Geopolitical Factors Threaten Libya’s Oil Exports Again

What is the impact of an export blockade on global oil markets? (With three charts)

Main Takeaways

• The controversial issue of distributing oil revenues among rival authorities is once again threatening Libya's oil exports. 

• Russia's presence in Libya is growing, raising alarms in some Western countries including the US. 

• Libyan oil has been flowing to new markets in Europe. An oil exportation blockade this summer would come amid a forecasted rise in demand.

• Markets have been discounting Libya's volatile oil supplies. The impact of an oil exportation blockade would be limited.

• The US, Nigeria, and Algeria stand to gain the most from the loss of Libyan oil

Libya’s volatile oil exports are in the spotlight again. Since last week, there have been concerns about a possible oil exportation blockade due to recurring disputes between rival governments over the management of the country’s oil wealth. On July 3, military commander Khalifa Haftar, who leads the Libyan National Army (LNA) in the eastern part of Libya, called in a speech for the formation of a committee to manage the country’s oil revenues, warning that his forces were “on standby” and ready to intervene if the contentious matter is not resolved by the end of August.

The issue of splitting oil revenues between opposing authorities in eastern and western Libya is not new and was among the reasons that led to the shutdown of Libyan production and exports over the past years. If a political stalemate leads to another embargo on Libya’s oil exports, and at a time when global demand is forecasted to rise, this could further complicate the market.   However, markets have been shrugging off Libya's volatile oil supplies. The impact of any sharp decline in oil exports is likely to be regional, and limited to certain crude types (light sweet). Meanwhile, the impact on oil prices would be limited, especially since the additional voluntary output cuts from Saudi Arabia, Russia, and Algeria will be applied only in August. In the event of an oil exportation blockade in Libya, the US, Nigeria, and Algeria stand to benefit the most from a major decline in Libyan exports.

Libya: A Battleground for Local and International Rivals