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Libyan Oil Industry Thrown Into More Chaos as Haftar Digs In

Bloomberg logoBloomberg 7/12/2020 Salma El Wardany and Samer Khalil Al-Atrush

(Bloomberg) -- Libya’s oil industry was thrown into deeper confusion with military commander Khalifa Haftar, a key player in the nation’s civil war, warning he would continue to blockade ports and fields, barely a day after the state energy company said exports could resume.

Haftar’s Libyan National Army had allowed a tanker to load about 730,000 barrels of crude from the eastern port of Es Sider on Friday, with the cargo bound for Italy. That was an exception and other shipments will be banned until the warring sides agree to distribute oil money more fairly and to audit the Tripoli-based central bank, which handles energy revenue, the LNA’s spokesman, Ahmed al-Mismari, said in statement posted on Facebook on Saturday night.

The National Oil Corp., also based in Tripoli, reimposed force majeure late Sunday on all shipments. It had only lifted force majeure, a legal status protecting a party if it can’t fulfill a contract for reasons beyond its control, two days earlier, shortly before the Aframax vessel Kriti Bastion entered Es Sider.

Haftar’s decision is “gravely disappointing,” the NOC said in a statement.

At least three oil firms had already stopped production or canceled plans to restart. The operators at the western field of Sharara, Libya’s biggest, were set to pump 40,000 barrels a day from Sunday but held back after Haftar’s announcement, according to people with knowledge of the matter. Harouge Oil Operations halted Amal, an eastern deposit that had only just reopened.

The NOC said in its statement that Russian and Syrian mercenaries had occupied Es Sider, while others were camped near Sharara. It urged them to withdraw from both places.

The reversal reflects the chaos that has engulfed Libya, an OPEC member and home to Africa’s largest crude reserves.

Libya's oil production has plummeted this year © Bloomberg Libya's oil production has plummeted this year

Haftar’s blockade in January sent Libyan crude production crashing to about 100,000 barrels a day from 1.2 million and has cost the country $7 billion in lost revenue, according to the central bank. Libya’s output was as high as 1.6 million barrels daily in early 2011 before an uprising ousted longtime leader Moammar Qaddafi and led to the civil war.

The United Nations-recognized government, which is located in Tripoli in the west and led by Prime Minister Fayez al-Sarraj, is vying for control of the country with Haftar’s eastern-based forces.

The two sides are poised to square off near the central city of Sirte, in what could be a decisive battle. Turkey, which backs Sarraj, said he won’t agree to a cease-fire until Haftar’s fighters retreat from Sirte and the nearby area of Jufra. Haftar’s supporters include Russia, Egypt and the United Arab Emirates.

“Both sides seem very confident when it comes to military solutions,” said Jalel Harchaoui, a researcher at the Clingendael Institute, which is based in The Hague. “In terms of having some kind of diplomatic mechanism to avoid a violent solution and share revenues, there’s no real progress. Neither side is being sincere.”

READ: Haftar’s Losses Cloud Outlook for Libya’s Battered Oil Industry

Libya’s oil facilities have been at the heart of the conflict, with different groups repeatedly closing them. The shutdowns and lack of maintenance have severely damaged fields and wells. Repairs will cost hundreds of millions of dollars and take months even if fighting stops soon, NOC Chairman Mustafa Sanalla said in an interview last month.

Any increase in supply from Libya could undermine efforts by the Organization of Petroleum Exporting Countries and its allies to rebalance the oil market and prop up prices amid the coronavirus pandemic. The group, known as OPEC+ and led by Saudi Arabia and Russia, agreed on record cuts to production in April. Libya is exempt from those because of its strife.

(Updates from third paragraph with force majeure.)

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