Libya through the looking glass

‘Oil gains on Libya violence’ has become a familiar headline since 2011, so it’s becoming hard to discern who is still taken by surprise by reports of field closures, protests blocking terminals, skirmishes and bombings.

The situation is now so extreme that the Opec member has become a minnow, currently producing less than foreign partner Repsol’s third-quarter output, not much more than OMV’s and well below the African liquids production alone of Total. Libya was producing just 350,000 b/d even before a weekend fire on the pipeline that links the Sarir oil field to the country’s last operational export terminal. Not that it needs much export capacity — numerous shipowners have been avoiding Libya entirely since an unidentified aircraft struck the tanker Araevo, operated by Greek firm Aegean Shipping Management, at the eastern port of Derna on 5 January.

Shut-ins have reduced capacity at the El Sharara field by around 20pc to 275,000 b/d. The 50,000 b/d Mabruk oil field has sustained unspecified damage from a deadly attack by gunmen. Total production capacity was around 1.2mn b/d at the end of last year, from an estimated 1.55mn b/d a year earlier. And on and on it goes.

Libya is becoming ‘Somalia-on-Med’, according to Britain’s special envoy to the country. Even Italy, the former colonial master, has closed its embassy and walked away. But Libya stepped through the looking glass some time ago. And so the Egyptian air force can openly admit to bombing its western neighbour and no-one blinks an eye.

Perhaps more important for the oil market is the fact that open Egyptian engagement in Libya means that Isis is now active in, or being attacked by, every country that sits along the Tropic of Cancer from Libya to Iran by way of fellow oil producers Saudi Arabia and Iraq and their febrile neighbours Jordan and Syria. IEA chief designate Fatih Birol has described this situation as a major challenge for the investment necessary to prevent an oil shortage in the next decade.

It also means Egypt is now fighting Isis on two fronts, in Sinai to the east and Libya to the west. Of importance to the oil market is what lies in the middle – the Suez Canal.

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