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Will OPEC Collapse – Libyan P.M. Flees To Europe

Politics / Crude Oil Mar 12, 2014 - 03:51 PM GMT

By: Andrew_McKillop

Politics

Inevitable Break-up of Libya
Presaged by months of political infighting, and street fighting outside parliament, former Libyan prime minister Ali Zeidan fled from Libya, 12 March, according to newswires. Reuters explained his flight to Europe as due to parliament voting him out of office on Tuesday March 11, following his inability to stop rebels exporting oil independently. Reuters and other newswires added that the rebel forces set a “brazen challenge to the nation's fragile unity”, and had actively threatened Ali Zeidan with assassination, several times.


Zeidan stopped over in Malta for two hours late Tuesday before going on to "another (unspecified) European country", Malta's Prime Minister Joseph Muscat told state-owned television TVM. No European government had confirmed the arrival of the Zeidan “hot potato” by Wednesday, but observers suggest Germany may be Zeidan's final destination.

The standoff for control of oil exports and revenues from exports has since the 2011 ousting and killing of Muammar Gaddafi intensified the longstanding regional and tribal faultlines in a country whose territorial integrity - like that of Iraq or Ukraine – was always stronger on paper than the real world. Only due to Libya's role as a significant oil exporter, this de facto break-up of “a country that never was” is treated with alarm in Western capitals, especially in oil import-dependent Europe.

Can Libya Unwind OPEC?

Claimed bases for alarm over the prospect that Libya “descends into anarchy” include the very hypothetical argument that a fragile new Libya ruled by rival militias grouped into Tripolitania and Cyrenaica – east and west – each with their own allied and dependent political factions in the still-transitional government, will undermine OPEC's unity. The argument continues by suggesting a divided Libya will be supported and opposed by different OAPEC (Arab OPEC) states, who may utilise the Libyan state of anarchy as a lever for their own infighting.

Backing this claim, OPEC full-plenary and other meetings, since 2011, have steered away from taking any decisions relating to Libyan oil production and export volumes. A major reason for this is usually not discussed by the Western “oil expert fraternity” but is very simple. Since 2011, Libya's oil production and export volumes have wildly varied, from as high as 1.6 million barrels a day (mbd) to nearly zero, but this has had no real impact on global oil prices, which remain high. In other words, global oil markets are very amply supplied. Removal of almost all Libyan supply, for relatively long periods measured in months, has been easily compensated by other exporters. The only possible conclusion is there is incipient or real global oversupply – not shortage of oil.

Despite or because of this, Iraq like Libya is another “too hot to handle” subject at OPEC meetings due to its own national territorial fragility, on one hand, and also due to Iraq's increasing oil exports, on the other. Including Kurdish production and exports, the former Iraq is rapidly moving back towards its previous peaks of oil production and export supply, dating from the 1970s. Western observers claim that OPEC member states will be unable to control and limit oil export supply when it is in excess, or compensate oil export shortfalls due to endemic political crisis in Libya and Iraq, when it is in deficit. OPEC will become unstable, and could even break up. Other oil exporter states could then follow the Libya-Iraq models of nation-shattering.

The Libyan Breakdown Model

Arguments backed by facts are easy to produce, that Libya's descent into anarchy will cause longterm, maybe irreparable damage to its oil industry, with a concomitant longterm reduction of its oil export capacity and oil exports. One counter-argument is that after break-up, former Libya's two main oil production and export regions, and especially Cyrenaica, can attract investment capital and oil industry know-how, and reattain the country's former total maximum export capacity of about 1.6 mbd. The only question would be the political implications and the timelines.

Claims that each new part of a two-nation Libya would be “too small” as national entities, both politically and economically, can be dismissed by considering small or ultra-small but large or major oil exporter countries such as Kuwait, UAE, Oman, Brunei, Equatorial Guinea and others. In effect, oil production in and exports from small or very small countries is often easier, than in and from large countries.

Iraq's breakdown path is significantly different from Libya's, due to the historical fact of the Kurdish nation, and the endemic shia-sunni rivalry and armed conflict in “rump Iraq”. Libya's national identity, we can easily argue, was even less credible than Iraq's, and only continued or was maintained due to the dictator, Muammar Gaddafi. Also unlike Iraq, the historical antecedents of its breakdown into at least two separate and independent states or nations, can be traced back to at least the 1830s. The necessity or obligation for armed conflict in Libya, by the central or “legacy government” in Tripoli, is far lower than the Baghdad's government need to use force to maintain the semblance of a united country – if only to attract oil sector financing and investment.

Libya's Parliament can be considered to have acted rationally after Cyrenaican rebels holding three key ports in the east disobeyed government orders and loaded a North Korean-flagged tanker with oil as part of their drive for political autonomy as much as for gaining oil dollars. The Parliament dismissed Ali Zeidan as incompetent. Libya's state prosecutor Abdel-Qadr Radwan then issued a travel ban on Zeidan, also because he faces an investigation over multiple alleged irregularities involving the misuse of state funds.

Military Power is Final Arbiter

Following the escape of Ali Zeidan, Libya's General National Congress or transitional government quickly named the Defence minister Abdallah al-Thinni as acting prime minister. Another replacement will be picked sometime later this year. Al-Thinni can however be considered as only the Defence minister and PM of Tripolitania, and faces the difficult task of trying to unite and lead a country that is deeply divided along tribal-political and regional-political faultlines, where not only Islamists oppose more European-oriented “liberal” politicians such as Ali Zeidan.

Like large and increasing areas of Iraq, Libya has no effective police or political institutions. The Tripoli “legacy government”, like that of Baghdad is in permanent danger of running out of money because rebel activity at oilfields and export terminals chokes off vital oil revenues, the process being even further advanced in Libya, than in “rump Iraq”.

The role of defence and military forces is certain to increase, in both cases. This week, in Libya armed clashes have broken out between rebels and pro-government forces in Sirte, the central coastal city dividing western and eastern Libya. Whichever way the armed forces tilt will decide the outcome in the Sirte case.

Also similar in these two open and fast-advancing processes of national breakdown, the final arbiter is military. Government spokesmen in Libya said on Tuesday that gunboats loyal to Tripoli had chased the North Korean-flag tanker along Libya's eastern Mediterranean coast and opened fire on it, adding the claim that Italian ships were aiding the effort, which was denied by Italy. As in the cases of Iraq and Ukraine, peaceful or armed separation into stable elements, of the now-unstable and unsustainable former Libyan state of Muammar Gaddafi, is almost certain.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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