Libya’s new oil order is built on shaky ground

Libya’s new oil order is built on shaky ground

Libya’s latest reshuffle of the National Oil Corporation has largely been interpreted as a corporate exercise: a new chairman, reconfigured board, renewed licensing rounds, and ambitious production targets aimed at restoring the country’s position among the Mediterranean’s leading oil producers. Many observers have even welcomed the changes as further evidence that Libya is finally turning the page after more than a decade of conflict.

Such optimism, however, mistakes administrative coordination for institutional recovery.

After all, Libya is quietly constructing a new political order in which oil no longer finances the state but increasingly performs the functions of the state itself. Every major political initiative undertaken during the past year — the NOC reshuffle, the unified national budget, the renewed partnership between the NOC and the Central Bank of Libya, Washington’s mediation efforts, and the return of international oil companies — points to the same conclusion.

Rather than rebuilding sovereign institutions capable of governing, rival elites are designing an economic architecture capable of governing without them as corporate governance gradually replaces constitutional governance.

Many post-conflict countries negotiate political settlements before restoring economic institutions. Libya is attempting the reverse. Oil revenues are becoming the mechanism through which political compromise is purchased rather than the dividend produced after compromise has been achieved. Such a model can preserve stability for years. Building a capable state, however, requires something fundamentally different.

Former NOC Chairman Farhat Ben Gdara’s departure and the appointment of Masoud Suleman are broadly portrayed as routine executive succession. Such descriptions overlook the institutional redesign accompanying this transition. Membership of the board of directors changed alongside executive management structures. Decision-making committees overseeing procurement, investment approvals, and strategic planning were also recalibrated. Authority is now concentrated within a leadership configuration acceptable to both western political actors aligned with the Government of National Unity led by Abdul Hamid Dbeibah and eastern authorities linked to Khalifa Haftar’s Libyan National Army.

Such adjustments were designed to preserve political equilibrium rather than corporate efficiency. Every board appointment inside the NOC now carries consequences extending far beyond petroleum resources management. Committee memberships increasingly determine access to engineering contracts worth billions of dollars, infrastructure spending, foreign partnerships, and procurement pipelines. Executive offices once occupied by technocrats now influence questions ordinarily settled through functioning ministries, legislatures or unified governments.

Many observers continue obsessing over Cabinet appointments in Tripoli or UN-sponsored diplomatic tracks. Meanwhile, financial influence increasingly flows through an entirely different channel. Decisions taken inside the NOC now shape Libya’s political economy more directly than many decisions taken inside government itself. Corporate committees increasingly exercise powers resembling constitutional institutions in a new reality that is emerging across Libya.

Oil, besides being Libya’s economic lifeblood, has become the country’s preferred instrument for managing political fragmentation.

Take for instance, planned production targets. Official plans seek to increase crude output to 1.6 million barrels per day by the end of this year before eventually reaching 2 million bpd. To this end, greenfield developments have accelerated, mature fields are undergoing redevelopment, and even major downstream assets such as the Ras Lanuf refinery are returning to the center of national planning. Moreover, fresh licensing rounds have attracted many oil majors.

These headline figures suggest remarkable commercial momentum, yet the underlying market response tells a different story.

Libya’s first licensing round in more than 17 years initially attracted applications from 44 companies, with 37 ultimately prequalified. Expectations quickly emerged that Libya had regained its position as one of Africa’s most attractive upstream destinations. However, enthusiasm steadily diminished as investors moved from preliminary interest to binding commercial commitments. Only five of the 22 offered blocks were ultimately awarded. Most prospective investors chose to remain on the sidelines rather than convert optimism into capital.

Geology did not discourage investors. Politics did.

Expanding revenues reduce pressure to negotiate elections.

Hafed Al-Ghwell

Libya may possess Africa’s largest proven crude reserves, relatively low production costs, and exceptional proximity to European markets, but several international companies nevertheless concluded that political and institutional uncertainty outweighed geological opportunities. Due diligence produced a considerably more cautious assessment than early market enthusiasm had suggested.

Many analysts attributed that hesitation primarily to security concerns, but legal geography presented another complication.

International companies sign contracts with the internationally recognized government in Tripoli because only the GNU possesses the legal authority to conclude internationally recognized petroleum agreements. Yet many producing assets, particularly across the Sirte Basin, remain physically secured by eastern authorities aligned with Haftar’s military command. Legal legitimacy, therefore, originates in one administration, while operational continuity depends on another. Investors purchase legal certainty from one center of power, while simultaneously relying on a different center of power to protect their physical assets.

Few petroleum provinces anywhere in the world require companies to separate legal sovereignty from territorial sovereignty in quite this manner. Every exploration agreement, therefore, carries constitutional risk alongside commercial risk.

Future governments eventually emerging from a genuine national settlement may revisit agreements concluded during prolonged institutional division. Arbitration may become as significant to Libya’s future energy sector as exploration itself.

Such legal ambiguity explains why production targets should be interpreted cautiously.

Official ambitions of reaching 2 million bpd depend less on discovering additional hydrocarbons than on attracting sustained investment over many years. Most awarded acreage will require years of exploration, appraisal and development before contributing meaningful production. Short-term output growth, therefore, depends overwhelmingly upon reinvestment in existing fields rather than transformational discoveries.

What is more, production forecasts consequently serve another political purpose, because higher output expands the volume of distributable rents.

Conventional economic analysis assumes additional production naturally strengthens prospects for political reconciliation because growing prosperity reduces conflict. Libya, however, operates under a different dynamic. Every additional barrel exported generates more fiscal space through which rival governing networks can continue coexisting without resolving the constitutional disputes separating them.

Oil, therefore, postpones political urgency.

Expanding revenues reduce immediate pressure to negotiate elections, constitutional reform or institutional reunification because competing elites continue accessing the same national resource through an increasingly coordinated financial arrangement. Political compromise gradually becomes less necessary when hydrocarbon revenues continue satisfying the principal actors sustaining the status quo.

Public diplomacy continues emphasizing reunification, elections, and inclusive governance. However, practical negotiations increasingly revolve around constructing an arrangement acceptable to the Dbeibah and Haftar power centers following the central bank’s warnings that indefinitely financing two parallel governments is economically unsustainable.

Such a development carries major implications because Libya is no longer attempting to build political institutions capable of managing oil wealth. Instead, it is redesigning its oil institutions to manage political fragmentation.

Such a model may continue producing respectable macroeconomic figures for several years. Institutional resilience, however, follows an entirely different pathway. The country’s most valuable asset is gradually becoming something much larger than a national oil company. It is evolving into Libya’s principal mechanism for preserving an unfinished political settlement — one board meeting, one procurement decision, and one revenue transfer at a time.

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  Hafed Al-Ghwell is senior fellow and program director at the Stimson Center in Washington and senior fellow at the Center for Conflict and Humanitarian Studies. X: @HafedAlGhwell

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