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Libya's oil fields fall into Haftar's hands

The latest military moves leave the government in Tripoli increasingly under siege

Tobruk government forces led by general Khalifa Haftar have completed a dramatic offensive in southern Libya, leaving it in control of all the country's key oil fields. What it does with this control will likely define the future of the country's hydrocarbons industry.

While Tobruk now controls the oil, it does not control the oil revenues. These go to a rival government, Tripoli's UN-backed Government of National Accord (GNA), by dint of its international recognition status. But in the wake of what is a shuddering defeat for the GNA, pressure is mounting for a new political deal.

Haftar's offensive lasted six weeks and saw his Libyan National Army (LNA) sweep through southern Libya capturing the country's largest oil field, Sharara (315,000bl/d), and nearby El Feel (80,000bl/d). The LNA linked up with Tobruk's key western force at Zintan which controls Wafa, the country's largest gas field. With Tobruk already controlling the eastern Sirte Basin, home to two-thirds of national oil production, the GNA's only remaining oil assets are the Bouri and al-Jurf offshore fields, producing 100,000bl/d.

Created by a UN-chaired commission three years ago, the GNA is a government in name only, its sole power being control of Libya's revenues abroad. It has no security force of its own in a capital controlled by squabbling militias.

In February, the GNA persuaded some militias to fly south to oppose Haftar's advance, but the LNA, which includes Libya's air force, imposed a no-fly zone. A GNA transport plane was bombed on the tarmac and another, carrying a senior militia commander, forced to divert. Shorn of reinforcements, southern militias have crumbled before the LNA advance.

Haftar's forces welcomed

Tobruk's victory is as much political as military. Despite the country's booming oil revenues, totalling $26bn last year, south Libya complains of being starved of cash, with dilapidated infrastructure and high unemployment. Tobruk promises to reverse this trend, and LNA units have been welcomed in many southern towns.

Haftar also has important international backers, including Egypt, the UAE and Russia. France has in the past supplied special forces to aid the LNA, and Haftar has given Paris an important dividend. The LNA's offensive targeted a Chad rebel group based in south Libya, the Union of Forces of Resistance (UFR), which opposes French-backed Chad president Idriss Deby. In February the rebels fled Haftar's advance across the Chad border where French jets were waiting. Three days of Mirage air strikes devastated the UFR columns.

Pressure is mounting for a new political deal

In the short term, Haftar's offensive has actually improved Libya's oil production, now running at about 1mn bl/d. Sharara had been closed since December after the militia paid to guard it took control, demanding a massive pay rise. When Haftar's forces captured Sharara they allowed the militia to stay, provided it removed key leaders and dropped excessive pay demands. In early March the NOC reopened the field.

Longer term, things are less rosy. Neither the Tobruk authorities nor Haftar has announced plans for exploiting their new oil monopoly, but speculation centres on three options.

Option one is for Tobruk to try and sell the oil itself, bypassing the GNA. It tried this last June, reacting to a militia attack on Sirte Basin oil ports by taking control of them. The UN blocked Tobruk's attempt to sell oil independently and it later backed down. It may repeat the tactic, but now from a more powerful position.

Alternatively, Haftar could make good on oft-repeated threats to march on Tripoli to remove both militias and the GNA, a move Western diplomats say risks a bloodbath.

A third option is for Tobruk is leave oil revenue collection in the hands of the GNA but demand a bigger slice of the proceeds. Tobruk runs its own banking system and has run up a $23bn debt by issuing bonds to pay state wages over the past four years. It would like the GNA, which the World Bank says controls $78.4bn in foreign reserves, to pay that debt. Complying with option three is likely to be Tobruk's minimum demand to the GNA in exchange for not triggering options one and two.

Source: Petroleum Economist
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