Challenges for Libya’s oil sector

Challenges for Libya’s oil sector

Libya’s oil sector faces a host of challenges. The failure of the Tripoli-based GNC and Tobruk governments to reach a unity peace deal last month is pushing the country into deeper political chaos, while the expanding presence of the Islamic State is threatening an already fragile security situation.

Since the fall of the Qaddafi regime in 2011, Libya’s oil sector has been challenged by conflict between two rival governments, protests, government strikes and attacks by the Islamic State.

The failure of both the Tripoli-based and internationally recognized Tobruk governments to agree on the unity government proposal plan sponsored by the UN last month is particularly discouraging. The Islamic State is also expanding in the northern areas of the country, launching attacks against key oil pipelines.

If Libya is to reestablish oil outputs to pre-Arab Spring levels, leaders must address both governance challenges and the domestic terrorism threat to boost confidence from international buyers.  

Who controls the oil?

Libya’s oil reserves are the largest in Africa and among the ten largest globally. Since the fall of the Qaddafi regime in 2011, however, Libya is reported to produce around 432,000 barrels a day, a significant drop from the country’s normal output of 1.5 million barrels before the revolution.


Bad governance is one of the root causes of Libya’s financial woes. The crisis is exacerbated by the fact that two governments are currently operating in Libya: the Tripoli based General National Congress (GNC) that led the uprising against the Qaddafi regime, and the internationally recognized government in Tobruk that was driven out of Tripoli during the Arab Spring.

Control over oil in the country is a key issue between the two governments, as both continue to vie for legitimacy.

The National Oil Company (NOC) owns and operates the majority of oil production in Libya. The company is located in Tripoli and is being run by the illegitimate GNC government.

To counter the GNC’s control over the NOC, the Tobruk government in March 2015 attempted to set up a new state oil firm in the east. However, the move has yet to shift the tide on the control of oil supplies, as international buyers have not been persuaded the Tobruk government is the legitimate owner of the oil reserves, which unfortunately it is not.

Mattia Toaldo, Policy Fellow at the European Council on Foreign Relations tells Reuters: “Oil contracts… are signed with the (Tripoli) NOC and paid into central bank accounts.. I don’t think that materially the …(eastern) government could change that without modifying these contracts.”

Altering contracts for oil would also requiring breaking up the central bank, which is one of Libya’s last remaining financial institutions. Militias supported by both governments continue to receive payments from the central bank and cutting off that capital could affect how each government is able to use their respective militias to fight for territorial control.

Despite low production outputs, Libya’s oil sector experienced a small uptick in growth after Zueitina, an oil port in the eastern region, officially reopened this month. The port was previously closed for five months due to protests by laborers seeking jobs with the NOC.

Islamic State Expansion

In addition to governance challenges, the expanding influence of the Islamic State in Libya is threatening Libya’s oil sector.

Within the last year, Libya has become IS’s largest stronghold outside of Iraq and Syria. In light of Russian air strikes in northern Syria, IS fighters are allegedly fleeing Syria and heading to Libya to expand their influence. A senior commander in the Iranian-backed Lebanese Shiite militia Hezbollah, who leads several pro-regime military units in Syria, told International Business Times, “We’ve heard info that [ISIS fighters] are leaving. Daesh [the Arabic acronym for ISIS] wants a foothold in Africa.”

While IS has been recruiting from Tunisia and Libya for several years, the added flow of fighters to Libya could represent a significant shift in the group’s desire to expand its influence in North Africa.

Source: BBC

IS operates and carries out most attacks in Libya in Sirte and Derna, two northern provinces in the eastern part of the country near Tobruk. Though they have attempted to create a defacto Islamic State, local citizens perceive their rule as being too harsh. For example, in Sirte, militants are reported to be setting up an Islamic court and demanding that anyone who has worked in traditional banks make amends for working in an un-Islamic financial system.

It has been especially hard for the group to gain substantial local support, as Libya does not have same kind of religious and sectarian divides as Iraq and Syria. Instead, IS fighters in Libya are taking advantage of splits between local militia groups who pledge allegiance to the two competing governments.

IS expansion into Libya is a direct threat to the country’s oil supply, as the group has staged several attacks against pipelines in the northern areas. Earlier this month, the group launched an attack on the perimeter gate guarding Libya’s Es Sider oil terminal, signalling the group’s intent to target the country’s oil infrastructure.

However, because the group does not have as strong local support as it does in Iraq and Syria, it is unlikely it will be able to serious take over large scale oil infrastructure in Libya in the near future.

Still, as Geoff Porter at West Point’s Combatting Terrorism Center points out: “If Islamic State can get even temporary chokeholds on the sector then it can weaken its opponents and buy itself time to consolidate its position.”

Saving Libya’s Oil

The only way Libya can save itself from internal turmoil, is if both governments from Tripoli and Tobruk work together to reach a solution on governance.

In doing so, leaders must also address the economic challenges facing the country, especially the national debt problem. Until both governments are able to strike a peace deal and address security challenges facing the country, oil output will remain insufficient.  

About Author

Madeleine Moreau

Madeleine Moreau is the GRI Senior Commissioning Editor and a Senior Analyst currently based in Beirut, Lebanon. She specializes in investment risk and opportunity in the Middle East and has previously lived in Jordan and Morocco. Her work and insight have appeared in several leading publications, including Business Insider, TechCrunch,, The Atlantic Council, Yahoo News and OZY. She holds a Bachelor’s degree in Political Science and Arabic from Middlebury College.