The Libyan civil war is set to be a prolonged one. Others have mentioned the rebels’ astonishing lack of discipline and training, and what thus far seems like their inability to establish even a chain of command. That can be rectified, however, if they can gain enough resources. In Libya, of course, resources mean oil. So what do the rebels control?
First, they have the Tobruk oil terminal firmly in hand. They took possession of the Zueitina terminal on Monday, bit whether they can hold that depends on events in neary Ajdabiya. The two terminals have an export capacity of 63,000 and 214,000 barrels per day (bpd), respectively, for a total potential export capacity of 277,000 bpd. The terminals are fed by the Sarir and Misla fields, which according to Agoco are producing about 95,000 bpd, down from 400,000 bpd.
Why is production so low? Agoco was not dependent on foreign expertise. The loss of contractors in the general flight when the civil war broke didn’t help, but it didn’t cause the decline. Rather, the problem is legal uncertainty. With sanctions biting, it wasn’t clear that any of the majors could purchase Libyan oil without opening themselves up to massive liabilities. In fact, that is usually the problem in rebellions and civil wars. When the legal situation is clear, oil companies are willing and able to operate in the most disordered situations—when it is not, they won’t touch anything with a ten-foot pole. Agoco’s management may have announced that it was on the side of the rebels, but that means nothing to the majors in the absence of Western policy. As a result, oil is sitting in terminals without tankers, and production is down since there’s no storage capacity.
This looks like it is about to change. In what may be the most significant development of the civil war since the Western airstrikes began, the rebels just declared the formation of a new “Libyan Oil Company,” and “the designation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya.”
This is really important. It means that a rebel government, recognized by France, now has an oil company and a central bank. The sanctions imposed by the United States (and in a weaker messier form by the Europeans, something that I complained about to a reporter last week) apply only to the Libyan national oil company and central bank. In the Treasury’s words: “Should National Oil Corporation subsidiaries or facilities come under different ownership and control, Treasury may consider authorizing dealings with such entities.”
The sanctions imposed on the central bank of Libya are similarly flexible: “All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, including any overseas branch, of the Government of Libya, its agencies, instrumentalities, and controlled entities, and the Central Bank of Libya, are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.”
Libyan lifting costs are around $3 per barrel. At $105 per barrel, access to the two eastern fields could mean an annual income of $10.3 billion for the rebels. Now, that’s not likely—those Opex figures are misleading. (Libya earned $32 billion in 2010.) Still, even a quarter of that can buy a lot of merce ... er, private military training and uniforms and equipment to turn the rebels into a real army. Add some access to British and French special forces (to call in airstrikes) and they could win this thing.
They won’t win quickly. But with Gaddafi running on cash reserves, it looks as though they will win. At least as long as China and India and elsewhere stay on side.
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