(Bloomberg) -- Libya’s eastern government said it will shut down crude output and exports, as a struggle with its Tripoli-based rival for control of the central bank and the nation’s oil riches threatens a new round of conflict.
Brent crude jumped as much as 3.2% to above $81 a barrel, after the eastern authorities said Monday in a statement on Facebook that a “force majeure” applies to all fields, terminals and oil facilities.
Waha Oil Co., which supplies Es Sider — the country’s largest export terminal — said it will start cutting shipments gradually. Sirte Oil Co. also said it will start reducing output.
Deep-seated political divisions in Libya’s east and west, despite a 2020 United Nations-backed cease-fire deal aimed at ending their fighting, have often resulted in battles and blockades that target its most valuable resource. The nation sits atop Africa’s biggest known crude reserves, but production has suffered after a decade of political strife.
Libya has been wracked by unrest since the 2011 overthrow of longtime dictator Moammar Al Qaddafi, with dueling governments undercutting efforts to revive the economic fortunes of the nation of 6.8 million people. Clashes between armed groups loyal to different factions or individuals frequently shut key oil fields as they vie for crude revenues.
A row over who leads the central bank, the manager of billions of dollars of energy revenues, has been brewing for over a week, deepening political divisions and threatening a UN-brokered peace deal. The internationally acknowledged government in the country’s west has been seeking to replace Governor Sadiq Al-Kabir, who has refused to step down. A government delegation entered the regulator’s offices today to take over, according to local media.
“The dependence of Libya economy on oil revenues means that whoever controls the state institutions that oversee these funds effectively controls the country’s economy,” Citigroup Inc. analysts including Francesco Martoccia said in a note earlier on Monday. “This has turned into a conflict zone for the competing factions, with each side seeking to secure its own financial interests.”
Al-Kabir, who’s backed by the eastern legislature, had resisted the decision by the Presidential Council to remove him, arguing the body lacked the authority and the move was unlawful. Critics of Al-Kabir, in the post since 2011, argue he’s mishandling oil revenues.
Relations have steadily worsened since last year between Al-Kabir and Tripoli-based Prime Minister Abdul Hamid Dbeibah, who the central banker publicly embarrassed with claims of corruption and over-spending. Dbeibah vociferously denied the allegations.
On Monday, Dbeibah’s government said it’s important “not to allow oil fields to shutdown under any false pretenses.”
The row came amid deepening tensions between the two camps. The UN’s top official in Libya, Stephanie Koury, painted a bleak picture to the Security Council in an Aug. 20 briefing. After armed groups mobilized in July and August, the political, military and security situation has “deteriorated quite rapidly” over the past two months, she said.
Earlier this month, the eastern legislature said the government in Tripoli was “illegitimate” and voted to strip the Presidential Council — formed under the 2021 UN transition agreement — of its role as high commander of Libya’s army. The parliament argued the transitional phase, intended to draw a line under years of violence with nationwide elections, had ended.
That vote — marking a watershed in international efforts to reunify the country — has yet to take place.
The country produced a total of about 1.15 million barrels a day of oil last month, according to data compiled by Bloomberg. Since then, the biggest oil field called Sharara, which was pumping nearly 270,000 barrels daily, has halted. The east is home to the Sirte basin where most of Libya’s oil reserves and four of the country’s oil export terminals are located.
A drop in exports may temporarily push Brent crude to the mid-$80s a barrel, according to Citi.
The central bank saga itself comes after a series of oil-sector firings by Dbeibah, raising claims that he’s trying to exert full control over the country’s most valuable industry.
(Updates with comment from Dbeibah government in 10th paragraph and details throughout)
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