Libyan oil crisis explained

Hey everybody. Peter Zion here coming to you from a bright Colorado day, and today we’re going to talk about a country that I haven’t brought up in over a year at Libya. Basically, the Libyan National Oil Company announced that it’s shutting down production at a couple of major fields. Collectively, Libya produces about a million barrels a day, and the announcements were going to affect over 70% of that whether or not there’s going to be more, we don’t know. This is a crazy story. Okay, so if you remember back to the 2000s in the early days after the Iraq War, a number of governments were led by tin Pak dictators who were so arrogant that they were convinced that actually the Iraq war was about them. It was a warning for them, and so they rushed to cut deals with various powers in order to make sure that they weren’t the target of the already planned invasion. So in the case of Turkmenistan, you had a guy basically rush into the Russian’s arms. And in the case of Libya, you had Gaddafi appealing to the United States and voluntarily turning over his proto WMD program to try to make sure that he wouldn’t be knocked off like Saddam was. Well, that was the beginning of a series of processes that led to a little bit of a political opening in Libya that ultimately culminated into a bit of a civil war with NATO Special Forces. Basically, after six months of just waiting for somebody to take off, Gaddafi basically led these militant forces to the presidential palace, and the government collapsed. Since then, a new government has been put in place, internationally recognized, based in Tripoli, but they were supposed to have elections over 10 years ago, and they never did. So they lacked legitimacy. That’s in the western part of the country, where most the people are in the eastern part of the country, you’ve got another government based in Benghazi that is a mix of Russian backed groups and mercenaries and Islamists and a guy named Haftar, who’s a real asshat. Anyway, what has been going on in the last 12 years is that all of the oil, most of which is produced by the Eastern government, is processed through the Central Bank, which is the only institution the country that has access to foreign currency and can do Forex transactions, and it is headquartered in the western part of the government, where the legitimate government is both sides have been mucking with the equivalent of the Federal Reserve in This country in order to get a bigger cut of the money for themselves and deny money from the other side. The most recent development is the Tripoli government in the West has kidnapped a couple senior staffers and tried to push out the Chairman of the Central Bank in order to get their way. So the folks on the Benghazi side, where the oil is have said, you know, screw you guys. We can travel the oil, so we’re just not going to produce it. So what? No money comes in anyway. And so we have 700,000 barrels a day that are going offline, and might actually increase in the days and weeks to come. It could be offline longer than just this political dispute, because Libyan oil, especially the stuff in the eastern part of the country, is very waxied. If it’s not kept warm, it basically turns everything into a soft candle, including the pipelines, which will take a lot of maintenance to clear out. Now this is has a lot of implications for a lot of people. The Russians are going to be pissed off because they have managed to get themselves a cut of the energy revenues. The Italians are both on the Pro and the con side of this pro and that they are the ones that end up taking and refining most of the crew that comes out of Libya, just because of proximity. But they also have refining capacity that can handle over twice what the country actually uses. They’re a refining hub for southern Europe, so you’d actually have more pain in places like Spain and France and throughout southeastern Europe, in the Balkans, because they’re going to make money regardless. Part of the problem here is that with Russian crude no longer part of the european diet, Libyan crude was one of the substitutes. Another big winner is going to be in the United States, because while the Libyan crude is waxy, it’s also pretty light and pretty sweet and has a fairly similar chemical makeup, minus the wax, as you a shale crude and the US exports three to 4 million barrels of that a day. And having, you know, another half a million to a million barrels of demand out of southern Europe is something that would make American producers quite happy. This is just what Libya is going to look like until one side or the other wins, or the two sides come together and form a unity government, which is definitely not gonna happen. The only other reason that there might be any hope is that there might be someone in Europe, France or Italy, most notably, who decides to go in, knock heads together and basically just take over the fields and run the country themselves as a colony. We’re not there yet. We don’t have energy shortages in Europe at the moment, and they’ve managed to find a lot of ways to adapt to Russian stuff going offline, and Libya a million barrels a day. It’s not that that’s insignificant. A. But it’s not enough of a shock to cause a political or a military action out of the European countries, but it is a little bit more pressure. So if something were to happen to say, the Persian Gulf, which, thank God, has been one of the most stable parts of the world these last couple of years, then we’re in a different world. So it’s something to keep an eye on. It’s more amusing them problematic at the moment, which I can’t believe I’m saying that about the loss of nearly a million barrels of crude. But this is the world we live in today. Watch the Europeans. They’re the ones that have the agency to do something about this. If stuff gets real.