By Gustavo Coronel l February 28, 2011
By the end of February 2011 the political situation in Libya rapidly unraveled, as the grasp of Muammar Gaddafi on power weakened significantly. Unlike Egyptian former president Hosni Mubarak, who tried to cling to power through persuasion, Gadaffi has vowed either to crush his opponents by force or to die in “martyrdom.” This determination might lead to a protracted civil war in the country, one of the most negative scenarios for the people of Libya and for the stability of the international petroleum markets.
Every day there are important defections from the Gadaffi camp: ministers, ambassadors, high-ranking military men are parting ways with the government, either due to sincere disagreement with Gadaffi’s brutality in repressing dissent or, simply, to opportunistic motivations, in order to protect their individual positions.
Petroleum Industry Overview
Libya is not one of the main petroleum-producing members of OPEC. At 1.8 million barrels of oil per day, its production ranks ninth in a field of twelve member countries. In fact, if the worst came to the worst and Libyan production would cease completely for a period of time, this volume could rather easily be replaced by closed-in production from other member countries, which stand at some four million barrels per day. OPEC announced this on February 23, 2011, as foreign companies active in Libya, mostly Italy’s ENI and Spain’s Repsol, started to curtail their activities due to the deteriorating political situation. At that moment, oil production was already down by 20 percent. Banking activity was practically non-existent, meaning that financial transactions related to oil shipments could not be made. Ports were closed or closing.
According to a February 25 report from Oil & Gas Journal, online,“A combination of bad weather and continued violence are said to have brought Libya’s ports to a virtual standstill, reducing the country’s already hard-hit oil and gas exports to a mere trickle, if anything at all.”
The bulk, about 80 percent, of Libyan oil exports go to Europe, including natural gas through the “Greenstream” gas pipeline that supplies gas to Italy. Italy receives about 28 percent of Libyan exports, Germany 10 percent and France 15 percent. These volumes could be exported from other OPEC countries, particularly Saudi Arabia. The only restriction, says Saudi Arabia, would be that the exact quality of the Libyan crude oils could not be matched. The “light sweet” crude oil Libya produces and Italy needs could be supplied by Azerbaijan or Iran, countries which already export hydrocarbons to Italy. In addition Italian refineries have about 500,000 barrels per day excess capacity that can be used to process oil from non-Libyan sources. Natural gas supply alternatives to Italy include Algeria via pipeline or shipments as LNG. The Italian energy situation can, therefore, be kept stable, even in case of a complete Libyan shutdown.
The Political Situation
The drive to oust Gadaffi from power is the result of a strong popular movement growing in Arab countries. It started in Tunisia, spread to Egypt, Yemen, Bahrain, to Algeria, with tremors in Algeria and even Saudi Arabia. It has been triggered by poverty, unemployment among the young and the inordinate authoritarianism of political leadership in those countries. Mubarak, who succeeded Anwar Sadat in 1981, was in power for 30 years. Gadaffi, who led a bloodless coup in 1969, has been in power for over 40 years. Both leaders looked to their own family for their successors after leaving power. That approach failed in Egypt and has likely failed in Libya.
Gadaffi has proven to be far more ruthless than Mubarak. The repression of the armed forces under his command has already left hundreds of dead. As Libyan military personnel refuse to man the weapons against their own people they are increasingly in the hands of Cuban and Eastern European mercenaries (El Nuevo Herald, Miami, February 23, 2011). The rebels are concentrated in the eastern portion of the country, a traditional stronghold of Islamists who oppose Gadaffi. Even if Gadaffi survived this crisis the country would remain deeply divided.
The ongoing revolutions in the Middle East and North Africa suggest a clash within Islam between a strain of Arab nationalism, which at one time promoted Pan Arabism attempted by Egypt’s Gamal Abdel Nasser and others including Gadaffi, Egypt’s Sadat and Syria’s Hfiz al-Asad. Today, Gadaffi and Osama bin Laden’s ideology would be distinguished only by their respective political outcomes; Gadaffi pursuing a secular Arab unity, while bin Laden an Islamist caliphate.
Impact on the US
In the US, a majority of the population feels the country should not get involved in this situation. A February 23, Rasmussen poll shows that 76 percent of Americans say that the fall of Gadaffi would be good for America but 67 percent say that the US should stay clear of the political turmoil in the Arab nations.
It is doubtful, however, that the US will be able to remain aloof. 70 international NGO’s have already sent an appeal to President Obama, to the UN Secretary-General Ban Ki-moon and to the European Union High Representative Catherine Ashton, to intervene and put a stop to the atrocities being committed by “mercenaries” and Gadaffi’s armed forces.
On February 23, President Obama publicly condemned Libyan government repression against an ever-widening anti-government movement, saying the “suffering and bloodshed is outrageous, and it is unacceptable.” But, as reported by the Washington Post, February 24, “Obama did not call for a change in Libya’s autocratic government or announce specific sanctions that the United States would support to punish the country for actions that he said violate international norms and every standard of common decency.”
By February 25, the entire situation had changed following the delayed evacuation from Tripoli of some 200 American embassy personnel and lingering fears of a repeat of the 1979 Iranian hostage crisis. White House Press Secretary Jay Carney’s opening remarks at the afternoon briefing indicated:
“The State Department has suspended embassy operations in Libya and will temporarily withdraw all embassy employees from Tripoli. A ferry with approximately 200 US citizens left this morning. A charter plane recently took off for Istanbul, Turkey, with remaining embassy personnel and American citizens who had requested evacuation.”
The president issued an executive order effective 8:00 pm on Friday freezing Libya’s US assets and prohibiting certain transactions. According to Carney:
“Earlier today the Financial Crimes Enforcement Network [FinCEN] issued an advisory to US financial institutions to take reasonable risk-based steps with respect to the potential increased movement of assets that may be related to the situation in Libya.”
In his letter to the Speaker of the House and President of the Senate, Obama described Gadaffi’s actions as constituting “an unusual and extraordinary threat to the national security and foreign policy of the United States.”
Oil Prices: An Immediate Problem for the US
As the political situation in Libya unfolds, the immediate problem affecting the US is the increase in the price of oil. As of now this price is already in the order of $100 a barrel, almost double the price of one year ago. This price increase is triggered, mostly, by psychological considerations, the expectations of scarcity, more than by real concerns about oil supply, which seems to be adequate both now and in the medium term. There are few immediate energy supply concerns for the US, as the Libyan oil exported to the US, while high quality, is a token amount, some 20-30,000 barrels per day, or 3% of Libyan exports. Other problems might appear in the medium and long term, however. First, the possibility that the unrest in the Arab world extends into countries that are main energy suppliers to the US, namely Saudi Arabia and the Arab Emirates. This would create a major disruption in the supply of oil to the US and, by extension, a major geopolitical crisis. Second, there is the unrest in Libya and other Arab nations, which is already causing major displacements of population from those countries into Europe. If this flow became massive then Europe would become socially and even politically unstable, with an inevitable effect on the US.
The Libyan situation might develop in several ways: one, a rapid replacement of the Gadaffi regime by a more democratic government. This would be positive for the Libyan people and for European and US national interests; second, a protracted civil war, in which the country would essentially split in two and Libyan oil exports would cease for months; and third, the spread of the Libyan unrest to other countries in the Arab world. In this worst case scenario, turmoil in some of these countries, such as Algeria, would be more damaging to European energy supplies and social stability, while problems in Saudi Arabia, the most important oil producer in the world and major US supplier, would likely become a major geopolitical crisis, with increasing risks of global war.
Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to