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Libya’s dangerous oil deal

The UN-brokered ports deal with Jadhran cannot, on its own, increase the country’s oil output. But it may worsen the conflict

MORE bearish news for oil prices seems to be coming from Libya, where a deal to reopen the country's main oil-export terminals is in place. State firm National Oil Company (NOC) talks of increasing output from around 200,000 barrels a day now to 0.9m b/d by the end of the year. It would stall any oil-market recovery.

US air strikes on 1 August targeting Islamic State (IS) in Sirte should also help diminish the terror group's threat to energy installations in Libya's central oil crescent. Repeated IS attacks in the past year led NOC to impose force majeure on fields. The US involvement - at the behest of the Government of National Accord (GNA) - in tandem with the ports deal, suggests an output revival in the Sirte basin is now plausible.

Don't bet on it. Wider dysfunction and divisions - a theme of Petroleum Economist's forthcoming in-depth study of the country - continue to undermine Libya and its oil sector. It desperately needs more oil income, but the more desperate Libya's plight the more determined its warring parties become to control the means.

The ports deal, brokered by the UN, pays an undisclosed sum to Ibrahim Jadhran and his Petroleum Facilities Guards (PFG), a misnamed militia that controls the terminals of Ras Lanuf, Es-Sider and Zueitina. It now sets a precedent for other groups to capture energy facilities and shake down the government too.

The PFG may control the ports, but it doesn't control any production. The fields that once supplied the terminals are in the hands of tribes allied with Jadhran's foe, General Khalifa Hafter. He is allied with Libya's Tobruk-based parliament, the House of Representatives (HoR). Jadhran's deal is with the Tripoli-based UN-backed GNA, which the HoR does not recognise. The eastern government doesn't accept the deal's terms, either, and Hafter's forces say they will bomb any vessel trying to lift oil from Jadhran, who may try to load some stored crude.

Far from solving the crisis, the UN's deal with Jadhran may deepen it.

Stuck in the middle of this is NOC, itself now cleaved in two. The original firm, based in Tripoli, is still selling oil - but Libya's sole onshore exporting fields are in the east, where the HoR has tried to use its own breakaway NOC to take control of exports and keep the revenue.

A recent deal to re-unify these two NOC rivals is shaky, threatened by the east's condition that it gets a bigger share of oil-export revenue. The Misrata-backed GNA is loth to allow that, content that all oil revenue currently flows into the central bank in Tripoli, which it controls.

These political disputes are symptomatic of Libya's political disarray, which is worsening. The GNA, in power thanks only to Western international backing and domestic militia protection, has little authority beyond Tripoli - and, to easterners, is increasingly seen to be under the sway of Misrata and Islamists.

Mustafa Sanallah, chairman of NOC in Tripoli, is also sceptical of the deal with Jadhran. Libya's government has paid off Jadhran in the past, only for him to renege on similar pledges to stop obstructing Libya's oil sector, Sanallah told Reuters on 2 August. It is Sanallah who must lift force majeure in the Sirte basin. He has not done so. The GNA's next move may be to replace him with someone who will.

Libya remains politically divided along the rough lines established in 2014, between the Islamist and Misratan militias of Libyan Dawn and the Zintani and eastern militias allied to Hafter's Operation Dignity. Both sides have their eye on Libya's oil sector, knowing control of it would give them power. Until this ever-deepening conflict is resolved, a sustainable rise in oil output looks implausible - whatever the UN and Jadhran believe.

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