Event

Protests and strikes are dramatically impacting Libya’s energy sector. Prime Minister Ali Zeidan last week confirmed that Libya’s oil production had fallen to only around 250,000 barrels per day  (bpd), compared to a production level of about 1.45 million bpd end 2012, when disruptions had started. Libya currently exports around 145,000 bpd. This is only a fraction of the country's export capacity. In May, the IMF still expected average oil exports of 1.36 million bpd for 2013. While protests initially started over pay and corruption allegations, oil exports shutdowns in the east of Libya are also related to federalist aspirations of the eastern Cyrenaica region. Earlier in August, PM Zeidan had threatened to use military force to stop oil blockades but last week, a more conciliatory tone was heard and a national dialogue initiative was launched recently.

Impact on country risk

Disruption of Libyan oil production and exports for an extended period would seriously impact the country’s economic performance, current account and public finances. Hydrocarbon revenues remain of utmost importance for Libya’s economy. In 2012, they amounted to over 65% of GDP, 95% of exports revenues and 96% of government revenues. The gravity of the disruption in this important sector again shows how limited the powers of the government are. Regionalist and tribal divisions and the already chaotic political transition only exacerbate this situation. This makes the resumption of medium/long-term cover in the short run very unlikely. While liquidity risks as such are tempered by the country’s vast foreign exchange reserves (covering almost 3 years of imports end of June), companies active in the energy sector, as well as public revenues, are likely to be seriously affected by protracted oil disruption. This could impact on public spending and non-hydrocarbon economic performance, further raising the already important systemic commercial risk.

Analyst: The Risk Management Team,  r.cecchi@credendogroup.com