The civil war that erupted in Libya earlier this year could hardly stand in starker contrast to the positive mood in the country in 2010. International investors were eyeing the country with interest as Tripoli reformed it economy.

Their optimism was shared by the Washington-based IMF, which, as recently as October, forecast Libya’s economy to strengthen over the medium term as a result of higher oil receipts, the upgrading of infrastructure, as well as the implementation of economic reforms. It forecast gross domestic product growth of 6.2 per cent for 2011.

Oil endowment

For international oil companies, Libya was seen as one of the biggest draws in the Middle East and North Africa region. With 44.3 billion barrels of oil, the country has the largest proven reserves in Africa and is well-placed to the south of the Mediterranean Sea, providing easy access to US and European markets.

Under Muammar Qaddafi, Libya has always talked a good game and not delivered on its grand schemes

Along with encouraging local firms to seek experienced international partners, Tripoli had begun to oversee the development of a consumer and property boom, transforming expectations in society. The non-hydrocarbon sector was expected to remain buoyant, boosting growth to a projected 8 per cent by 2015. Taking into account the authorities’ intention to continue to prioritise spending, the growth of public expenditure was expected to remain at about 7 per cent a year.

But under Muammar Qaddafi, Libya has always talked a good game and not delivered on its grand schemes. Any reforms have been limited in scope, with many in the regime reluctant to see their control of the state-dominated economy reduced.

Now six months into 2011, Libya is embroiled in a deadly civil war that is threatening to tear the country in two. A Nato coalition has been bombarding Qaddafi’s military apparatus since March, but the conflict appears deadlocked, with the opposition having the upper hand in the east and Qaddafi-loyalists in the west. Inevitably, the conflict is having a devastating impact on the economy.

Libya GDP by sector, 2010
(Percentage)
Agriculture 3
Industry 64
Services 33
GDP=Gross domestic product. Source: CIA World Factbook

In 2010, sales of oil and gas accounted for more than 90 per cent of government revenues. But production has been disrupted since the war broke out due to damage to vital installations. Control of the oil export hubs has passed between opposition and government forces and production is falling. The London-based Centre for Global Energy Studies estimated output from Libya to have fallen by as much as 75 per cent at the start of the conflict. But there are no reliable figures to date. In 2010, Libya produced about 1.65 million barrels a day (b/d).

National Oil Company (NOC), the state-owned entity that ran the country’s upstream business, had been planning to raise capacity to 2.3 million b /d by 2013. Those plans will not be realised in the short term, depriving the country of vital incomes.

The rebels have already begun making preparations for a post-Qaddafi Libya. Barely a week after street protests began in Benghazi in February, the opposition movement established the National Transitional Council of the Libyan Republic, which has declared itself the sole representative of the Libyan people. Chaired by Mustafa Abdel-Jalil, the former justice minister, the council’s democratic credentials have been questioned, but it is widely seen as a necessity, providing an organisational structure and direction to the uprising.

Benghazi has also created a central bank and an oil company, which will help it establish its independence from the regime’s institutions in Tripoli. But it has not formally outlined its future plans for the economy.

Oil distribution

The international community is assisting the Transitional National Council and has set up a $200m fund to cover the basic needs of the rebel-controlled territories, including infrastructure and humanitarian aid. Fuel has also been delivered to the opposition and oil has been bought from the Benghazi government.

Hydrocarbon reserves and production in Libya
Oil production (thousand barrels a day) 1,652
Oil reserves* (billion barrels) 44.3
Oil proven reserves* (share of world total) 3.3
Gas production (billion cubic metres a day) 15.3
Gas proven reserves* (trillion cubic metres) 1.54
Gas proven reserves* (share of world total) 0.8
*At end of 2009. Source: BP Statistical Review of World Energy

Qaddafi has only one working refinery under his control, at Zawiya, about 50 kilometres to the west of Tripoli, but even this is only running at 60 per cent of its 120,000 b/d capacity and has been in need of renovation for years. The Ras Lanuf refinery in central Libya is not operating.

The US and the EU have also blacklisted Libya’s 14 state-owned oil companies and their joint ventures. The sanctions prohibit financial transactions with the NOCs and are intended to make it harder for Qaddafi to fund his armed forces and maintain his patronage of the country’s tribal network.

The east of Libya, currently under opposition control, hosts two refineries, Marsa el-Brega and Tubruq. Only Tubruq is operating at barely 20,000 b/d. Access to oil could decide the outcome of the conflict.