EDA: At risk of collapse Libya leans on oil industry

EDA: At risk of collapse Libya leans on oil industry

EXTERNAL DEPENDENCIES ANALYSIS: As rival militias continue their fight for power in Tripoli and across the country, Libya hopes the security of its vital oil industry can provide some semblance of stability.

Following the 2011 popular uprising against the regime of Libyan dictator Muammar Qaddafi, governments and multilateral organizations the world over imposed sanctions upon the Libyan government. Qaddafi, accused by foreign leaders of using wanton violence against the Libyan people, was toppled after a lengthy civil war and replaced with a transitional government.

Three years later, Libya continues to find itself in an internal struggle for its future. Islamist militias from the eastern city of Misrata gained control of the country’s international airport in Tripoli last month, driving away secular forces backed by former state general Khalifa Haftar. The event is just the latest in a potential civil war that pits former Qaddafi loyalists against tribal and regional militias.

Libya, which has no national military or police force, brought many regional militias onto government payroll following Qaddafi’s ouster to help fill a security void in the state. But the groups remain loyal to their own commanders, often carrying out orders that harm both the government and its access to vital resources. And for Libya, losing control of these resources could spell death for its economy.

According to GRI’s External Dependencies Analysis, crude transport accounted for nearly three quarters of Libya’s exports in 2011. While Libya has been able to maintain a sizeable portfolio of international oil customers, two players make up the vast majority of its market: Italy, and France.

Eni SpA, Italy’s largest oil and gas conglomerate, has invested billions in Libya’s oil fields, ports, and infrastructure since first engaging in the country in the late 1950’s. Its investments have been fruitful for both countries; 43 percent of Libya’s exports went to Italy in 2011, which accounted for almost one-fifth of Italy’s total crude imports. But with Libya in a continued state of turmoil, Italy finds itself entangled in a complicated struggle to secure oil investments that have come under unique threat over the past year.

Blockades on key oil ports have reduced Libya’s oil output to as little as 230,000 barrels per day (bpd), down from 1.4 million bpd a year ago. Italy’s Eni, heavily reliant upon Libyan production, has watched its profits slump and its government scramble for new, reliable access to energy.

Libya’s dependency on oil exports says a great deal about how the central government has focused its efforts during the ongoing conflict. The very same week that militants strengthened their control over Tripoli, Libya’s oil ministry announced it would resume exports from its largest oil terminal after a year-long stoppage. Unsurprisingly, the first tanker was sent to Italy.

The Italian-Libyan relationship extends far beyond oil, however. When the assets of Libya’s sovereign wealth fund, the Libyan Investment Authority (LIA), were placed under global financial sanctions in 2011, the government lost access to over $2 billion in Italian banking and oil stakes. After Qaddafi’s ouster, Italy was one of the first nations to unfreeze the LIA’s assets and return to business as usual.

Libya has developed substantial oil trade with France, as well, exporting over $5.6 billion in 2010. French oil giant Total SA was the first major international energy company to resume operations in the post-Qaddafi era.

Although Total has seen reduced imports during the ongoing fighting, France is not nearly as dependent on Libyan output as Italy. France’s crude imports from Libya account for under 7 percent of its total oil imports, leaving the country flexible to explore alternatives to the risky Libyan oil scene.

Libya is thus left in a complicated situation where a single oil customer could make or break the one industry that has kept its economy afloat. As the ongoing crisis unfolds, the central government will likely continue to focus its efforts on ensuring the vitality and security of its oil ports along the Mediterranean coast.

While Libya does have a fairly diverse stream of imports, bringing in construction materials and electrical equipment from South Korea, Turkey, and China, no single foreign entity is truly dependent on Libya for the resilience of its export market. And with militant activity continuing to threaten economic and civil stability, the current government is unlikely to find new foreign investors willing to gamble on an uncertain Libyan future.

Whether or not Libya can establish effective governance, paving the way for economic prosperity, remains to be seen.

The External Dependencies Analysis (EDA) project makes country vulnerabilities stemming from their main trading relations explicit, and shows to what extent these might impact their current and future behaviour. With the EDA, GRI provides a new comprehensive tool for businesses, analysts and investors to grasp dynamics that are key to political risk analysis.

Note: Trade Data comes from GRI’s External Dependency Analysis based on data derived from the International Trade Center.

About Author

Rami Ayyub

Rami is an analyst with a US Defense and Space firm, where he works in strategic planning and finance for Civil and Defense programs. He holds Bachelor degrees in Finance and Classical Music from the University of Maryland, College Park.