Political conflict in Libya continues, halting oil production

The North African nation of Libya has been embroiled in numerous political and military conflicts, including the Libyan Civil War, which lasted from 2014 to 2020. Today, the country faces an internal conflict that affects the rest of the world; a political dispute over the nation’s central banks may greatly affect the global economy.

This conflict began when Presidency Council head Mohammed al-Menfi decided to replace the central bank head, Sadiq al-Kabir, and the rest of the board. The parliament in the east quickly rejected the motion; to counter this, authorities in the east threatened to close all their oilfields, and the government located in the capital of Libya, Tripoli, relies heavily on these oilfields for revenue. 

On August 29, 2024, it was estimated that over half of Libya’s oil production was shut down, ending four years of peace. With about 700,000 barrels per day not being produced, the African nation’s revenue is expected to fall hastily. Total losses over the first three days of this standoff were calculated to be about $120 million, the NOC said.

The Eastern Libya factions have declared that oil production will be halted until the Presidency Council reinstates Mohammed al-Menfi in his central bank governor post. Back by eastern commander Khalifa Haftar and his group called the Libyan National Army, this standoff could soon result in another military conflict within the country. On that Monday, the authorities continued their standoff and threatened to close all the fields. This would not only cause conflict for the government, which relies on oil production for revenue, but also for other nations globally that are top consumers of oil barrels from Libya.

Libya is a leading producer of crude petroleum and petroleum gas, generating $ 30.3 billion of oil petroleum and $3.04 billion of petroleum gas through exports. Due to the standoff, several of their top consumers were affected by this conflict. The top crude petroleum and petroleum gas consumers from Libya include Italy, Spain, Germany, China, Greece, France, the United Kingdom, and the United States. With countries such as Italy (25.7%), Spain (9.66%), and Germany (9.22%) accounting for the majority of petroleum consumption from Libya, this conflict affected those nations greatly.

Revenue for Libya dropped severely, and to limit losses, the costs of oil barrels being exported rose. This causes its top consumers to pay more for the product than before the standoff. With the consumers still trying to profit from their oil purchases, they charged their citizens more for oil to comply with the change in costs. This can cause internal conflict within these nations. These changes hit top consumers such as Italy the hardest as they consumed nearly 26% of the petroleum Libya produces.This situation prompted calls from consuming nations for the standoff to end and for production to return to normal.

After just over a month, the standoff between the Libyan government and Eastern Libya authorities was recently resolved on October 3, 2024. The NOC lifted the force majeure for all oilfields in the region within production trying to resume. There are technical problems in Elfeel, one of Libya’s most prominent production areas that will delay the resumption of the total output, making the number of barrels produced grow steadily back to its original production rate. The new central bank governor, Naji Issa, is working to develop financial sustainability and financial mechanisms to compensate for the lost revenue during the standoff.

While the conflict is resolved for now, many questions and concerns remain regarding the nation, characterized by consistent internal strife. Given the history of conflict since the first Libyan Civil War in 2011, concerns remain about the potential for future unrest. Throughout the Civil Wars and this most recent standoff, oil production has dropped immensely, leading to higher consumer costs. This may drive many consumers, such as Italy, Spain, and Germany, to rethink the exporting process and try to do business with a more stable government. This could significantly impact Libya’s revenue and create further economic challenges for the nation. With the standoff ended and a new governor in the central bank, Libya has made efforts to foster stability among political parties and improve financial sustainability in hopes of preventing future conflicts.