Libya Fighting Erupts Again. Here\'s the Oil Impact

Libya Fighting Erupts Again. Here's the Oil Impact

(Bloomberg) -- Fighting in Libya is encroaching on the capital, elevating the risk of new oil supply outages from the OPEC member. Warlord Khalifa Haftar is moving his self-styled Libyan National Army west to Tripoli, the base of the rival UN-backed, internationally recognized government. Oil output has surged in recent months as a fragile peace took hold, but the latest battles are a reminder that reliable crude flows can’t resume without a political solution to eight years of strife.

1. What’s going on in Tripoli?

Haftar, who has solidified control of the east and swept through the south in January, is sending his troops west to purge what he labels extremists. Clashes continue on the outskirts of the capital, including air strikes, despite appeals by global powers to halt the offensive.

2. Wasn’t the country on the path to unity?

United Nations Secretary General Antonio Guterres said on March 31 the two sides are getting closer to forming a united caretaker government. Those mediation efforts are faltering, and a military showdown threatens more chaos in the divided country. Tripoli and neighboring Misrata have their own heavily-armed militias, so any confrontation with Haftar will likely lead to civilian casualties.

3. Could Haftar take the capital?

It’s too early to say. Resistance to Haftar runs deep in Tripoli. Most of Libya’s population is based around the capital. Haftar’s ragtag forces are better organized than rivals and easily took over the south, including the biggest oilfield Sharara, through negotiations rather than fighting. Haftar’s move west, however, triggered a sharp reaction by the Tripoli militias. “At the moment it’s too early to come to any firm conclusion, and ultimately fighting could drag for weeks,” said Mohammad Darwazah, a director at Medley Global Advisors.

4. Will this impact oil exports?

Not immediately. Major oilfields and export terminals are far from the clashes. But history shows that fighting anywhere in Libya can cause dramatic swings in output. In June, Libya’s crude shipments were suspended for weeks after Haftar captured two export terminals and transferred them to an oil authority in eastern Libya. Exports dropped by 800,000 barrels a day and Libya lost almost $1 billion before he handed the terminals back to the Tripoli-based National Oil Corp. “Oil operations have been largely normal but any sustained fighting could quickly bring Libya back below one million barrels a day,” Darwazah said.

5. Are any oil facilities in western Libya at risk?

Any disruption at Zawiya port, the main export terminal for Sharara, would cause a partial or a complete shutdown of the 300,000 barrel-a-day oil field. Zawiya is scheduled to load 6 million barrels of crude in April. If Haftar takes control of the terminal, he will virtually control Libya’s oil industry.

6. Does it matter if Haftar rules Tripoli?

The capture of Tripoli would unify Libya under Haftar’s rule. After a grinding, two-year war in the east and the quick campaign in the south, Haftar now controls more than one million barrels of oil production a day -- the source of most of the country’s income -- and the nation’s strongest military force. Although he is backed by Russia, the United Arab Emirates, France and Egypt, even his foreign supporters expressed public concern about the latest violence.

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