May 9, 2019//-But it gets worse. Sanalla said that the NOC’s oil has begun to be sold illegally. If various factions begin funding their operations from the illicit sale of oil, civil war and instability may only grow worse.
With the LNA and GNA at war, ISIS militants can regroup and strengthen, Sanalla said.
U.S. President Trump’s about-face has arguably made things much worse. The policy of the U.S. government had been to support diplomatic negotiations, and Washington has gone to lengths to avoid picking side.
Trump, out of nowhere, lent his support to Haftar’s assault on Tripoli after taking a phone call with him. That has muddled the international response to the fighting and granted a sense of legitimacy to the LNA’s attack on Tripoli. Ultimately, reconciliation, or even a cease-fire, has become increasingly unlikely.
Ultimately, Libya’s success at restoring oil production to over 1 million barrels per day (mb/d) – and reaching a multi-year high of 1.26 mb/d in March – rested on the fact that neither side had control over Libya’s oil system.
Sanalla said that this “dual-key” approach was critical – an arrangement in which the LNA guaranteed security at ports and oil fields, and the GNA held a monopoly on the legal authority over oil exports.
With those powers divided, neither side could seize control of the entire system. If the GNA tried to withhold payments to east of the country, the LNA could block the ports. If the LNA tried to export oil on its own, the GNA could withhold payments.
The civil war puts the entire system at risk. “[W]e think it unlikely that the arrangement can survive a protracted stalemate and the associated weakening of the LNA,” Standard Chartered wrote in its report.
“In our view there is a high risk that Libyan outages could add another 1mb/d loss to the 1.9mb/d y/y reduction from Iran and Venezuela.”
The latest concern for oil traders is the dramatic escalation of the U.S.-China trade war, and for good reason. But while the global economy could be hit with a trade shock, the physical market for crude is tight…and in danger of more disruptions.
By Nick Cunningham, Oilprice.com
