Libya's Oil Games

Things are starting to get very interesting on the oil front of the conflict in Libya. As recently as last week, it seemed like the Libyan rebels had all but lost control over the country's oil fields and petroleum export terminals, which are concentrated in the eastern half of the country. Since the international coalition began their airstrikes though, the Libyan rebels have been able to win back much of the ground they lost and now once again control as much as 4/5ths of Libya's oil reserves, and contrary to the fears of global oil traders, they have managed to keep the fields in production, at least at some level of output.

Now the rebels have struck a deal with the tiny Persian Gulf state of Qatar to sell their oil on the global market. Under the terms of the agreement, Qatar will take the output from the rebel Libyan fields and sell it, with the money going into an escrow account for eventual use by the rebel government (Qatar also recognized the rebels as the legitimate government of Libya). The rebels say that this arrangement is good for them since it cuts out any middlemen and give them “access to liquidity in terms of foreign denominated currency.” The rebels claim that they will be able to pump between 100,000 and 130,000 barrels of oil per day “within a week” and soon could be exporting as much as 300,000 per day, though industry officials think this figure is optimistic given that many foreign oil technicians who oversaw production from the fields fled the country as the fighting broke out last month. While it's clear what the rebels get out of the deal, it's interesting to look at it from the Qatari side: is this a case of the tiny kingdom looking to step into a vacuum left by traditional Arab powers like Saudi Arabia in the Libyan crisis and strut their stuff on the international stage, or is it simply a shrewd business move to take advantage of an emerging economic opportunity?

On the other side of the coin, Moammar Gadhafi - working on the assumption that he will remain the leader of Libya - is threatening to impose sanctions on companies from the countries that “abandoned” him during the conflict. Paolo Scaroni, the CEO of Italian energy giant Eni said that Western firms were “shooting themselves in the foot” by imposing sanctions on the Gadhafi government, an argument that will win him few supporters among the governments currently involved in enforcing UNSC 1973 and the no-fly zone. Though you do have to wonder if Gadhafi's position influenced recent comments by Russian Prime Minister Vladimir Putin, who condemned the Western-led no-fly zone, comparing it to the Crusades of the Middle Ages. Perhaps Putin is hoping for a post-conflict Libya where Gadhafi remains in power and Russian firms can increase their already sizable market share in the Libyan oil/natural gas industry by taking over the operations of “sanctioned” foreign companies.

If nothing else, the oil front is becoming one of the most interesting aspects of the Libyan conflict.