Oil and politics – Libya’s risky business
The swift resumption and return to pre-war levels of oil production will be crucial to the success of a new Libya. A transparent oil and gas framework is vital
SINCE conflict in Libya erupted in February, oil companies with stakes in the country have faced great uncertainty over the future of its oil industry. There remain serious concerns over Libya’s production capacity and how contracts will be awarded and executed in future.
Oil and cash flows
But with the former dictator deposed, the NTC must resume production and exports to restart the flow of cash and facilitate reconstruction of the war-torn nation. With 95% of Libyan revenues coming from oil and gas exports, it is vital for the country’s economic and social survival for foreign oil firms to return and oil production to resume. Italy’s Eni has already engaged in talks with the NTC to bring its existing capacity back on line, followed closely by Spain’s Repsol and France’s Total.
Although Opec as an organisation has recognised the NTC, it is crucial that its member states create bilateral relations with the new regime to cement Libya’s international credibility
Far from fair and transparent
But speculation is rife that far from being fair and transparent with contract awards, the NTC will be biased towards European countries, such as the UK, Italy and France, not only because of their intervention in the conflict, but also as Libya relies so heavily on EU export markets. So far, Chinese and Russian companies have been ignored, perhaps because both delayed recognising the NTC as the legitimate governing body of Libya (Russia recognised the NTC on 1 September; while China is yet to do so).
The only Libyan company to escape sanctions during the conflict was Arabian Gulf Oil (Agoco) – a unit of Libya’s National Oil Corporation (NOC)
Since 1 September, $15 billion-worth of frozen assets have been released to the NTC, raising optimism about financing the resumption of oil and gas production. But while lifting sanctions on Libya is a necessary action, the imposing parties must act carefully to ensure the entities that benefit are transparent in their operations – many, such as Central Bank of Libya and state-owned NOC, were the targets of the sanctions in the first place.