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Falling Forward: The Ramifications of Libya’s Oil Crisis

Libyan military forces spar with rebel groups over control of oil ports near Ras Lanuf. Source:

Oil has fueled the Libyan economy for years, but major clashes between political factions within the nation have produced disastrous consequences for the once lucrative oil industry. Oil was first discovered in Libya in 1959, and the nation became a member of the Organization of the Petroleum Exporting Countries (OPEC) shortly thereafter in 1962. Ever since, its economy has been through its share of highs and lows. Most recently, with foreign investors withdrawing resources from the country, corrupt leaders attempting to make a quick buck, and oil fields shutting down because of ensuing violence, everything seems to be going downhill. The combination of a reduction in oil production coupled with increased violence may prompt a vicious downward cycle in which Libya finds itself mired in widespread instability for the foreseeable future.

In the past, the majority of government revenue has been funded by hydrocarbon sales; thus, the drop in oil production has serious consequences for the well-being of Libyan society as a whole. The International Monetary Fund (IMF) reports that in 2012, oil and natural gas made up almost 96% of  Libya’s total government revenue and 98% of export revenue. Moreover, the majority of these hydrocarbons were comprised of crude oil exports. Today, Libya possesses the greatest number of known crude oil reserves in all of Africa. What’s more, its so-called crude, or low sulfur oil, is immensely popular in European markets.

To better understand the situation currently unfolding in Libya, it is crucial to first take a step back and examine Libya’s troubled history. Libya was ruled by an autocratic government under Colonel Muammar Gaddafi for forty-two years until he was overthrown in 2011 as a result  of a bloody civil war. During his reign, Gaddafi attempted to pass off his absolute rule as a system of democracy without political parties. Gaddafi was already unpopular among Libyans, but the international community also turned against him after the United States accused Libya of involvement in the 1988 bombing of a PamAm flight that was traveling over Scotland. Libya was on the international radar once again in 2011 when protests against Gaddafi, sparked by the Arab Spring, were met with violence and bloodshed. The United Nations Security Council was quick to approve a resolution in March 2011 allowing NATO air strikes in the region to support the Libyan people. Gaddafi’s death followed soon after in August 2011 after a group of rebels took his life. While many were relieved by the end of  Gaddafi’s tyrannical rule, Libya’s economy has suffered as a consequence of the instability that ensued. One significant issue that has emerged since Gaddafi’s removal has been growing contention over the geographic distribution of economic and political influence within the country. Hydrocarbon resources and oil are often dragged into the conflict and squandered in business deals.

In spite of this, Libya’s economy performed comparatively better in 2012 and began to recover as a result of the revival of hydrocarbon development as well as increased trade. However, things took a turn for the worst in late 2013 due to a spike in protests held at the nation’s major oilfields and export areas. Oil production dropped to an alarmingly low rate, hundreds of thousands shy of its long term average of 1.6 million barrels per day. On top of this, Libya’s most crucial eastern oil ports — which include Ed Sidra, Ras Lanuf, Zuetina and Marsa al-Hariga — were prevented from shipping oil because of a blockade orchestrated by Ibrahim Jidran, a key figure of the Petroleum Facilities Guard, an organization dedicated to the security of the ports.

The interruptions in Libya’s oil production extend beyond the economic realm as the unstable economy has consequences for the nation as a whole. Hence, a vicious cycle unfolds. As economic instability aggravates conflict around the country, foreign companies and investors faced with the threat of violence and terrorism leave Libya, precipitating a drop in oil production. The economy is negatively affected by the decline in the production of the country’s chief resource, and as a result, there is a spike in unemployment. The large numbers of jobless civilians are then more likely to find work within rebel groups, where they are rewarded handsomely for their participation. Research shows that in general, if the labor market does not entertain job-seekers, there is a higher probability that they will join rebel armies.

When looking at Africa specifically, it is important to study the failure of major institutions to produce enough work for the growing number of youth in pursuit of employment. Statistics show that there are approximately 200 million people in Africa between the ages of 15 and 24. In fact, the continent boasts of the youngest average workforce, a trend that will continue for the foreseeable future. However, almost 70 % of Africa’s youth, some unemployed  and most underpaid, survive on less than two dollars per day (USD). Research conducted by the World Bank in 2011 found that one in two young people who participate in rebel groups blame unemployment for their involvement.

Though there have been some positive developments in Libya, such as the reopening of the eastern port of Zuetina, the number of setbacks that have plagued Libya of late far outweigh any progress. Politically, the country is divided between a military-based government in Beida, located in the east, and an Islamist, militia government in Tripoli, in the west. This does not translate well for the oil industry. Production levels have staggered at extremely low levels with a decrease from approximately 900,000 barrels per day in October to about 325,000 barrels per day in January. In early February, many were shaken by a pipeline explosion that damaged Sarir, what used to be the nation’s top producing oil field. The oil site is located in Central Libya, about 310 miles from Tripoli, the nation’s official capital.

The rapidly deteriorating security situation of the country is only aggravated by the threat that the Islamic State poses. Most recently, the terrorist organization massacred a group of twenty one Egyptian Christians on Libyan soil. As a consequence, oil companies are rapidly fleeing the country and taking their employees along with them. Experts are wary that terror groups, like the Islamic State, will target Libya’s resources, specifically its valuable oil sector. Consequently, rebel groups are gaining leeway in the midst of the economic downturn and Libya’s divided government makes for an easy target. While 2011 convinced many that Libya was going to get back on its feet, the year is now 2015 and a dark cloud has been cast over Libya’s future.