Amidst the daily bustle in Tripoli’s dusty streets, the aroma of coffee and hararat spices infuse with a much rarer commodity: hope.
Clustered in cafes, fans cheer Libya’s emphatic World Cup qualifier comeback with an eleventh straight win. The recent run-up in oil prices is propelling double digit economic growth, replenishing government coffers. Dozens of international oil companies have signed agreements to re-enter the country.
The turnaround is critical for Libya and beyond. In the chaos of a six-year civil war that claimed thousands of lives, displaced hundreds of thousands, and drained billions of dollars from the economy, Libya descended into a hub for migration across the Mediterranean to Europe. Beyond migration, relative stability in Libya offers Europe a key alternative source of energy to help reduce reliance on Russia.
In the clear desert skies over El Sharara, Libya’s most important oil field, some stars are aligning. Large-scale internal conflict has been avoided since Turkish airstrikes repelled eastern warlord Khalifa Haftar’s Libyan National Army troops from the outskirts of the capital in 2020. The Tripoli-based, UN-recognised Government of National Unity (GNU) has maintained a ceasefire since late 2020 with the eastern-led Government of National Stability (GNS), allied with Egypt, Russia, the UAE, and the House of Representatives in the far northeastern city of Tobruk.
Though this fragile truce between the GNU and GNS has stopped short of an actual peace deal, with attempts at a formal agreement aborted in 2022, each side lacks the political will or the military might to extend their control nationwide. A resulting complex status quo in which the two governments maintain consistent control of their territory via a series of tribal alliances and assorted militias is percolated by sporadic fighting amidst deep-seated ethnic and regional divides.
Against this backdrop, Libya’s oil establishment is finding its feet. In a leadership refresh, the GNU replaced suspended Oil Minister Mohamed Oun, accused of corruption and abuse, with Khalifa Abdul Sadiq, resolving some of the past friction between the oil ministry and the National Oil Company (NOC), and aligning the two organisations in reviving the sector through new international oil deals. Pre-dating Libya’s two governments, the nominally independent NOC has considerable authority in coordinating oil production and exports while balancing pressure for revenue sharing and addressing decades of underinvestment and decay.
As a result, oil production levels have quadrupled from four years ago to around 1.25 million barrels per day, catapulting Libya ahead of Nigeriaas Africa's largest producer. With continent’s most significant proven reserves and the ninth biggest in the world at 48 billion barrels, combined with relatively low processing costs, Libya’s potential is keeping oil majors like Total, Eni and ConocoPhillips active in the country despite political risks. Eni, BP and Austria's OMV have led a steady increase in new projects and investments since mid-2023.
Yet, in the oil fields of Sharara and El-Feel, aging infrastructure demands a much greater injection of capital if Libya is to realise its potential as Africa’s most oil-rich nation. Pipelines dating to the sixties are suffering corrosion, with resulting leaks causing fluctuations in output and environmental hazards. While the NOC has generated some interest in infrastructure modernisation, with contracts awarded to major oilfield service providers like Honeywell, Schlumberger and Eni, it is nowhere near enough. To reach a national target of 2 million barrels per day by 2030, the Corporation will need to attract $17 billion in new investments, including $4 billion to update the infrastructure and fix leakages. For comparison, annual investment in Libyan energy averaged less than $1 billion since 2011.
The litmus test for foreign investment in Libya will come later this year, when the NOC plans to host its first oil and gas licensing round in 15 years. This milestone auction of 45 projects is aimed at showcasing Libya's ability to bring in the outside capital needed to optimise its oil industry. With oil accounting for 95 percent of national revenue, the result will determine the future fortunes for Libya’s economy.
The outcome of the auction is far from certain. Despite improved politics, security remains a major concern here. Oil production shut-ins and blockades are commonly used as political tools. Recent protests against rising fuel prices disrupted entire oil fields in the southern Ubari region, which accounts for over 300,000 barrels per day. While the situation has since stabilised, the absence of a unified government raises the risk of similar disruptions. Only 28% of production and export infrastructure falls under the Tripoli-based GNU, while 42% is located in the GNS-controlled east.
Overall, risk-averse oil majors have been shying away from investment in older and less stable emerging market producers in the region, like Libya, Sudan, Nigeria, Angola, Algeria, and Equatorial Guinea – each grappling to varying degrees with aging infrastructure, unstable operating environments, corruption, and underinvestment in new drilling activities. Nigeria has seen production halve from a 2.5 million barrels per day peak in 2005 to just 1.2 million earlier this year.
In place of the legacy producers, international oil majors are favouring newcomers like Namibia, Uganda, Kenya, Senegal and Mauritania – which are witnessing a surge in exploration and production activity. A 10 billion-plus barrel discovery earlier this year has made Namibia one of the most attractive emerging producers. Those international oil companies still active in places like Libya are primarily focused on short-cycle projects and rehabilitating damaged facilities rather than building new infrastructure. Commitments from Eni, for example, remain modest, while OMV is focused mostly on offshore gas projects.
Meanwhile, as with other oil producing nations, Libya is in a race against time before its oil reserves become just another stranded asset amid the global transition to renewable energy. If anything, Libya’s timeline is more pressing than its rivals given that over 70% of its oil exports currently go to the European Union, which is targeting a 30% reduction in oil consumption by 2030. Despite immense potential for renewable energy – most notably, solar – the industry remains relatively nascent in Libya and unfortunately holds little prospect this decade of providing a significant solution to energy supplies or economic prosperity.
Against this backdrop, Libya needs to find new ways to lure the investment it needs. To begin with, the NOC will need to sweeten its offering to international oil companies. The NOC must boost the return side of the very sizable risk versus return equation by offering more competitive royalties compared with other regional producers. According to the Center for Emerging Economies in Washington, peer producer nations, including Nigeria and Angola, retain between 50% to 70% of net oil revenue. Libya’s contracts typically retain a much larger slice of between 70% and 90%, leaving less room for operators to make a return. While this higher retained earnings level can be partially justified by Libya’s enormous subsurface potential and low-cost drilling base, greater incentives are likely to be needed to woo international oil majors, who may still be averse to investment in new production infrastructure in spite of the improved political backdrop in Libya.
Multilateral lenders and development organisations also have a critical support role to play. A revival in Libya’s oil output is not, in and of itself, a panacea for political instability, nor even a harbinger for broader economic growth. This will require proactive investment to diversify the economy and develop necessary infrastructure, education, healthcare and, ultimately, renewable energy. The International Monetary Fund, which has recently reengaged with Libya after decades of absence, can help to unlock the nation’s oil revenue in concert with an offramp for greener economic development, providing the financial and technical assistance needed to support initiatives to diversify the economy and develop Libya's renewable energy potential.
As of now, Libya’s much-anticipated oil and gas licensing round looks destined to underwhelm. Such an outcome would be a major missed opportunity for the world. Libya’s abundant supply of oil offers the best opportunity to diversify regional sources of energy and reduce dependency on Russia. It is only through a combination of investment by international oil companies and support from multilateral organisations that Libya will advance from a position of weakness and over-reliance on oil towards long-term stability, economic resilience and energy transition. Fostering a more stable and prosperous Libya will also help stem some of the push factors driving migration.
Libya is in a tentative recovery. Partially resolved political tensions present a once-in-a-generation chance to build economic stability. Without improvement in the economy, the country's tenuous peace is at risk of giving way to Islamist insurgencies and Russian paramilitaries, with the threat of a return to the humanitarian and migration disaster of previous decades.
With no credible path to lower its dependence on oil any time soon, the nation’s short- to medium-term economic future depends on the revenue it can pull from its crude reserves. A nation’s hope hangs in the balance.
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