Consolidation In Libyan Oil – A Major Red Flag For Oil Markets?

A political breakthrough in Libya could potentially contribute to the return of some of the country’s disrupted oil production.

Libya has been torn apart by civil war, political gridlock, and the arrival of ISIS. Two rival governments have been at odds for several years, battling for control of the country and its oil production. But the standoff has resulted in a stalemate, and the North African OPEC member’s oil production has remained at a small fraction of its pre-war production levels.

But Libyan officials said over the weekend that two rival oil companies have decided to merge in what could be a major political breakthrough. The National Oil Company is based in Tripoli, under the control of the western government. The rival eastern government based in Tobruk tried to set up its own oil company and export oil on its own a few months ago. However, the international community took steps to block the move, and the failed attempt forced it to look to negotiate with the western government.

On July 2, the National Oil Company said in a press release that both sides have agreed to merge their operations. The head of the National Oil Company will lead the merged company with the chief of the eastern company set to become a board member. In addition, the newly merged company would relocate to Benghazi, a city in the eastern part of the country.

“We made a strategic choice to put our divisions behind us and to unify and integrate NOC,” the chairman of the National Oil Company Mustafa Sanalla said in the statement. "This agreement will send a very strong signal to the Libyan people and to the international community that the Presidency Council is able to deliver consensus and reconciliation."
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