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Libya's oil war starts

The east's capture of four ports gives it a huge victory in the battle for the country. Oil exports may rise and the conflict could deepen

The opening round of Libya's long-anticipated oil war began this week with the seizure of four key oil ports by eastern general Khalifa Haftar. So comprehensive was the victory that it may also prove to be the closing round.

In the aptly named Operation Surprise Lightning launched on the morning of 11 September, Haftar's Libyan National Army (LNA), loyal to the elected House of Representatives (HoR) parliament in Tobruk, struck at four terminals simultaneously.

The move gives the east control of Libya's commanding heights and may be a decisive blow in the country's civil war. It certainly changes the balance of power. It may also herald a recovery in Libyan oil exports, though many obstacles remain - and Misratan militias may shift attention from their battle against Islamic State (IS) in Sirte to engage the LNA instead.

The LNA's capture of the ports, evidently long-planned, was executed with ruthless efficiency. Es-Sider, Libya's largest export port, with a capacity of 447,000 barrels per day (now much damaged by conflict in recent years), and nearby 220,000-b/d port of Ras Lanuf, also home to Libya's largest refinery, fell with hardly a shot fired, and no damage to facilities. Both were held by the Petroleum Facilities Guard (PFG), a militia loyal to the UN-appointed Government of National Accord (GNA) in Tripoli.

On 12 September, a third PFG-held port, Zueitina, fell to the LNA; and a day later, after negotiations and minimal fighting, Brega, a port and small refinery, agreed to Tobruk control.

At a stroke, Tobruk and the LNA, already in control of most of the Sirte basin's oilfields - which until IS damaged it last year had capacity of 0.6m b/d, but remained shut - gained decisive control of the four ports that serve them.

A political bombshell also followed on 12 September, when Mustafa Sanallah, chairman of the National Oil Corporation (NOC), seemed to endorse the capture of the ports, and promised to work with Haftar to double production within four weeks. (Sanallah previously told Petroleum Economist that damage to storage facilities at Ras Lanuf and Es-Sider would restrict exports from the Sirte basin to 200,000 b/d until repairs could be carried out.)

The struggle for Libya's oil has been waged from the moment the GNA, created by a UN commission, arrived in Tripoli in late March. The US and EU switched international recognition status from Tobruk to the Tripoli administration, giving it title to Libya's oil revenues, although according to last year's UN-led Libyan Political Dialogue, the basis for the GNA, the HoR was supposed to vote its approval of the new government. It has not.

Since the GNA's arrival, Tobruk has waged a campaign to win control of the physical means of oil production, most of which lies in eastern areas under its control. Tobruk attempted to export oil independently in April, to a buyer in the UAE, which along with Russia and Egypt continues to recognise Tobruk. The UN blocked the move.

In August, Sanallah went public with opposition to a UN-brokered deal whereby the PFG chief, Ibrahim Jadhran, agreed to end his blockade of Es-Sider, Ras Lanuf and Zueitina in exchange for an undisclosed GNA cash payment. In an interview with Petroleum Economist, Sanallah said the deal would encourage other militias to make similar demands. That month Tobruk made its own opposition to the Jadhran deal clear, moving army units to the gates of the Zueitina port, in what is now clear was preparation for Operation Surprise Lightning.

Sanallah, who pled for NOC and its infrastructure to be left out of the conflict, seems content to see Haftar's LNA take control of the facilities.

"We welcome statements from the LNA allied with the HoR and the president of the HoR, Aguila Saleh, that the ports should be placed under NOC's control," Sanallah said on the NOC website. "Our technical teams already started assessing what needs to be done to lift force majeure and restart exports as soon as possible."

His statement adds that the NOC is confident Libya's production, presently 290,000 b/d, can rise to 0.6m b/d within four weeks, and 0.95m b/d by year's end.

But a recovery in Libyan oil output - even with singular control of the once-prolific Sirte basin's infrastructure - will be anything but straightforward.

Politically, the GNA and its backers among Western governments have condemned the Hafter offensive. A joint statement from the US, France, Italy, Germany and the UK called for an immediate ceasefire, although it stopped short of demanding Haftar withdraw from the terminals. It also underlined that no matter how much oil Tobruk exports, the cash must go to Tripoli.

For the moment, the GNA has ruled out a counter attack. The bigger political question is who gets the money if exports do resume. In August, Tobruk prime minister Abdullah al-Thinni made clear he expected a division of Libya's hard-currency oil-export earnings between the two governments, something Tripoli has dismissed.

But now that it controls the Sirte basin, Tobruk is in a powerful bargaining position. The producing Sarir and Misla fields are already deep in LNA-controlled territory in Libya's southeast, and operated by NOC subsidiary Arabian Gulf Oil Company. With the Sirte basin, the HoR now controls more than two thirds of Libya's productive capacity, which stood at 1.6m b/d before the 2011 revolution that toppled Muammar Qadhafi, but is now closer to 1.2m b/d. Zintani militias in western Libya, also allied with the LNA, continue to block pipelines from two large fields in Libya's southwest, Sharara and Elephant.

Technically, much work must be carried out at the Ras Lanuf and Es-Sider terminals before they can export more than 200,000 b/d, says Sanallah. Both have been offline since Misratan forces - now loyal to the GNA - attacked them in December 2014, setting storage tanks ablaze.

Another eleven storage tanks were destroyed at both terminals by two IS attacks in January this year. IS has also caused havoc in fields in the western Sirte basin in March last year, wrecking surface facilities at some fields. Eleven of them remain under force majeure, and some, such as the Total-operated Mabruk field, are understood to have been heavily damaged.

Petroleum Economist's full report on Libyan oil and conflict will be online from Monday 19 September. For notification or further information email michael.mccaw@petroleum-economist.com.

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