New wave of politically motivated blockades hit Libya’s oil and gas facilities

This section is a special excerpt taken from the latest edition of Energy Insights (Issue #08-22), a bi-weekly report developed by LIBYA DESK to help clients navigate Libya’s energy markets. To sample the full report or to learn more about how to access the full LIBYA DESK product suite, contact [email protected].

Summary: Libya is at risk of losing up to 80% of its oil production due to a new wave of politically motivated blockades as the country’s political legitimacy crisis deepens. The blockades come after the National Oil Corporation’s (NOC) decision to transfer 8 billion US dollars of frozen oil revenues to the accounts of the Central Bank of Libya (CBL) in Tripoli, and the suspension of the Libyan National Army (LNA) 5 representatives in the 5+5 Joint Military Commission (JMC).

A closer look: As covered in last week’s Political Risk Report (#14-22) published by LIBYA DESK, the decision by the LNA’s ?ve representatives in the 5+5 JMC and their subsequent list of demands to the General Commander of the LNA Khalifa Haftar included the shutdown of oil facilities in areas under the control of the LNA. This served as a stark escalation on the part of the LNA and the wider eastern camp amid an escalating political legitimacy crisis. The eastern JMC representatives statement comes as a response to the Government of National Unity’s (GNU) continued blocking of the LNA’s budget requests since January. A decision to release the LNA’s salaries for the months of January and February, worth 419 million Libyan dinars (LYD), helped to slightly ease tensions. However, the decision by the NOC’s Chairman Mustafa Sanallah to release 8 billion USD from the frozen oil and gas revenues in the NOC’s Foreign Libyan Bank (LFB) account to the accounts of the CBL in Tripoli prompted this latest wave of oil and gas shutdowns. Sanallah decided to freeze oil revenues in the NOC’s bank account in the Libyan Foreign Bank from January 2022 based on instructions from the House of Representatives (HoR) speaker Agilah Saleh and with encouragement from the Government of National Stability (GNS) Prime Minister Fathi Bashagha as well as some actors in the international community including the United States government. The aim of withholding those revenues was to deprive the GNU’s PM Abdulhamid Dabaiba from having unrestricted access to oil and gas revenues for populist spending habits that have depleted the country’s ?nances and caused unease amongst his political opponents. Dabaiba's unrestricted access to oil and gas revenues was viewed as an existential threat to their own political future and ambitions. This is to say that the transfer of oil revenues to the CBL in Tripoli was the trigger that prompted this new wave of shutdowns in LNA controlled areas. However, it must have been clear to NOC Chairman Sanallah and those that pushed for the decision to transfer the oil and gas revenues that the risk of a new politically motivated oil blockade was real.

Why did Sanallah release oil and gas revenues after months of holding them in the NOC’s Libyan Foreign Bank Account? The timing of Sanallah’s release of the 8 billion USD from the NOC’s LFB accounts is due to two main considerations. According to a source close to Sanallah, the NOC chairman was under growing pressure from PM Dabaiba and his allies in Tripoli as they started to compile a case against him for violating Libyan laws and regulations by freezing oil and gas revenues without a clear mechanism. The Audit Bureau and Administrative Oversight Authority were about to ?le a case against Sanallah to have him suspended, or in the worst case scenario, arrested. According to a source close to Fathi Bashagha, Mustafa Sanallah was pleading with Bashagha to enter Tripoli soon to help protect the NOC and its Chairman against pressure from Dabaiba and his allies. However, it seems that Sanallah realised that Bashagha’s assumption of of?ce in Tripoli could take a while and hence he needed to ?nd a different arrangement to protect himself against the mounting pressure. In a recent meeting with representatives of the P3+2 and another with the economic working group from the Berlin Process, an agreement was reached for Sanallah to release some of the frozen oil and gas revenues to the CBL in order to cover expenses from Chapter 1 and 4 of the national budget, and to allocate an emergency budget for the NOC. According to the current of?cial rate (1 USD = 4.8 LYD), Sanallah released the equivalent of 38.4 billion LYD to the CBL. A CBL employee told LIBYA DESK that the agreed arrangement is that the NOC receives 20 billion LYD to cover a signi?cant part of its requested budget of 32 billion LYD for 2022. While the rest would go to balance the CBL’s accounts out of which spending on subsidies and salaries were coming out, without any revenue coming in since January 2022. Securing a budget for the NOC amid the deepening political crisis is the second consideration that led Sanallah to accept the transfer of 8 billion USD from the NOC’s accounts to the CBL in Tripoli. However, Sanallah did so knowing too well the risks attached to transferring the revenues and how the optics would look under the current political circumstances. According to a diplomatic source familiar with the matter, Sanallah warned that as soon as the transfer was made public, wide scale shutdowns would ensue as a result. Sanallah’s warnings were clearly on point.

The big picture: As a result of these shutdowns, Libya has lost at least 550 thousand barrels of oil production per day. That accounts for over 45% of Libya’s current production levels of 1.2 million barrels per day. This can be explained by the fact that the LNA controls around 80% of Libya’s oil and gas production and export infrastructure. Only Zawiya oil terminal and Mellitah oil complex are outside of LNA territory, but both sites are supplied with oil and gas from oil ?elds in the southwest of Libya which remains under LNA control for now. As such, there is a risk that Libya could lose as much as 800 thousand barrels per day in the next few days if the blockade is not averted and the drivers of the blockade are not dealt with. However, that is easier said than done. Politically motivated blockades tend to last longer than workers or local community driven blockades. In 2013, Ibrahim Jadhran’s shutdown of oil and gas production in Libya’s oil crescent region lasted for around three years until he was defeated and driven out by the LNA in 2016. Since then, LNA loyalists and supporters carried out two blockades in 2020 and 2021 that lasted for months.

Bottom line: The real risk as far as the new wave of oil blockades is concerned stems from the increased likelihood of a military confrontation between the LNA and forces that are still loyal to Dabaiba. On Tuesday, Dabaiba convened a high-level security meeting to discuss the oil blockades and issued orders for security and military leaders to act to end the oil blockades. During the meeting, General Mohamed al-Haddad, the Chief of Staff of the western armed forces made it clear that the military forces will not be dragged into a military struggle for power by politicians or political leaders. Dabaiba and his aides believe that a military confrontation with LNA forces would galvanise support around them once more, especially among Misratan forces that have taken a neutral stance in the ongoing standoff between Bashagha and Dabaiba. Fathi Bashagha and his team will have to work hard to prevent this. This could explain Bashagha’s decision to travel to Benghazi and tour the country ahead of his delayed entry into the capital Tripoli.

On Sunday, Prime Minister of the HoR-appointed government Fathi Bashagha visited the Oil Crescent region and met with leaders of local communities and actors behind the current oil blockade. Following the meetings, sources close to Bashagha told LIBYA DESK that they were confident that the oil blockade would be lifted within 48 hours. In exchange, Bashagha reportedly promised to guarantee that oil revenues would be protected and would not be used by the rival Government of National Unity led by Prime Minister Abdulhamid Dabaiba. Bashagha hinted in press statements that he would work with international actors to enforce a mechanism that would safeguard oil revenues against misuse or exploitation by any entity.