Who'll control Libya's oil economy if Gadhafi falls?

McClatchy NewspapersFebruary 24, 2011 

WASHINGTON — If Libyan strongman Moammar Gadhafi falls, his nation's ability to return to normal will depend in no small part on who controls its production of oil, which is synonymous with the Libyan economy.

Oil accounts for anywhere from 70 percent to 90 percent of Libya's earnings from exports, and the shutdown of oil deliveries amid a widening conflict has sent global prices soaring.

Though it has Africa's largest reserves, Libya isn't a major oil producer. It exports only about 1.2 million barrels a day, largely to Europe, while daily world demand totals about 88 million barrels a day, according to the International Energy Agency.

Libya is, however, the first member of the Organization of Petroleum Exporting Countries to teeter on collapse. Several others_ including larger producers Algeria and Iran_ face growing unrest, and markets are alarmed at the possibility of instability spreading perhaps even into Saudi Arabia, the world's biggest producer.

Oil prices on the New York Mercantile Exchange soared above $103 a barrel in intraday trading on Thursday, but settled at $97.28 after assurances from Saudi Arabia that it could replace lost Libyan production.

Because Gadhafi has ruled Libya for so long, there's no natural heir to the oilfields. Several Western oil companies — including Occidental Petroleum and Chevron_ have drilled in Libya at some point since 2005. Gadhafi on Tuesday declared force majeure on oil exports, a provision in contracts that allows him to break commitments made to oil companies or buyers of oil.

Next door in Egypt, the military long has been active in the economy, and when longtime leader Hosni Mubarak was forced out, the military remained at the center of power, providing some economic continuity. In Libya, the military has no such status and is subservient to Gadhafi, who's repeatedly purged and reshuffled leaders.

Now with key oil regions in the hands of opponents or seemingly heading that way, there's no clear idea of what will happen to oil production in a post-Gadhafi world.

"At the moment, oil exports appear to have stopped, partly because the foreigners are leaving and partly because of strikes by Libyan workers. If the situation stabilizes, oil will start flowing again," said Simon Henderson, a Middle East expert at the Washington Institute for Near East Policy, a foreign policy think tank. "If Gadhafi is still in power, at that point the question is, do we pay him for his oil? If it's another government, we pay the revenues to the Libyan national oil company and it goes into the central bank."

That's a best-case scenario. A worst-case scenario is protracted civil war, long disruption of oil production and exports, and a conflict that could spread beyond its borders. Libya could quickly become a failed economy and state.

Even under the better scenarios, it's not clear what sort of power struggle might emerge for control of the engine of Libya's economy. It's a country where tribal affiliation matters, but under an entrenched and maniacal dictator, the tribes never have been power centers as they are in Iraq or Afghanistan.

"The tribal relationships are limited to marital issues, somebody kills somebody . . . they don't really meddle in any control of one thing or another," said Omar Turbi, a Libyan-born businessman in California who's championed an opening of the North African nation to the global economy and foreign investors.

Pointing to Benghazi, the large eastern city now in the hands of Gadhafi's opponents, Turbi said tribal influence is limited because so many people emigrated there in search of economic opportunity. He doesn't think the Gadhadhfa tribe, to which Gadhafi belongs, would retain any lingering power.

"It does seem to me that the tribes are a component in society, but they are not a foundation for building a new political government," said Henderson. "One of the problems of Gadhafi is that he's trashed civic society, which means it's so much more difficult to think how the hell this is going to work."

As the only significant economic engine in Libya, oil must be part of any solution.

Most of the oil in Libya is concentrated in the north-central region, with significant fields also to the east, which are already in opposition hands. There were reports Thursday that Zawiyah, an important oil city west of the capital of Tripoli, had fallen into opposition hands, although a fierce counter-attack by Gadhafi loyalists also was reported.

Turbi didn't anticipate a power struggle over Libyan oil.

"The Libyans have learned the script of the Tunisians and the Egyptians," he said, suggesting that there are civilians who are ready to step in and establish rule by the people and a functioning government.

Western oil companies have evacuated foreign personnel from Libya, but appear to be operating off and on with Libyan staffers.

In 2005, Chevron it announced to great fanfare that it had won bidding for Libya's first exploration license. When it was unable to find oil, however, the company relinquished the license four years later. Chevron also operated a joint venture, Amoseas Libya, in the early 1970s until its operations were nationalized. It settled claims with the Libyan government in 1977 and walked away from its prior holdings.

Occidental Petroleum and its Austrian partner OMV signed a 30-year deal in 2007 with the Libyan Oil Corp. to redevelop and explore oil fields in the Sirte Basin. At the time they pledged a $5 billion investment. Los Angeles-based Occidental has said its project produces about 13,000 barrels of oil a day.

ON THE WEB

Washington Institute on Libya

Libya energy facts from IEA

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