The US and EU move to blacklist Libyan state-owned oil companies and their joint ventures will delay the return of the country’s oil to the international market, experts say.
The US on 22 March named 14 national oil companies (NOCs) subject to sanctions, with the EU following suit the next day by extending its list of targeted Libyan companies.
The sanctions, which prohibit financial transactions with the blacklisted NOCs, put more pressure on the regime of Libyan leader Muammar Qaddafi, who will struggle to fund his armed forces and maintain his political patronage of the country’s tribal network.
It will also incentivise the rebels to hurry up the process of establishing separate political institutions and oil companies not subject to the sanctions, which currently are also cutting off their revenue source.
The sanctions will provide a significant obstacle for a re-entry of Libyan oil into the markets, as the laws underpinning them will take months to reverse. It is unlikely that international oil companies (IOCs), that are crucial for oil production in Libya, will return before the sanctions have been repealed.
“The lion’s share of Libya’s oil and gas sector is highly dependent on the return of IOCs or at least foreign experts, something that is now unlikely until the laws in the US and the EU have been repealed, a process that could take many months in itself and will only begin after a sustainable political settlement has been reached in Libya,” writes Sam Ciszuk, analyst at IHS Global Insight, in a research note.
The absence of IOCs could also prove critical for the maintenance of oil fields that are subject to enhanced oil recovery and could lead to permanent loss of output.