Hormuz crisis fuels Libya oil comeback

• Disruption boosts Libya’s appeal
• Oil majors restart operations
• Rival governments chase revenues

Oil majors are returning to Libya as disruption in the Strait of Hormuz boosts the appeal of the North African producer after nearly two decades of stalled exploration.

Libya had 48 billion barrels of proven oil reserves as of 2020, the largest in Africa and nearly 3 percent of the global total. Crude production peaked at 3.4 million barrels per day (bpd) in 1970, averaged 1.6 million bpd between 2000 and 2010 and tumbled after the 2011 uprising that toppled long-time leader Muammar Gaddafi.

Civil war has left the country with two governments – the Tripoli-based, United Nations-recognised Government of National Unity (GNU), and the Benghazi-based House of Representatives.

Although relations have often been fraught, the two administrations have found a common cause in seeking to maximise energy revenue.

Production has averaged 1.3 million bpd since the start of 2025, according to Opec, after falling to a low of just 423,000 in 2020. Libya’s long-standing target is to raise output to at least 2 million bpd.

The impasse in the Strait of Hormuz – through which about one-fifth of global oil and liquefied natural gas (LNG) supplies would usually transit – may help make that goal more achievable.

“Before the Iran war, Libya had trouble selling contracts for exploration and production because global crude supplies exceeded demand and so there was limited appetite to invest in countries with political uncertainty and economic difficulty such as Libya,” said Christof Rühl, a global advisor at Crystol Energy.

“The longer it takes for Gulf oil production to return to normal, the greater the benefit to Libya.”

Several international oil companies have restarted operations in Libya after prolonged pauses. These include Italy’s Eni, Britain’s BP, France’s TotalEnergies, Spain’s Repsol and Austria’s OMV.

TotalEnergies, for example, resumed production at Libya’s Mabruk oilfield in March, after halting operations there in 2015.

In February, US oil giant Chevron was among several companies to which state-owned National Oil Corp (NOC) awarded oil and gas exploration licences – Libya’s first new licensing round since the mid-2000s. Exploration had been halted for 17 years, according to NOC.

NOC and Repsol announced a new oil discovery in April, while Chevron has signed further preliminary agreements relating to shale oil and gas.

Libya’s location away from the strait, its proximity to Europe and shorter shipping routes to North America, combined with its high-quality crude, make it attractive to international oil companies, said Dyna Faid, a Libya specialist at risk consultancy Crisis24 in Paris.

“Not only is Libya divided between two governments, those governments themselves also have many internal divisions, but it’s a functional system and that’s why international businesses are seeking to return,” said Faid.

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“It’s difficult, because there’s already a lot of paperwork and you have to double it to work in both the east and the west, plus there are security risks – the militias guarding the oilfields could shut down production at any time if they decide they want more money or there are other disputes.”

GNU controls NOC and the central bank, but about four-fifths of Libya’s oil output comes from fields in the country’s east, explained Faid.

The rival administrations have vied for control over Libya’s oil, which officially should be sold only through NOC. Disputes between the two governments over crude revenues caused intermittent production shutdowns before a 2022 détente.

“They came to an agreement because oil prices were soaring due to the Ukraine war,” said Faid.

This led to the creation in 2023 of Libya’s first private oil company, Arkenu, which is ultimately controlled by the family of Libyan politician and military officer Khalifa Haftar, the de facto ruler of the country’s eastern administration.

From May to September 2024, Arkenu exported about 6 million barrels of oil, selling these for about $463 million, according to a United Nations report.

The arrangements between Libya’s NOC and Arkenu “illustrate how a divided political system is creating a new economic structure”, Faid added.

Renewed interest

Arkenu generated about $3 billion in oil revenue from October 2024 to February 2026, according to an unpublished United Nations report leaked in March and reported by Middle East Eye.

“That’s a huge amount for a country that desperately needs this money,” said Faid.

Following the report leak, GNU leader Abdel Hamid Aldabaiba instructed the central bank to terminate the agreement between Arkenu and NOC, the Libya Herald reported.

“This is more likely just manoeuvring to put pressure on Haftar and the Benghazi administration as well as to shield Aldabaiba from blame for Libya’s deteriorating economic situation,” added Faid.

“There’s renewed interest from US oil companies and others to re-establish operations in Libya, so Aldabaiba also wants to appear more reputable, but in reality Arkenu will likely continue to export Libyan oil.”