In early March, the North-Korean flagged tanker MT Morning Glory reached the eastern port of Es-Sider, one of the three oil ports seized by Ibrahim al-Jadhran’s Cyrenaica Defense Forces.  Jadhran’s forces tried to sell oil independently of Tripoli’s control, something that they had threatened to do in the past. The tanker was reportedly loaded with about 234,000 barrels of crude and was able to slip through Libyan naval patrols. Shortly afterwards, U.S. Special Forces boarded and seized the tanker off of Cyprus before returning it to Libya (Reuters, March 23). The inability of the Libyan government to manage this situation created a major political crisis, with Prime Minister Ali Zeidan fleeing the country on a private jet for Germany after being sacked by the General National Congress (GNC) (Guardian [London], March 13; al-Jazeera, March 22; AFP, March 23). The crisis was not an isolated event, but instead represented the peak of a wider situation pitting the central government in Tripoli against armed groups (especially in the east) that has brought Libyan oil output to a standstill. Given the importance of oil for Libya, and of Libya for the global oil market, these developments have a wider significance beyond their economic impact.
The Roots of the Current Crisis
The end of the 42-year-long Qaddafi regime triggered a series of political fragmentations that are somehow natural in the history of Libya. A rather challenging and inhospitable geophysical environment has fostered the dominance of local groups – and a local and narrow definition of interests and solidarity – rather than allowing the emergence of a unified and more inclusive national society. Like other nations in the region, Libya’s national borders were more the product of European colonialism and the introduction of the concept of nation-states than the product of a local historical process. Unlike other countries – Egypt, for instance – which had a nationalist sensibility and narratives to support it, the presence of a unified and inclusive nationalist narrative in Libya has always been particularly weak and the establishment of modern national borders has failed to produce a sense of nationalist coherence or solidarity.
The three regions that compose modern Libya – Cyrenaica, Tripolitania and Fezzan – have always maintained their own particular identity. Within them, local communities, tribal links and towns have historically represented the focal points through which Libyans have organized their interests and represent the primary units of social and political reference. These tendencies were well displayed in the fight against Italian colonialism, when resistance was organized around powerful local families and urban settlements.
The dominance of localism was not challenged by the establishment of Libya as a nation-state in 1951 and the 1969 revolution led by Muammar Qaddafi did not change this situation significantly. A few years after the revolution, Qaddafi gave up his original ambition to downplay the influence of tribal solidarity and used a select few tribes to prop up his regime and boost stability. His divide and conquer strategies and the exclusive nature of his regime nurtured a desire for revenge that clearly emerged once the Libyan revolution started in 2011. Moreover, the deliberate lack of civil institutions within the Jamahiriya (the Republic of the Masses) and the spread of informal mechanisms to manage power did not produce a new, inclusive national identity, but rather created a political context in which fragmentation and narrower, local-based and largely selfish visions of interest became dominant.
Revolutionary units, militias and brigades were organized around cities and local power-brokers, and once the regime collapsed, they also became the key actors in post-Qaddafi Libya. The weak central authority tried to appease and contain these militias rather than challenge them directly. Some militias were able to guarantee a minimum level of stability in their areas, while in other places the presence of multiple rival militias created an informal “balance of power” that was able to again guarantee a minimum level of security.
This situation was short-lived, however, and now many of these militias are directly challenging the authority of Tripoli, especially groups in the east, where the situation is exacerbated by the presence of most of the oil facilities, disagreements over defining the borders of some oil fields lying at the meeting point of Tripolitania and Cyrenaica bids by some political movements to gain greater access to oil revenues. The attempt to sell Libyan oil has changed the intensity of the struggle, bringing it to a different and more challenging level.
Libyan Oil Trends
Shortly before the revolution, Libyan oil output reached 1.77 million barrels per day (bpd) of crude oil in 2010, equivalent to 2% of global output according to IMF figures.  Following 9/11, Qaddafi, who had earlier nationalized the Libyan oil industry, seized the opportunity to reduce his international isolation by cooperating with the West, reducing his foreign policy adventurism and giving up Libya’s WMD program. This allowed international oil companies to return to Libya at a time when the national oil sector was particularly in need of new investment. This trend stopped in 2011, when the eruption of the Libyan Civil War brought oil production to a standstill. The IMF calculated that Libyan oil production for 2011 stood at 0.5 million bpd, with the lowest point in August 2011 when production was almost zero as the Qaddafi regime collapsed and rebels took control of Tripoli.  After that, production gradually resumed and quickly returned to its pre-war level, hitting 1.7 million bpd in September 2012.
A rising wave of strikes and protests led to a sharp reduction in oil output in 2013, however. In mid-October 2013, former prime minister Ali Zeidan announced that Libya was producing between 600,000 to 700,000 bpd thanks to the return online of more than one-third of its oil production. This assertion was false. In September 2013, production was 150,000 bpd. In the second half of 2013, Libya produced only an average of around 250,000 bpd. In January 2014, production recovered as the government announced that Libya produced about 582,000 bpd in the week ending January 18 (Libya Herald, February 6). That was just a temporary development, as production collapsed again, with the National Oil Corporation (NOC) announcing that production stood at 155,000 bpd at the end of March (Reuters, March 28).
More than the Blockade
The blockades by rebel militias of the oil and gas facilities have the potential to harm Libyan energy operations for decades to come. Paolo Scaroni, the head of Italian ENI (one of the most important companies operating in Libya), noted that: “Opening and closing gas and oil fields is not like switching a light on and off. It risks damaging the geology of the field” (Libya Herald, March 24). The blockades and the consequential sharp decline in oil output are not the sole problems that Libya and its oil sector have to face, with the energy sector burdened by a series of structural problems that may have a serious impact on medium- and long-term operations.
Despite the importance of this sector’s revenues to Libya, its governance is engulfed by political instability. On January 21, Oil Minister Abd al-Bari al-Arousi and four other members of the Justice and Construction Party (JCP), the political arm of the Libyan Muslim Brotherhood, resigned from the government after failing in an attempt to censure Prime Minister Ali Zeidan (Libya Herald, January 22). Moreover, the execution-style killing of British oil worker Mark de Salis and girlfriend Lynn Howie on a Libyan beach heightened the risk perception of foreign companies operating in Libya (Guardian [London], January 4). Although this is not a decisive factor in pushing companies away from Libya, it nevertheless may raise concerns. Other factors that could discourage foreign investment and a more active commitment from oil companies to the country include:
· The risk to personnel in Libya;
· The targeting of energy facilities for occupation by political activists and militants;
· Some recent and disappointing drilling results;
· The psychological burden to the industry in the wider North African region following the attack at Algeria’s In Aménas gas facility in January 2013.
The sector is also facing legal and regulative problems in Libya; the Libyan Exploration and Production Sharing Agreements (EPSA) IV terms on contracts are considered by international companies to be among the most restrictive and penalizing in the global oil market (Oil & Gas Journal, April 18, 2005). In this legal framework, contract winners are generally determined by how high a share of production a company is willing to offer to the NOC (WorldFinance.com, September 13, 2013). Funds for exploration work must be provided entirely by the private companies, who must also pay for 100 percent of all costs faced for a minimum time period of five years while the NOC maintains exclusive ownership. Moreover, the management structure of Libyan joint venture companies gives the NOC a “golden share” (allowing the holder to outvote all other shareholders in specific circumstances) and the final word on all decisions. After the revolution, Libyan authorities stated they were keen on announcing EPSA V terms by the end of 2013. However, in September 2013, NOC Chairman Nuri Berruie announced that the new EPSA would not be produced before mid-2014, asserting that the GNC did not have the constitutional authority to launch a new EPSA bidding round (Libya Herald, September 18, 2013).
The Importance of Oil for Libya
Libya is a paradigmatic example of a “rentier state,” one that relies almost entirely on the “rent” of its natural resources to external clients for its national revenues. Libya remains one of the most hydrocarbon-dependent countries in the world, with a poorly-diversified export sector.
The hydrocarbon sector currently composes around 70 percent of GDP and about 98 percent of exports (AFP, February 19). Oil revenues remain the most important budgetary source for Libya, composing about 90 percent of government revenues.  Libya holds the largest proven oil reserves in Africa; according to the latest BP Statistical Review of World Energy, Libya has 48 billion barrels of proven reserves (2.9 percent share of the world total). 
A rather important element of the Libyan oil industry is that it is a major contributor to the global supply of light and sweet crude. Light crude is generally considered to have an API gravity (American Petroleum Institute gravity is used to compare the relative densities of petroleum liquids) higher than 31.1 degrees (though this may vary) and only the oil produced at the al-Bouri field stands below this threshold, with an API of 26. Sweet crude has a low sulfur content, particularly important for producers facing tighter environmental regulations. This important element explains why Libyan oil is particularly interesting for oil companies, as it is easier to refine and produces higher percentages of gasoline and diesel fuel when converted. Moreover, the geographical position of Libya makes it a rather important supplier of oil for Europe, and the fact that Libyan oil supplies are not dependent on the situation in the Suez Canal and the Persian Gulf made it historically a major target of interest for international oil companies, particularly in Europe.
Although the energy sector only employs around 2 percent of the Libyan workforce, it is nevertheless fundamental in supporting employment in the public sector, where an estimated 1.3 million workers form roughly 80 percent of Libya’s labor force.  The pattern of Libyan public spending suggests that the oil sector is also a fundamental element of social stability. In 2012, wages and salaries represented the largest component of public expenditure, accounting for about 36 percent of the total. Subsidies and transfers (29 percent) also had a significant share, while goods and services accounted only for 25 percent.  This means that about 65 percent of Libya’s public expenditure has an immediate and direct impact on the living standards of the population.
Conclusion: Implications for Libya and for the World
Libya’s dependence on oil makes the current crisis one of the toughest challenges faced by the already weak government in Tripoli. Over the past three years, Libya has been able to partially contain the impact of increasing fragmentation using public money. Despite this, Libya has been unable to control the proliferation of militias and local groups claiming a bigger slice of the “oil pie.” Libya’s inability to leverage public money to cool social tensions in the wake of the ongoing financial crisis is a major element of concern, since it could lead to further radicalization. This is a significant challenge and its outcomes will determine the future path of Libya as a nation state. This challenge, however, goes well beyond Libyan borders. Given the importance of Libya to global oil production, prolonged political instability and a lasting blockade of its oil facilities may combine to keep global oil prices high. Apart from the classic supply and demand dynamic (as Libyan problems reduce the global supply of oil), the energy market is also particularly sensitive to geopolitical factors; security concerns in Iraq, Nigeria, Venezuela and the former Soviet space may also play a role in putting upward pressure on prices.
A Libya on the brink of complete chaos, without significant changes in the legal and regulatory framework of its oil sector, may push foreign firms to rethink their strategies. The ongoing shale revolution may push many companies to search for less risky environments in which to operate, potentially abandoning a country that, despite enormous potential in terms of reserves and the high quality of its oil, will likely experience at least several more years of chaos. Moreover, the blockades may damage the oil infrastructure and delay routine maintenance work, in turn reducing Libya’s ability to achieve the oil production targets that authorities claim they should be meeting in normal conditions, generally 1.7 to 1.8 million bpd. This will, of course, have an impact on the overall stability of the country; at the moment, the struggle between local groups to get a bigger slice of revenues that were for decades in the hands of Qaddafi and his circle is pitting groups – above all from the east – against the government and also against themselves. If such revenues diminish, competition will increase and cause further radicalization, in turn advancing the already significant trend to fragmentation that characterizes Libya. This is the reason why oil remains key to the success of post-revolutionary Libya.
Dario Cristiani is a PhD Candidate in Middle East and Mediterranean Studies at King’s College London. Previously, he has been a teaching fellow in Political Science and Comparative Politics at the University of Naples "L’Orientale" and a political analyst with the Power and Interest News Report (PINR).
1. For a profile of Ibrahim al-Jadhran, see Militant Leadership Monitor, January 2014; for the occupation of Es-Sider oil terminal, see Terrorism Monitor, October 31, 2013.
2. International Monetary Fund, Libya beyond the Revolution: Challenges and Opportunities, Washington D.C., 2012, p. 4.
5. BP, Statistical Review of World Energy 2013, p. 6, http://www.bp.com/content/dam/bp/pdf/statistical-review/statistical_review_of_world_energy_2013.pdf.
6. Libya – African Economic Outlook 2013, p. 5. http://www.africaneconomicoutlook.org/en/countries/north-africa/libya/.