Tuesday, 31/3/2020 | 9:37 UTC+0
Libyan Newswire

U.S., U.K. Diplomats Meet Libyan Militias to Restart Oil Exports

The latest ominous sign for global oil prices: Western officials are pushing for Libya to boost oil exports, part of an effort to help the country fund its fight against Islamic State.

In recent weeks, diplomats from the U.S. and U.K. have met with Libyan militia officials to urge them to restart crude shipments from long-closed ports, militia and Western officials said.

The meetings with a convalescing militia leader in Istanbul and his rivals in Tunis seem to have paid off-Libya resumed shipments from a formerly blockaded port last week. Now those shipments are roiling the world crude market, undermining the Organization of the Petroleum Exporting Countries' attempt to curtail a petroleum glut.

Libya is a priority for American and British officials because its instability has allowed Islamic State, or ISIS, and human traffickers to gain a foothold there. Libya's government needs money to combat them, and selling oil is the easiest way to get it.

"Western governments are pushing for a resumption of exports because they want to ensure Libya remains solvent, able to fight ISIS, and has the resources to conduct state building," said Jason Pack of security-focused consultancy Libya-Analysis.

Libya is trying to triple oil output from last month's 300,000 barrels a day; on Sept. 23 it hit 410,000 barrels a day, the state-run oil company said.

The plan clashes with Libya's compatriots in OPEC. They are meeting in Algeria on Wednesday to discuss limiting the heavy pumping that has oil supplies outstripping demand by an average of about 760,000 barrels a day this year, according to OPEC estimates.

Recent history shows the impact of a Libyan crude surge: Libya's last production spike, in 2014, helped spark the continuing price rout that saw oil fall by more than 50% and OPEC members' budgets plummet.

Libya's production soon fell off again, and since then, oil prices have dipped each time the country made strides toward getting exports back on track. Now the country says it is hoping to get production close to 1 million barrels a day by the end of this year.

"If we, at last, suddenly have a full million barrels of production above normal, that would be really ugly for the oil price, " said Bjarne Schieldrop, an analyst at SEB Markets.

Libya is "the unknown quantity for OPEC," said John Hall of U.K. consultancy Alfa Group, which advises companies on energy policy. If Libyan production approaches 1 million barrels a day, he said, "any deal to freeze OPEC output would fall through."

Libya's problems date back to the aftermath of dictator Moammar Gadhafi's 2011 ouster, when fighting slashed oil output from the 1.6 million barrels a day.

A militia calling itself the Petroleum Facilities Guard eventually gained control of oil ports. In mid-2014 it let exports resume in exchange for government payments. But the guard say the government didn't pay, and guard leader Ibrahim Jathran closed the ports that November.

Oil revenue withered. Libya struggled to contain Islamic State, which gained control of the city of Sirte and attacked oil facilities.

Hoping to boost government oil income, U.S. officials in May met Mr. Jathran and other leaders, said people familiar with the meetings.

Mr. Jathran continued blocking the ports. In early August, U.S. and U.K. officials met him at an Istanbul hotel where he was recovering from surgery on an old leg wound, said Mr. Jathran's spokesman, who attended the meeting.

The officials urged Mr. Jathan to reopen ports, the spokesman said. A Western security official familiar with the episode confirmed the account. The U.K Foreign Office and U.S. State Department declined to comment on the meetings.

Soon after, Mr. Jathran and Libya's government agreed to open ports that can ship 600,000 barrels a day. "We were ready to restart exports. We even had a date to cut the blue ribbon," Mr. Jathran's spokesman said.

But Mr. Jathran and the government remained pitted against another militia led by a Gen. Khalifa Haftar.

On Sept 8., U.S. envoy Jonathan Winer met representatives of Mr. Haftar and the government to discuss unifying and restarting exports, said U.S. and European officials and a person close to Gen Haftar. A spokesman for Gen. Haftar said he didn't have information on the meeting. Mr. Winer and the Libyan government didn't return requests for comment.

Gen Haftar's representatives left the talks fearing they would be sidelined in a unified Libyan army, said people familiar with the meeting. Three days later they shocked Libyan and Western officials by seizing the ports from Mr. Jathran.

Western governments condemned the move. Mr. Haftar agreed to let Libya's state oil company handle exports from the ports. On Sept. 16, it announced they would reopen.

Global oil prices slumped when exports resumed, rebounded when new fighting delayed them, and fell again when cargoes carrying 1.3 million barrels finally left Libya on Sept. 21 and 22. The shipments add "more pressure to reach an agreement to freeze OPEC production," said a delegate to this week's OPEC meeting.

Now, U.K. and U.S. diplomats are pushing to reopen Libyan wells shut since a militia seized a pipeline two years ago, Western officials said. The U.K. Foreign Office and the U.S. State Department declined to comment. A diplomat familiar with the talks said they have been challenging. "The difficulty we all have is not fully understanding who has their hand on the valve-who is the key decision maker," the diplomat said.

Source: Wall Street Journal