Slicing up the oil cake

Ongoing events in Libya – the expected duration and impact of which many had at first badly miscalculated – have led to a number of serious challenges in the global energy sector. While the real motives of some parties to the conflict are cause for concern, oil production in Libya - Africa’s largest  and the ninth in the world producing 1.8-million barrels a day prior to the conflict - has come to a standstill.

Following popular uprisings in a number of Arab states in preceding months, the Libyan uprising began in eastern Libya in late February, with Gaddafi deploying the military to crush it.

Western nations responded with claims of atrocities committed by Gaddafi and his forces and a UN Security Council declaring a no-fly zone in Libya. They used this to launch an aerial bombing campaign against Gaddafi.

Yet actual concrete evidence of Gaddafi’s atrocities and human rights abuses still fails to match the allegations and charges leveled against him. And despite the lack of evidence and formal, substantiated charges being brought, the International Criminal Court has issued a warrant for Gaddafi’s arrest.

Somewhere, something is amiss. The distinguished academic and anti-globalisation campaigner, Professor Michel Chossudovsky, who is emeritus professor of economics at the University of Ottawa, Canada believes the war in Libya is part of a larger US-NATO led intervention in North Africa and the Middle East to gain control and ownership of more than 60% of the world’s oil and gas reserves.

In his view the Libyan intervention will have far-reaching geopolitical and economic implications, especially for Africa and serves “the same corporate interests as the 2003 invasion and occupation of Iraq”, the underlying objective being control of Libya's oil reserves.

Chossudovsky may have a point. As Time magazine pointed out in June, Gaddafi’s Libya “is hardly poor, with few of the problems that beset neighbouring Egypt” where about 40% of people live on about $2.50 or less a day compared to the average Libyan household income of more than $38 a day and the literacy rate of about 86%.

While Gaddafi is accused of using revenue from oil to amass his own vast personal fortune, it is a fact that the oil wealth of Libya has allowed for a high living standard compared to neighbouring states.

Producing 1.8 million barrels a day before the conflict, and with estimated reserves for another 60 or more years, the extremely low cost of producing oil in Libya - as low as one US dollar per barrel in a market where the cost of crude oil is in excess of US$100 – makes control of Libya’s oilfields hugely attractive.

Various oil companies from the US, Britain, France, Italy and Spain were active in Libya before the outbreak of the conflict, with China also having an interest there. But China opposed the UN resolution that led to NATO’s campaign in Libya and Chossudovsky believes the Western allies are seeking to squeeze China out of Libya.

Whatever the strategic geopolitical objectives – if anything other than its stated mission of protecting civilians - behind the NATO action against Libya might be, one thing is certain: it has disrupted oil supplies to the world market with especially a number of European countries being badly affected, while it has also rearranged the hierarchy of oil producers within the African energy context.

With Libyan oil production being affected by the war, Nigeria and Algeria now move up the ladder of importance as African oil producers. Neither of these two is without its own, internal destabilising political tensions.

A number of other oil-producing countries experienced mixed fortunes in their oil production at the outbreak of the conflict in Libya earlier this year.

Meanwhile another international player in this unfolding drama, the tiny emirate of Qatar, has also seen a gap to strengthen its own influence and position in North Africa and the Arab world.

Pro-Western Qatar has long sought a greater role for itself in affairs in the region, but has always been overshadowed by Saudi Arabia. Whether the emir has other motives  or not, the monarchy is said to have thrown the Libyan rebels a life-line in the form of cash, food and fuel that keeps them going against Gaddafi.

There is however speculation that – apart from its own ambitions and interests - Qatar may be acting as a proxy for US interests in Libya.

The impact of the loss of Libyan oil in the world market has been such that the Obama administration decided in June to sell off 30 million barrels of oil from the US Strategic Petroleum Reserve - the largest such release ever. In addition, to counter the turmoil in world oil supplies and the fear of rising oil prices, a concerted international infusion of 60 million barrels of oil into the world market was launched in July.

Many experts are now convinced that the Libyan conflict will herald a reconfiguration of global oil supplies. Just how fragile is the security of the old energy order is clear from the fact that while some 13 African and Middle Eastern countries produce more than 28 million barrels a day - about a third of global consumption – the countries that have recently experienced disruptive anti-government protests together account for more than nine million of those barrels a day. If this production were to be lost, the world would be in serious trouble.

But Gaddafi is not sitting still either. According to reports he has begun negotiations with Russian and Chinese firms to take over the Italian ENI oil projects inside the country, Libya’s hitherto largest foreign producer, among others. But for now Libyan oil production remains seriously compromised and will continue to impact on the global oil supply situation indefinitely.

(To read the full report by Stef Terblanche click here.)