenaica’s autonomy, al-Jathran used the region’s large oil manna as a means of exerting political pressure on Tripoli. He took the helm of the Petroleum Facilities Guard (PFG), once one of the most prominent militias in the east, which in its heyday comprised over 20,000 fighters. In mid-2013, PFG forces seized the oil fields of Es-Sider and Ras Lanuf, the largest and second largest terminals in the country, blocking sales worth at least $5 billion. In the aftermaths of the seizure, al-Jathran threatened to declare independence if the government refused to give eastern Libya more autonomy over oil revenues. He even authorized the sailing of a tanker loaded with $16 million of crude oil from the eastern port of Sidra under the North Korean flag, although the ship was promptly taken over by the American navy Seals.

With the PFG operating key oilfields in the east, oil production fluctuated significantly between 2013 and 2016, with a peak at 600,000 barrels per day (bpd) in March 2015, which is way below pre-conflict levels of 1.6 million bpd. Despite the signing of the LPA in December 2015, authorities in Tripoli did not manage to retake control of the oil facilities. This offered a strategic opportunity to Haftar’s LNA, which had started to conduct an anti-Islamist campaign in the area around Benghazi, with the support of Persian Gulf monarchies keen to see the political influence of Islamists diminished throughout the region. In September 2016, LNA troops launched an assault against the PFG factions in the Oil Crescent, gaining effective control over the Es-Sider, Ras Lanuf and Zueitina fields. During the same offensive, Haftar’s forces also gained control of the 60,000 bpd Marsa el-Brega port. Following the clashes, a unit of the PFG lifted a two-year blockade on the pipelines connecting the 330,000 bpd Sahara field to Libya’s Zawiya refinery, and the El-Fil field to the Mellitah complex. In January 2017, the NOC announced the lifting of a “self-imposed moratorium” on foreign investment in the oil sector which had been in place since 2011. Production quickly rose to 1 million bpd in July 2017, reflecting the LNA’s success at gaining control over oil facilities from the PFG.

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The resumption of operations at Libya’s largest fields attracted international attention, with oil majors making prudent return to the country. In February 2017, Russia’s Rosneft signed supply and cooperation agreements with the NOC, although no details on the offtake deal were provided. A few months later, US oilfield services company Schlumberger said it would resume joint operations with Libyan Sirte Company. Even French energy company Total expanded its operations in Libya, with the purchase of a 16.33 percent stake in Libya’s Waha concessions from U.S. Marathon Oil. However, security threats from various armed groups and local militias remain, deterring most international firms from re-entering Libya’s oil sector.

Renewed insecurity in the Oil Crescent

The brief lull in the Oil Crescent did not last long: on June 14 this year, militants of the BDB seized the Ras Lanuf and Es-Sider export terminals. BDB forces — included mercenaries recruited from southern Libya, Chad and Sudan — carried out the attack under the command of al-Jathran. The two terminals were recaptured by forces from Haftar’s LNA on June 21, with suspected air support from the United Arab Emirates (UAE). According to Mustafa Sanalla, the head of the NOC, the clashes led to a production loss of 450,000 barrels per day (bpd). Three oil storage tanks were set on fire, causing damage the NOC has said will take years to repair.

The BDB’s latest offensive reflects a strategic military error from Marshal Haftar, who left the Oil Crescent lightly defended and focused more on other conquests in the east. Although the fields were quickly retook by the LNA, Haftar refused to hand back the control of the terminals to the Tripoli-based NOC. On June 25 — in what was perceived as a political gamble from the Marshal — LNA’s spokesman Ahmed Al-Mismari announcedthat the self-styled army would hand over control of the ports to the rival NOC in Benghazi, which remains active despite the 2016 reunification. Al-Mismari argued that the decision was aimed at preventing “terrorists” from receiving salaries generated by oil revenues via the Central Bank of Libya (CBL), which pays salaries to a wide range of Libyan militias, as thousands of militiamen have been added to the state payroll since the collapse of the Jamahiriya regime. The move was quickly denounced as illegal by the western NOC and the international community. On June 25, chairman of the western NOC Mustafa Sanala declared force majeure on Ras Lanuf and Es-Sider port terminals, a decision extended to el-Hariga and Zueitina on July 2. The U.S. Embassy in Libya also issued a joint statement signed by the governments of France, Italy and the United Kingdom, reasserting that Libyan resources “must remain under the exclusive control of the legitimate National Oil Corporation.” Most specifically, the statement outlined that if the eastern NOC attempts to market the oil, it would violate UN Security Council Resolutions 2259, 2278 and 2362, which affirm that oil resources must be operated and sold under the sole authority of the GNA.

Haftar’s gamble

Haftar’s move is above all a political gamble, as the Marshal now holds all of the most valuable cards since the takeover of Derna, and figures to play a central role in any unified national administration following next December’s presidential and parliamentary elections. In challenging the Tripoli-based administration over the control of oil income, Haftar aimed at bolstering his legitimacy towards the Oil Crescent’s population. The region is home to numerous tribes with significant political influence, including the Magharba tribe, whose leaders have expressed discontent with the LNA for failing to improve their standard of living and security, and did not join Haftar’s effort to push back the BDB’s factions. The Marshal seems to have successfully positioned himself as the champion in the fight against widespread corruption, with his move receiving statements of support from local political bodies in the Sirte basin, in areas such as Jalou, Awjala and Ejkherra.

Besides this charm offensive with local tribes, another of Haftar’s goals is to ensure stable funding for the LNA, which currently relies on Gulf Monarchies to finance its military and political campaigns. Indeed, in a statement issued by the LNA’s general command on July 4, Haftar set five prerequisites for the reopening of the oil ports, the first one being the replacement of the current CBL governor, Sadiq al-Kabir. Haftar has long wanted to appoint a new head for the CBL, accusing al-Kabir of favoring western Libya and the Tripoli-based administration. Highlighting the controversy over al-Kabir, in December 2017 the HoR elected Mohamed al-Shokry as governor of the CBL, in an attempt to unseat al-Kabir. However, Shokry’s appointment was not accepted by the international community and the GNA, and was never followed through. An Haftar-affiliated figure at the head of the CBL would most surely favor the LNA Authority for Investment and Public Works, which is modeled on the Egyptian army’s involvement and ownership in the Egyptian economy.

Haftar eventually handed over the ports to the Tripoli-based NOC, which resumed production and export operations on July 11, 2018. However, this episode has fueled the long-standing tensions over the Oil Crescent, with western militias bitterly opposed to any form of cooperation with Haftar. This was highlighted by their expressed rejection of the May Paris conference, which brought together Haftar, GNA Prime Minister al-Sarraj, and HoR head Aguila Saleh. Among those militias, the powerful Qatar-backed Misrata Military Council (MMC) is Haftar’s fiercest opponent, and will use all means at its disposal to stop the Marshal’s rise to power. In this context, there is a possibility that MMC’s factions might embark on large offensive over the Oil Crescent, with the ultimate goal of bringing the region under the Tripoli-based NOC’s exclusive control. Renewed clashes at Libya’s main oilfields would have a catastrophic impact on the country’s economy, as oil revenues accounted for more than 93 percent of the GNA’s total income in the first six months of 2018. Five months ahead of crucial elections for the country’s future, one certainty remains: the battle for Libya’s Oil Crescent is far from over.