The World Oil Politics of the Libyan Revolt

The question of what comes after Qaddafi became more complicated on Sunday, as rival claims to forming a provisional liberated government emerged. Former Justice Minister Mustafa Abdel-Jalil had announced on Saturday from Benghazi that he would head an interim government. But on Sunday human rights attorney Abdel-Hafidh Ghoga said from Benghazi that an interim government was being formed for all of liberated eastern Libya, and disputed Abdel Jalil’s claim of leadership. The new council will form a paramilitary to take further territory away from Qaddafi’s forces, Ghoga said.

Some 80% Libya’s developed petroleum fields are in rebel-held territory, and the Benghazi leadership is making plans to pump the oil and receive the proceeds. If the standoff with Qaddafi goes on very long, the oil politics could prove decisive. With Qaddafi’s own foreign funds increasingly frozen, and 3/4s of the country’s oil facilities idled (it ordinarily exports 1.7 million barrels a day), his cash on hand to pay mercenaries and bribe clients will rapidly decline, whereas the Benghazi rebels may reap a windfall. Reports about the situation at the oil fields are chaotic and contradictory, but it seems clear that some oil workers are pumping the oil themselves as expatriate companies flee, and it is possible that the Benghazi leadership could export by tanker truck despite the closing of the Italian pipeline.

The oil politics could also provoke NATO or other intervention. Although Saudi Arabia is pumping extra petroleum (500,000 barrels a day), it is probably not actually replacing what has been lost from Libyan production. Brent crude hit $114 a barrel on Sunday. The world is skating on the edge of petroleum prices so high that they could push the global economy back into recession. Will NATO governments really risk taking a bath in their next elections because they declined to implement a no-fly zone over Libya and bring a quick end to what is for them not only a humanitarian crisis abroad but also a potential oil crisis at home?

CBS Money Watch has a report:

More production may be lost, as unrest spreads in the Middle East. Iraq’s massive protests this weekend were followed by an attack on the refinery at Baiji, which closed it. The plant has a capacity of between 150,000 and 300,000 barrels a day (you see varying estimates). The spread of the protests to Oman, moreover, raised ominous questions about how much production may be lost. Not only have petroleum workers in the port of Sohar demonstrated, with 2 protesters killed, but they targeted the road used by tanker trucks. (They so far haven’t had an impact on pipeline exports, the bulk of them.) Workers in the Gulf unhappy with their lives, unlike Wisconsin school teachers, can fairly easily disrupt the economy if they choose.

Oman

Oman

Oman pumped some 860,000 barrels a day in 2010 and exported about 750,000 of it. If most Libyan production goes off line and Oman is similarly crippled, that would be a loss of about 2.5 million barrels a day– nearly 3% of the 85 million a day the world typically consumes, which is probably all the Saudis could cover even if they were willing and able to ramp up production that much for an unknown period of time. (Some critics question whether the Saudis can really pump that much extra petroleum for very long without putting strains on their equipment and infrastructure). Although a loss of 3% of export capacity may not seem very much, actually in a market where supply was just barely meeting demand, the loss could cause prices to skyrocket (especially because of the atmosphere of uncertainty the losses could provoke). The big kahuna would be disruptive protests in Saudi Arabia itself, which would certainly cause a global economic crisis.

Quite apart from production, a lot of petroleum refining is done in the Middle East, and were the world’s refining capacity to be reduced that might be more significant for supplies and prices than merely taking crude off the market temporarily. Oman, for instance, refines 200,000 barrels a day. Refineries take years to build and billions in investments. Raw petroleum is useless– it has to be turned into gasoline/ petrol, kerosene, etc., to drive vehicles– its main use. Increasing refining capacity is not nearly as easy to do in the short term as just pumping more crude.

So back to Libya. In newly liberated Zawiyah, half an hour drive west of the capital of Tripoli, rebels displayed their heavy weaponry– including tanks and artillery– to Western reporters and underscored their intent to take on Qaddafi’s forces. The Zawiyah liberation movement appears to be coordinating with Benghazi, now the epicenter of revolutionary politics. The city is significant because it is the site of Libya’s largest refinery.

Aljazeera English has video of Zawiya:

The dispute between Abdel Jalil and the Benghazi liberation council may signal more trouble ahead. Given that the former Tunisian prime minister, Mohamed Ghannouchi, has just been forced to resign because he served in the old, overthrown government, Abdel Jalil’s move was probably inadvisable. Even though Abdel Jalil was the first cabinet minister to resign in disgust at Qaddafi’s brutal use of force, and even though he offers some continuity at a time of upheaval, having a Qaddafi cabinet minister, especially one who had oversee Libya’s corrupt and oppressive ‘justice’ system, try to run the country now would be a recipe for further protests and upheavals. The rebels are talking about parliamentary elections within three months, which is, frankly, probably unrealistic. The pledge underlines the need for the United Nations to get officials into Benghazi to consult with the revolutionary notables about how to go forward, since the UNO has a lot of experience in these matters, which, to say the least, the leading lights of Benghazi do not.

15 Responses

  1. Dear Juan,

    Still love you and will send $$ as soon as feasible, but the poke at the experience of the Benghazi elders is beneath your usual standards.

    Americans are put to shame, in general, by the civic wisdom of Libya, Egypt, Tunisia and others in recent weeks. In Tunisia, in Egypt, in Benghazi the Arab ‘street’ — so much maligned in mainstream Western poli sci & historical literature — has stood up to govt. sponsored repression, including gunfire, in a manner not known in Europe or North America for many decades.(Maybe the Warsaw ghetto uprising or some other episode of that era would be equal in moral fortitude.)

    While it is somewhat less than welcome to see the elders of Benghazi repeating the errors of American Greens & radicals that I have criticized — embracing ideal forms of democracy, despite practicality, precisely because they feel they’ve been deprived of it — A.) this is an Arab movement and we need to let them have their excesses, and B) isn’t is refreshing that their excesses are for an over-idealization of democracy, and not a dismissal of it?

    • Well they can’t have credible elections in three months, and we already saw in Bosnia that goons win under those circumstances. We also should avoid condescension toward seasoned post-conflict professionals of the sort Bush sidelined in Iraq.

      Cheers. Juan

    • If I can jump in. I think there is a difference between the “civic wisdom” demonstrated by the population, and actual experience governing. The former, is impressive, and is a good sign, but the ability to organize people isn’t the same thing.

      I’m fully in agreement, about letting them make their own mistakes.

  2. Al Jazeera English just reported (0730 GMT), with film, that Gaddafi’s Eastern European ‘nurse/personal assistant’ was seen at the airport, about to board a flight for Kiev. How much longer can Gaddafi hold out following such a desertion?

  3. all of the above also makes the move to…… solar, wind, geothermal, tidal, power, urgent.

    • Yes, but the message we will hear in America is “drill, baby, drill”. We are addicts, and we will not let go of the idea that there’s still one big strike to be had in US-controlled North America or its offshore waters that will replace Saudi Arabia but the Commies in Washington are blocking it.

      I don’t know what data it would take to disprove that kind of thinking that wouldn’t lead us to go berzerk and start torching our cities.

  4. Theoildrum.com’s lead article is about the oil production problem, link to theoildrum.com It appears the Irish are going to suffer more than most: “Ireland, for example, which has had other problems with the banks in the recent past, is now faced with the loss of perhaps 23% of its fuel supply, which while only 14 kbd is, for that country, likely to be very significant.”

  5. I’m just a poor, simple minded country boy, but even the following, cyclic turn of events is obvious to me.

    Back in 2005-2006, we had no doc mortgages that allowed everyone to buy a McMansion, for interest only, for the purpose of reselling it in 2009 at double the purchase prices.

    In 2008, the US housing ponzi scheme collapsed.

    In 2009, farmers could not borrow enough money to fertilize their wheat crops adequately, meaning there was less to export, and it had lower protein content.

    In 2010, the people of North Africa got less to eat and it was lower in quality.

    In 2011, food riots topple governments across N. Africa and threaten the stability of oil kingdoms on the peninsula, leading to oil price spikes that make it difficult for farmers in the Mid-West to get credit to ……

  6. I agree with Ron. These Arab peoples are doing all right. They needed nobody’s prompting to start their revolutions, and they no patronage now from all the blue-helmet types out there.

    Arabs need beg nobody’s pardon, nor do they owe anyone thanks. Today others around the world should study and follow the world’s real leaders, the genuine examples of great character and moral strength, who can be found in the streets of Tunis, Cairo, Benghazi, or Manama.

    NATO would be all wrong to engage itself in Libya’s revolution. Libya, its oil, and its history, all belong to Libyans–not to Libya’s customers.

    Qadafi’s last possible shred of legitimacy would be a fight against a foreign intervention. It would vindicate much of his propaganda.

    The Libyan rebels now have heavy weapons of their own, and they can win, as long as they keep on fighting.

  7. Juan,

    I’m sorry but your logic is kind of ridiculous here and i agree with your detractors.

    In one paragraph you acknowledge the stakes of the middle east’s black oil is extremely high and in the next you are saying that the UN needs to go in and help them with their transition?

    Pardon?

    The Libyans will figure this out on their own and they don’t need interference from the US, UN, NATO, USAID, or anyone else.

    • Just to clarify, please don’t ever count me as a “detractor” of Juan Cole. I was in a late night mood, I saw a debating point and jumped on it.

      We need more and better historians like Juan Cole, and we need to read them more closely and listen to them more attentively.

  8. This is link to an article about Robert Gates’ recent speech at West Point. IMHO a very historic speech because Gates says:
    “In my opinion, any future defense secretary who advises the president to again send a big American land army into Asia or into the Middle East or Africa should have his head examined”

    Well, I think there are a few nutcases around that are licking their lips to take a shot at liberating Libya. Dumb politicians and smart bombs make a scary combination – the bombs miss and in comes the land army.

    link to nytimes.com

  9. Dear Professor Cole

    Why do you suspect there is not a peep out of Emirates?

    Surely the place is full of underpaid Pakistani and Philipino labourers who haven´t been paid for months.

    The blatant effrontery of the streetwalkers must surely get up the noses of the faithful.

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