Arab Spring Uprising and the Effects on the Libyan Oil and Gas Sector
The series of revolutions, political uprising, and widespread protests that began in January of 2011, know as the Arab Spring, swept through Northern Africa and into the Saudi Arabian peninsula and Middle East dramatically altered the power dynamics in the region. While only three states – Tunisia, Egypt, and Libya – saw a change in leadership, the Arab Spring nonetheless had profound effects. Unlike Tunisia and Egypt, who experienced relatively peaceful uprisings as they forced the respective Presidents out of office, Libya experienced a bloody civil war between Moammar Gaddafi’s loyalists and army and rebels from across the country. As Libya’s economy is heavily reliant upon its oil and gas reserves, the nearly six-month civil war disrupted both the production and exportation of oil and gas, damaging the economy as its most important industry continues to struggle following the Arab Spring revolution.
Libya, a member of the Organization of Petroleum Exporting Countries (OPEC), currently possesses the largest oil reserves in the African continent.[1] Prior to the civil war that began in February of 2011, Libya was exporting nearly 1.8 million barrels of oil each day as well as significant amounts of natural gas. Like many of the member states of OPEC, Libya’s economy heavily relies on the oil and gas industry. In total, energy production accounted for 95 percent of total export earnings within the country, 60 percent of total GDP, and 80 percent of government revenue.[2][3] This is why the violence that tore apart the country in 2011, destroying port cities, drilling stations, and refineries, had such a profound effect on the economy. The International Monetary Fund estimates that following the end of the civil war, Libya’s economic output was $35 billion dollars, half of its pre-war output.[4]
Following the outbreak of the civil war, oil production fell to almost zero. The termination of Libyan oil production, which accounted for 2 percent of the total global output, caused prices to rise worldwide.[5] In order to account for the loss of production from Libya, Saudi Arabia increased their production following the civil war. The political unrest, not just in Libya but also throughout the region has many energy firms wary of re-starting production in the event of more violence.[6] However, even with the continuing fear of further conflict in Libya, production is occurring, albeit at a much slower pace and less output.
In late December of 2011, Libya’s primary oil exporting port, Es-Sider, announced it would resume operations in January of 2012.[7] The port of Es-Sider suffered heavy damages during the civil war and was in need of significant repair in order to return to pre-war export levels. Officials expect the port to begin loading 10 cargoes of 600,000 barrels each in January.[8] While it is progress, those numbers are only a fraction of the number of barrels exported from the port, which averaged 447,000 per day prior to the civil war.[9] As of October 2011, production was at only one-third of the normal levels for the pre-war economy.[10]
With improved methods of exporting oil available, through the re-opening of the Es-Sider port, production should also increase as oil prices have remained high throughout the Arab Spring movement.[11] Officials within the Nation Oil Company, Libya’s state-owned oil company, said that production is expected to be 1.2 million barrels per day by the end of January 2012, or two-thirds of the pre-war oil production.[12] Although it is promising that the Libyan oil industry is showing signs of repair quickly, the magnitude of damage done to ports, refineries, and drilling stations will hinder the recovery. A recent article on cnn.money.com quoted a Wood Mackenzie report that states “we estimate that it will take around 36 for the country to recover its full production capacity.”[13]
In the past year, nearly every aspect about Libya has been altered in one way or the other. The most visible change is clearly the absence of Moammar Gaddafi, the ruler of Libya for 41 years, from power, although the disruption of the oil sector has had possibly a greater impact on the state as a whole. As oil production ceased during the civil war, the economy’s dominant industry was non-existent. The results were catastrophic, as GDP, employment, and exports all suffered. Still, the industry has made a remarkable turn-around following the end of the civil war, and as of the end of January 2012, is producing at more than two-thirds the pre-war levels. The Arab Spring uprising has undoubtedly brought massive change to Libya’s economy, though with the prospect of democratization, there is hope that its oil sector will not suffer from negative long-run effects.
[1] Ricardo Goncalves, “Libya’s Economy Post-Gaddafi,” Ricardo’s Business (blog), October 21, 2011, accessed February 16, 2012, http://www.sbs.com.au/news/blogarticle/125103/RICARDO-S-BUSINESS-Libya-s-economy-post-Gaddafi.
[2] Ibid.
[3] CIA World Factbook, s.v. “Libya,” accessed February 16, 2012, last modified February 16, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/ly.html.
[4] Andrew Torchia and Suleiman Al-Khalidi, “Insight: In Arab Spring, Economic Gain Might Trump Pain,” Reuters, January 17, 2012, United States edition, accessed February 16, 2012, http://www.reuters.com/article/2012/01/17/us-arabspring-economies-idUSTRE80G0CH20120117.
[5] Steve Hargreaves, “Libyan Oil Production Could Take Years to Come Back,” CNN Money, accessed February 16, 2012, last modified August 23, 2011, http://money.cnn.com/2011/08/23/markets/libya-oil-production/index.htm.
[6] Ibid.
[7] Benoit Faucon, “Libya’s Largest Oil Port to Resume Exports,” Wall Street Journal (New York), December 30, 2011, accessed February 16, 2012, http://online.wsj.com/article/SB10001424052970204720204577130310626907468.html.
[8] Ibid.
[9] Ibid.
[10] Goncalves, 2011.
[11] Torchia and Al-Khalidi, 2012.
[12] Faucon, 2011.
[13] Hargreaves, 2012.