Libya's Oil Economy at Risk

Libya's Oil Economy at RiskLibya's Oil Economy at Risk

Internal conflicts in Libya may leave the country without a source of oil revenue in less than two years, the US ambassador to Libya said Tuesday, UPI reported.

The fire that resulted from the militant bombing of a pipeline at the Sarir oil field, the largest in Libya, was extinguished during the weekend.

Sarir is in the same region as oil fields attacked last week by fighters claiming loyalty to the group calling itself the Islamic State.

Libya before NATO forces intervened to protect civilians from attacks by forces loyal to former leader Moammar Gadhafi was producing around 1.2 million barrels of oil per day.

In its monthly report for February, the Organization of Petroleum Exporting Countries (OPEC) said member-state Libya was producing around 343,000 bpd as of January, a 27 percent decline from December. Sarir was producing around 185,000 bpd.

US Ambassador to Libya Deborah K. Jones said Tuesday that the country may go broke if oil continues to get caught in the cross fire. "Disruptions to Libya's oil production, essentially the country's only source of income, have become so severe that Libya will be broke in 18 months or less, by some counts," she wrote.

Libya was once a major international oil supplier. War in 2011 prompted members of the International Energy Agency to tap into strategic reserves to cope with the loss of oil from the North African producer.

Michael Marseille, president of Italian oil trade union FederPetroli Italia, said Italy, a net-importer, is at risk because of the conflict spillover.

The Libya economy boomed in the wake of Gadhafi's late 2011, but shrank by 10 percent two years later, the World Bank said. Libya, a member of OPEC, has the largest hydrocarbon deposits in Africa.

Italy's Eni is continuing to produce oil and gas regularly in Libya after cutting the number of expatriate workers in the country, a spokesman said on Tuesday.

"The presence of Eni expatriates in Libya is reduced and limited to certain offshore facilities," the spokesman said in a comment emailed to Reuters.

The Italian state-controlled major is the biggest foreign oil producer in terms of volumes in Libya

Meanwhile, Libya's National Oil Corporation said it can suspend oil extraction at all its deposits due to an armed conflict. The company has trouble ensuring the safety of its employees, and fears the technical staff might leave the extraction sites due to danger of repeated armed attacks.

The company called the country's Defense Ministry to provide the necessary means for protection of oil extraction sites.

So far the oil markets have ignored low levels of production in Libya – prices crashed over the previous seven months or so even though Libya has seen repeated bouts of violence. Now, the situation has worsened to such an extent that the markets are starting to take notice.

Brent prices traded up to $62 per barrel on Tuesday, in part due to the recent pipeline explosion and Egyptian air strikes in Libya.