Libya’s Oil Deal Could Be A Serious Bearish Catalyst For Crude Markets
OPEC turns 60 years today, but the celebration has been postponed in the light of the ongoing pandemic. The combination of demand destruction caused by COVID-19, a struggling global economy, and fleeting energy demand is troubling the oil price recovery. At the same time, OPEC members such as Iraq, Iran, Venezuela, and even Algeria and Nigeria, are facing economic hardships due to much lower oil revenues. On the supply side, some relief for the cartel has come from internal conflicts in Iraq and Venezuela, which have reduced exports, and U.S. sanctions on Iran, which have significantly reduced the nation’s capacity to export crude oil and oil products.
No real change is to be expected in these countries any time soon, but things could, however, be changing quickly for OPEC member Libya. The North African oil producer has seen its exports collapse as a result of the ongoing military conflict between the Tripoli-based GNA government, backed by the UN and Turkey, and East-Libyan power broker General Haftar, whose military forces are backed by the UAE, Russia, and several other Arab and European countries. Years of military confrontation have not only brought Libya’s oil and gas sector to a standstill but has also led to a Haftar-backed oil export blockade. While OPEC will not openly state it, the removal of Libyan oil from the global marketplace has made things a lot easier for the cartel. The export blockade, however, may not last much longer if U.S.-backed sources are correct.
According to the U.S. embassy in Tripoli, Libya’s General Haftar has committed to lifting the oil blockade by the 12th of September. The U.S. embassy stated that the “U.S. Embassy is encouraged by an apparent sovereign Libyan agreement to enable the National Oil Corporation (NOC) to resume its vital and apolitical work’’.
In an exchange of letters between Ambassador Norland and Libyan National Army (LNA) commander Haftar, as well as in recent discussions with a broad range of Libyan leaders, the Ambassador underscored U.S. confidence in the NOC and support §a financial model that would constitute a credible guarantee that ‘’oil and gas revenues would be managed transparently and preserved for the benefit of the Libyan people.” In the same press release, it was said that “the LNA subsequently conveyed to the U.S. government the personal commitment of General Haftar to allow the full reopening of the energy sector no later than September 12.”