Key Takeaways:
Production was suspended at the El Sharara oil fields in response to the protests by locals. These fields are operated by Akakus Oil Operations, a joint venture between 4 European firms and the Libyan National Oil Corporation and represent 40% of Libyan oil production.
KSG assesses a medium likelihood that the conditions at El Sharara will be mirrored at the Wafa fields as the Libyan National Army seeks to decay the Government of National Unity’s power and strike blows to Spanish operations at the Sharara fields and the European energy sector.
The El Sharara oil fields are highly likely to remain closed until Spain rescinds its arrest warrant for Saddam Haftar. KSG assesses a medium likelihood of active EU, specifically Italian, pressure on Spain to cancel the warrant given the integral nature of El Sharara’s role in Libyan crude oil production.
On August 6, 2024, the National Oil Corporation (NOC) of Libya announced a partial decrease in oil production from the Sharara fields due to protests by the Fezzan movement. This follows the Libyan Government of National Unity’s prior condemnation by those attempting to interfere with production at El Sharara. Akakus Oil Operations, which operates the El Sharara oil fields, is a joint venture between France’s TotalEnergies, Spain’s Repsol, Austria’s OMV, Norway’s Equinor and the Libyan state-owned National Oil Corporation. Bloomberg has reported that production has already come to a full stop, but nothing has emerged from involved firms that definitively confirms this claim yet. KSG assesses a high likelihood that a declaration of force majeure (a clause which suspends contractual obligations due to the extraordinary nature of events preventing normal business operation) by the Libyan NOC is imminent in coming days, with confusion encircling the events unfolding at the Sharara fields as production comes to a halt.
The El Sharara Oil Field
El Sharara, an oil field in southwestern Libya, has been used as a political bargaining chip multiple times by local militias in the past. For example, the Fezzan Anger Movement incited a shutdown of oil production and suspension of business contracts by the National Oil Corporation earlier this year, demanding improvements to local infrastructure, the creation of a more local oil refinery and an adequate and affordable fuel supply. The Fezzan region is the poorest in Libya with little job opportunity, insufficient infrastructure and services, and limited security. Fezzan is home to the Wafa oil and natural gas fields in addition to El Sharara, which have also been shut down in the past due to political instability. The Wafa fields is a joint venture operated by the NOC and Italy’s Eni. El Sharara’s oil is transported via a pipeline to the small Libyan port city of Zawiya to be refined and exported.
Importance of Libyan Oil
The El Sharara fields represent roughly 40% of Libyan oil production, producing about 270,000 barrels per day (b/d). Libyan oil is especially significant to European oil markets representing 7.89% of external EU crude oil imports as of 2022. Specifically, Libya makes up 7.88% of Spanish, 11.9% of Italian, and 8.31% of German crude oil imports as well as non-European markets like China and the US (1.13% and 0.88% of respectively). Due to the significant impact that crippled Libyan oil production will have on the continent, European nations will likely strain to avoid purchasing Russian oil processed through India and China. KSG assesses that EU nations are also more likely to prioritize the sentiment of the Arab world in relation to current Israeli operations as Libya’s oil crisis continues, as Iraq and Saudi Arabia make up a combined 9.63% of external EU crude oil imports.
Confusion Surrounding Sharara Antagonists
Despite the NOC’s claim that the Fezzan Anger Movement is responsible for the protests at the El Sharara fields, the movement’s leader, Bashir Al-Sheikh claimed that the current shutdown is not a result of his group’s actions. Al-Sheikh blamed Libyan National Army (LNA) general Saddam Haftar, son of LNA leader General Khalifa Haftar, with responsibility for the current interference in El Sharara’s production. An arrest warrant was issued for Saddam Haftar by Spain due to his involvement in a shipment of weapons from Spain to Libya via the UAE. Al-Sheikh claimed Haftar has shut down El Sharara as retribution against Spain, as the field is operated and partially owned by the Spanish Repsol.
Looking Forward:
KSG assesses that oil production at El Sharara is unlikely to return to optimal levels in the coming weeks, and that aggregate Libyan oil production will remain unsteady even after the current situation is resolved.
KSG projects a high likelihood that Libya’s political environment will remain unstable, especially in the southern Fezzan region as volatile oil production and increased activity by armed groups like the Libyan National Army will exacerbate the area’s poverty and insecurity. Furthermore, the Government of National Unity’s (GNU) possession of the Central Bank of Libya gives it access to Libyan oil export revenue, so as the Government of National Stability (GNS) seeks to weaken the GNU, KSG assesses that Libyan export revenues will suffer. KSG notes that the current situation is a potential point of escalation, with the potential to ignite a months-long stand-off between the GNU and the GNS, as much of GNU’s financial power comes from its oil export revenue.
The arms embargo against Libya has proved lacking since its implementation in 2011. However, following the demonstrated intimidation by the LNA that wounded Libyan oil production, it is likely NATO members and European agencies will work more vigorously to enforce the embargo.
KSG assesses a high likelihood that Italy will lean on its North African economic partner Algeria should the production halt at Libyan Wafa natural gas fields. Algerian natural gas infrastructure improvements will allow it to absorb Libya’s role in Italian natural gas imports, which Algeria makes up nearly a quarter of.
While Italy is too entrenched in Libya to extract itself, KSG assesses that other European clients of Libyan oil such as Germany, France, and Spain may be inclined to consider more secure sources of crude oil. African countries like Algeria, Nigeria and Angola are in opportune positions to fill the gap that decreased Libyan production will leave behind in the European crude oil market.
By Carter Morton, Africa Analyst