Ghaddafi’s Obscure Exit Plan and Tribe Alliance against him Spell Trouble for Libyan Oil Fields
[Arezki Daoud | The North Africa Journal] While Libya’s share of the world energy sector is not substantial in itself, it maintains some 10% market share of the European Union’s imports and that’s not a small number. The Libyans have been aggressive expanding their reach of international markets as they continued to raise production. They have made substantial inroads in the Southern Europe, in particular Italy, as well as Germany. So any protracted disruption to production or along the supply chain could cause sustained stress in the international oil markets. The enfolding drama in Libya could have a much bigger damaging effect due to market psychology, and today the news from Libya is not good.
Libya, which has some of the best and cleanest oil in the market, is already in a complete state collapse. The rebellion that has toppled the regimes of Tunisia first and Egypt second has spread to Libya. Muamar Ghaddafi’s immediate response was to do what he knows best, a severe repression against his population in the hope of bringing the protesters down to their knees. Some 300 deaths later, and in the hands of many mercenaries according to Libyan witnesses and the explosion is beyond control.
While the drama is affecting the Libyan people first, consumers abroad will no doubt feel the pain. They will now understand that supporting ruthless regimes comes with a heavy price to pay, at the pump first and then for everything else as the cost of manufacturing, transporting, and distributing all sorts of products increase.
How big is Libya in the oil sector?
Libya roughly produces some 2 million barrels per day (bbl/d) and on target to move to 3 million bbl/d by 2013. With proven oil reserves of 41.5 billion barrels in early 2007, up from 39.1 billion barrels in 2006, Libya holds the largest proven oil reserves in Africa, with Nigeria and Algeria trailing second and third. The country has been the source of intense competition from international oil companies, largely because of the quality of its oil, which is sulfur free and requires less processing to bring to market. Also because of its proximity to the European market and equally importantly is its incredibly low cost of extraction, estimated in the most desirable places as low as $1 per barrel. This means massive profit potential, regardless of the price.
With turmoil affecting Libya, the very first consumers to feel the crisis are in Europe. One third of Libyan exports go to Italy, with some half a million barrels per day. That country’s southern regions could be the first to feel the pain if disruptions occur. Germany consumes some 17% followed by about 6% to 7% by other European economies, including the US taking 6%.
While these numbers are not necessarily big, the psychological impact the crisis will have on oil traders in the coming days and weeks will likely lead to further prices increase. Egypt alone has pushed the prices of oil over $100. As the situation develops in Libya, we are monitoring two specific events that could further disrupt the oil sector and push global prices up.
First is the announcement that most tribes in Libya withdrew their allegiance to Muamar Ghaddafi. Not only there is a broad consensus among tribal leaders that the Colonel has to go, but many of them stated that if he does not go soon, the oil fields are likely to be their preferred targets. The tribes to watch are the one-million strong Warfalla tribe, the Maghraha, who generally compete for power with the Ghaddafi clan, the Ghaddafi. There are others but what was significant last night is the fact that the Saharan Touaregs have joined forces with the Warfalla. That’s an additional half million-strong tribe. By joining together, the two are now waging an offensive against all government institutions and facilities in the South and elsewhere. As we are writing this report, attacks against government buildings were underway. Because of the very location of the Touaregs in the south, and if there is the perception that the West is not acting to remove the dictator, there is a strong likelihood that the southern oilfields could be the target of attacks.
The second worrisome development is the rumors that are circulating about Muamar Ghaddafi planning to destroy everything before he leaves. Rumors say that he will very possibly give orders to his men to burn the oil fields, processing facilities, transportation infrastructure and anything else of economic value.
Substantial investments have been committed by many companies and today, these investments could be gone overnight, and an environmental disaster could occur as well. In addition to the consequences on the broad economy, one particular issue is worth noting and that is the question of why the sovereign risk and security analysts working for think tanks, governments, academia and corporations never managed to predict some sort of political collapse in the region? Companies using risk rating agencies and related experts are advised to revisit the type of service they are getting.