April 12, 2019/OilPrice.com
Field Marshal Khalifa Haftar certainly knows the magic of appropriate timing. In a way, everything was pointing to his eventual charge on Tripoli – the internal escalation of discontent within Libya’s populace, who get all the disadvantages of living in a duality of power without any advantages arising therefrom, the marginalization of the Libyan agenda globally, the travails of Libya’s oilmen. Yet Haftar managed to orchestrate his strike at the least expected moment, taking avail of the Algerian uprising, the global market’s anticipation to see Libyan oil production back on track, launching an offensive when the UN Secretary General Antonio Guterres was in fact in Tripoli, the city he designated as the key target of his military operation.
Monday alone WTI futures rose by 1.3 USD per barrel, sending oil prices to their highest in five months. Tuesday witnessed tensions calming a little bit, as we all struggle to see clearly what exactly is going on around Tripoli. There are certainly limits to the ongoing hype – if one is to look at the grand picture of Libya’s oil geography, the Haftar attack ramifications need not be significant for the Libyan oil industry. They might be very significant for the Libyan political scene, without any doubt – people are dying as we speak, at least 35 people have died in the first four days of fighting. Yet there remains a lingering feeling that when it comes to settling oil issues, the Libyan NOC can cooperate (as it has already done before) with Haftar should there be a necessity to do so.
1. Most of Libya’s oil is already Haftar’s control
Just as the El Sharara field swung back to (almost) full operation, pumping out 280kbpd out of its 315kbpd production plateau, Haftar initiated his advance on Tripoli. Seemingly, this should wreak havoc in Libya’s oil and gas operations – international oil majors do not evacuate staff (ENI already did so in Tripoli) for no reason at all. Yet much of it might be pure precaution as by April 08, all of Libya’s ports were open and operating, except for those that were out of operation for years already – namely the Sirte and Derna terminals that suffered greatly from Libya’s internal battle against the Islamic State’s recruits. Even the port of Tripoli, which is not used as a crude export terminal, has been open despite ongoing fights for the Tripoli airport.
Moreover, if you ask any oil company with Libyan exposure, especially those that have cargoes loading there as we speak, so far none registered any drawbacks or fighting-related delays. Since Haftar’s siege started, 13 vessels have finished loading or are currently in transit thereof – including the New York-bound MT Stream Atlantic and the China-bound MT Silverway, sailing from Marsa El Hariga and Brega (however these ports were already controlled by Haftar’s LNA). The Mellitah terminal, just a couple miles off Zawiya, has loaded MT Energy Triumph, carrying more than 1 million barrels of Mellitah crude, as recently as yesterday.
Obviously, western Libya should not experience any disturbances as it is controlled either by the LNA or entities affiliated to it. The oil production hub in the southeastern part of Libya, namely the trouble El Sharara and El Feel (Elephant) fields, were seized by the LNA early February on the pretext of battling smugglers and roaming jihadi fighters and turned over to the Libyan NOC a couple of weeks later. Thus, Field Marshal Haftar already controls (in a military sense, the operations are done by the NOC) almost all of Libya’s output. It is very unlikely to imagine any maritime action launched against Libya’s offshore production – Al Jurf or Bouri – so out of Libya’s oil infrastructure it is only the Zawiya and Melittah ports that might be under pressure.
2. Haftar is unlikely to attack the Zawiya terminal
Further to the above, with El Sharara being already under the Field Marshal’s control, there is little incentive for him to attack Zawiya, the export point for El Sharara crude some 45km to the west of the Libyan capital. It makes no sense strategically – he can use the genuine disgruntlement of Sharara oilmen that did not see a promised salary increase for several years already to his own political benefit, promising them change as soon as takes over the whole of the country, and it makes no sense tactically as by blocking the Sharara crude stream he would undermine his own carefully nurtured pro-business credentials (to the extent possible from a man whose military career spans more than 4 decades).
It is an open question to what extend did leading regional powers know about Haftar’s plans – he visited the Saudi King Salman as recently as March, is a frequent visitor to Moscow and is alleged to maintain a communication line with the American CIA after the many years spent in his US exile, in the vicinity of the CIA headquarters in Virginia. Almost all great powers are caught in a moral dilemma when they have to balance between their natural inclination to accept Haftar as Libya’s new leader and the ruthless methods he has chosen to attain this powerful status. But the ongoing fights for Tripoli relate to Libya’s oil only marginally, they are most likely carried out as a pre-election PR campaign.
3. What is Haftar Seeking Then?
It is no coincidence than Field Marshal Haftar’s attack takes place amid top-ranking UN officials being in Libya, against the background of an upcoming national conference, scheduled to take place April 14-16 in Ghadames, the purpose of which was to facilitate a reconciliation of the two rival governments. The fact that the LNA could quite easily reach the outskirts of Tripoli backs his strongman claim, especially if the long-mooted national elections are to take place at some point in the future. The international community led by the United Nations will not let Field Marshal Haftar go the whole distance, yet that would only buttress his domestic appeal as the nation’s prime dealmaker.
Mustafa Sanallah, the head of the Libyan NOC has already stated his neutrality in the ongoing confrontation, stressing that production continuity, whoever is at the helm of the executive power, for him is tantamount. That suits Field Marshal Haftar who heretofore had had little to no appeal on the streets of Tripoli and stands to benefit from pressurizing the Government of National Accord, but bodes well for Fayez al-Sarraj, the head of the Tripoli-based GNA. As long as the fights are revolving around Tripoli, do not expect any significant adverse oil-related impacts, the only scenario in which Libyan exports might be greatly jeopardized would take place if the Libyan hinterland explodes.