Oil is the lifeblood of the Libyan economy. Prior to the 2011 revolution that toppled Muammar Gaddafi, Libya produced some 1.6 million barrels a day, exported mostly to Italy, Germany, Spain, and France. Natural gas and oil revenues made up nearly 96% of government revenue, propping up a vast public sector and providing millions of Libyans with their main source of income.
When a revolution backed by NATO air strikes brought Gaddafi’s regime to a bloody end in the summer of 2011, output plummeted to zero. To the surprise of many analysts, it quickly recovered, reaching 1.4 million barrels per day, almost hitting pre-revolution levels. But that figure belied growing political divides that would soon bring the oil industry – and Libya’s economy – to its knees.
As the coalition that brought down Gaddafi started to fragment, local grievances over the distribution of oil revenues led to protests, closing down oil fields, pipelines and loading ports. In the east, a rebel leader charged with protecting the oil infrastructure seized control of several ports, demanding greater autonomy and a bigger share of oil revenues for his region.
His attempts to sell oil internationally without the government’s consent were only thwarted when US navy commandos stormed a tanker trying to take oil out of the country. Meanwhile, a militia in the west shut down two of the country’s most important oil fields, and insecurity grew. International oil companies fled as security deteriorated.
In 2014, Libya became more divided. Fighting between rival militias displaced hundreds of thousands of people. The internationally recognised government fled from the capital Tripoli to the eastern city of Tobruk and a rival authority sprang up in the capital, with both sides being supported by outside players.
While the national oil company largely stayed out of politics, control of oil facilities became a key bargaining chip for militias and their political backers. Falling oil revenues meant the central bank had to dip into Libya’s foreign currency reserves to pay salaries. Many public sector workers went months without being paid.
International oil prices tumbled throughout late 2014, and it became less clear who was actually in charge of Libya’s oil. Security risks and the unclear legal environment made foreign oil companies wary of working in Libya or even buying Libyan oil. Meanwhile, government finances look weaker than ever and militias continue to battle for control of the country’s oil infrastructure. The UN is attempting to bring an end to the bloody stalemate that has crippled the country. But until there is some agreement over how to manage the oil sector and distribute the income, the outlook for Libya is distinctly bleak.