Light, sweet crude futures for August have increased by 8 cents to 100.91 USD per barrel. Oil futures have been fluctuating recently on the uncertainty linked to conflicts in Iraq and Libya impacting oil supply. Today’s increase shows the limits of stability in Libya’s oil market.
I was initially planning on writing this piece last week, but I am certainly glad I waited until today. Oil futures have been falling throughout the past couple weeks on the combined news that the conflict in Iraq is not impacting its oil production and the news that Libya had finally cleared the way to restart its oil production.
Indeed, Libya’s acting Prime Minister, Abdullah al-Thinni, declared an ‘end’ to Libya’s oil crisis after the government managed to gain control of two key oil terminals held in rebel hands. This news prompted certain industry experts to predict that Libya’s oil production could more than triple from 300,000 b/d to more than 1 million. Yet, less than 3 days after this news broke, Libya’s recovery seems to be thrown into question.
Just this weekend, fighting between militias has paralyzed Libyan ports and other transportation infrastructure, effectively halting oil shipments. This complete uncertainty has understandably spooked investors who have proven hesitant to invest in Libyan oil or send cargo ships to transport it.
Curiously, the center of this conflict is quite clear: the uncontrollable over abundance of arms freely circulating in Libya.
While Libya was still ruled by Muammar Gaddafi, the long-time strongman made it a personal pastime to collect and stockpile insane amounts of weapons. In 2009 alone, over 340 million EUR of weapons were purchased from EU suppliers. This figure does not account for domestic production, much less imports from none-EU manufacturers. So long as Gaddafi ruled over Libya, these weapons caused few issues. However once he was overthrown, the weapons spread at an alarming rate and ended up in the hands of any would-be militia – marring the country in sectarian conflict and retribution.
A main element of Gaddafi’s rule was his support (or repression) of various tribal and ethnic groups. Upon his destitution, these groups descended into conflict fueled almost exclusively by this overabundance of weapons. The noxious mix of well-armed, ideologically driven, and occasionally revenge-seeking militias has made Libya a modern day wild west. To show how bad it’s gotten, Libya’s Prime Minister was abducted by armed militiamen last October, presumably over a political conflict.
What’s more, Libya’s security forces are utterly incapable of combating these warring groups as its loyalty to the government is far from certain. In most cases, members of the armed forces answer only to their commanding officer who, in turn, pushes his own political agenda. This confusing structure has led to a crippling of the Libyan governments ability to respond to crises and a universal sense of instability within the country.
Going forward, it is unlikely that stability will be restored – at least not to a level where the oil supply is guaranteed safety. Until that time, it is doubtful that Libya can truly be relied on as a supplier of petroleum. With the current conflict in Iraq likely to curb global oil production, future increases in oil futures might not limit themselves to a mere 8 cents. For true oil security to come to Libya, the first step must be to curb the massive flow of weapons that fuels conflict and instability.
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