As Iran war disrupts oil supply, can Libyan oil firms step in?

Following the US-Israeli attacks on Iran, and the subsequent Iranian retaliation, the global economy has been holding its breath. Libya, like other alternative oil producing nations, stands to benefit if it can effectively capitalise on this gap in the market, as first published in the Libya Gazette on March 9th.

Iran’s commitment to the closure of the Strait of Hormuz, alongside its attacks on energy infrastructure across the Gulf, has sent oil and gas prices on the rise, with fears rising of a complete shutdown of the global economy if the conflict persists.

AP reported that oil prices rose above $90 per barrel on March 5. U.S. crude finished that day at $90.90, representing a 36% increase compared with the previous week, while Brent crude, the global benchmark, increased by 27% over the same period to reach $92.69. How long the Strait of Hormuz will stay closed and how far Iran’s attacks on energy infrastructure will go remains to be seen.

Russia’s invasion of Ukraine in 2022 demonstrated that the knock-on effects of rising energy prices will be felt by all of us, with the increase in transportation and import costs resulting in cost-push inflation for nearly every good and service that the global consumer needs day-to-day.

Perhaps the only industry that stands to benefit, apart from America’s military industrial complex, is the energy sector in regions outside of the Gulf and the wider Middle East. In particular, oil and gas producing countries that can act as alternative sources for the world’s incessant energy demands.

Libya, with its large-scale oil reserves on the African continent, has unsurprisingly been touted by many as a country that stands to gain as the global flow of energy shifts away from the Gulf. Although Libya alone would not be able to meet the volume of demand that Gulf producing countries provide, its strategic location in the central Mediterranean alongside the return of major oil giants, stands Libyan oil firms in good stead to capitalise on European and American energy demands. Libya has undoubtedly seen a resurgence of its oil and gas industry in recent years, with major energy companies such as TotalEnergies, ConocoPhillips, Chevron and Eni all returning to Libya, as reported by the Financial Times. The country’s oil output has been rising in recent years, hitting its highest level in over a decade.

For the Libyan national economy, it would therefore be assumed that it would stand to benefit from rising global oil and gas prices, resulting in not just an increase in revenue, but potentially a structural shift in the flow of energy, as the world pivots away from the Middle East after Iran’s drones shattered the illusion that many had regarding the security of oil and gas production in the region.

Whether Libya can reap the rewards of a structural shift in the global trade of energy remains to be seen. The widespread state-level corruption alongside the politicization of oil and gas revenues present serious obstacles for the country. The problem is that, at present, Libya’s national economy is not suffering due to a lack of oil revenue or national funds, instead the problem, as it is in most resource rich countries across the Global South, is a governance issue. The lack of a unified national government and subsequent endemic corruption that is allowed to flourish in the resulting governance vacuum, means that without the reconciliation of Libya’s fractured institutions, the country’s resurgence as a major energy producer on the global stage will have political implications alongside a limited economic benefit for everyday Libyans.

Libya’s energy revenues are the subject of intense dispute between competing authorities based in Tripoli and Benghazi. Key institutions responsible for exporting Libya’s crude oil to international markets, including the National Oil Corporation, are headquartered in Tripoli and operate under the control of the UN-recognised Government of National Unity.

Although most of Libya’s formal energy institutions are based in the western part of the country, the physical assets of the sector tell a different story. The oil fields, key coastal ports, and much of the pipeline and export terminal network are largely located in territories controlled by Khalifa Haftar’s Libyan National Army, as reported by The Guardian.

Although nearly all of the institutional infrastructure for Libya’s national energy sector is located in Tripoli, Khalifa Haftar’s use of private oil companies to bypass the official channels for energy sector revenues risks bisecting Libya’s main source of national income.

Reuters reported that the Arkenu Oil Company, Libya’s first private oil exporter that was founded in 2023, has shipped crude oil worth at least $600 million since mid-2024. The firm is believed to be linked to the eastern faction controlling much of Libya, led by military commander Khalifa Haftar, and may be indirectly tied to his family.

The utilisilation of the private sector by Haftar effectively breaks the long-standing monopoly of Libya’s state-owned National Oil Corporation (NOC) over crude sales. Shipping records and U.N. experts suggest the new trade could divert oil revenues away from Libya’s central financial institutions, including the Central Bank.

Khalifa Haftar now has all of the tools he needs to monopolise Libya’s oil and gas sector. His military control of the geographically strategic regions containing the necessary material infrastructure, combined with his newfound private channels to divert revenues away from Tripoli’s nationalised institutions, raises questions over the impact of the country’s oil and gas sector revival.

Whether it’s the NOC or the privatised Arkenu Oil Company, the global shift away from Gulf hydrocarbons will undoubtably increase the revenues of Libyan oil companies. However, until a unification of Libya’s state institutions is achieved, the influx of capital into the country will only deepen the political divide between Tripoli and Benghazi whilst also carrying with it the risk of calcifying Khalfia Haftar’s authoritarian military rule through the lining of his and his sons’ pockets with fresh hydrocarbon revenues.

Libya Gazette, AP, The Guardian, Reuters, Financial Times, Maghrebi.org