On 19 April, the National oil Corporation (NOC) declared force majeure on its Arabian Gulf Oil Company (AGOCO) subsidiary operated Hariga oil export terminal in Tobruk including both production and export operations at the port. The NOC directly blamed this on the Central Bank of Libya’s (CBL) failure to transfer funds to the NOC. It claimed that has exacerbated the debts of AGOCO and other subsidiaries and has left them unable to fulfil their financial and technical obligations, which is leading to a reduction in production. The NOC said this will reduce the country’s total oil production by around 280,000 b/d.

The NOC statement stressed that circumstances beyond its control had led to AGOCO’s lower production because it had only received 2% of the total budget that it needed to cover its expenses for 2021. It warned that, if the central bank continues to block the necessary funding, other shutdowns are likely to occur. For its part, the bank insists that it cannot release the funds because the approval of the 2021 Budget has been delayed by the House of Representatives. 

Personal animosity between CBL governor Sadiq el-Kabir (L) and NOC chairman Mustafa Sanalla (R) (Photo Libyan Express)

The UN Support Mission in Libya (UNSMIL) immediately expressed concern about the shutdown. It said that ‘The uninterrupted production of oil as well as maintaining the independence and impartiality of the NOC remains a vital cornerstone to the economic, social and political stability of Libya’ and added that ‘this is of critical importance for the government that is requested to improve the delivery of basic services to the Libyan people.’

Separately, on 22 April, another of NOC’s subsidiaries, Sirte Oil Company, announced that it will be forced to ‘reduce production and halt it completely within 72 hours.’ It blamed this on its ‘very critical financial situation, the inability to fulfil contractual obligations to contractors, accumulation of debts and the lack of spare parts, fuel and chemicals required for operations.’ This announcement could lead to force majeure being declared at the Brega oil export terminal in the coming weeks.

This rift between the CBL and NOC reflects the animosity between the NOC chairman Mustafa Sanalla and the bank’s Governor Sadiq el-Kabir. Sanalla is likely to use the threat of these closures to pressure el-Kabir to release more funds. The risk with this tactic is that it could embolden other NOC subsidiaries to reduce their production levels to apply similar pressure on both the bank and the Government of National Unity (GNU). 

The oil sector is also in the throes of a new struggle for influence and control, despite the September 2020 deal signed in Sochi between representatives of Haftar’s LAAF and the former GNA which led to the reopening of oil terminals which had been blockaded by the LAAF for over eight months. The agreement stipulated the temporary freezing of the NOC’s oil revenues in its Libyan Foreign Bank (LFB) account until a new unity government was formed. In addition, there would be a unified national budget in order to provide the NOC with the necessary operational funds to continue its operations. Though the LFB funds have since been unfrozen and transferred to the central bank, el-Kabir has refused to provide the NOC with its operational funds because of the lack of a House-approved national budget. 

El-Kabir has allied himself with Minister of Oil Mohamed Aoun in accusing Sanalla of having a monopoly over the energy sector which currently has no proper government oversight. They also accuse Sanalla of mismanaging the NOC but he has powerful allies among the leadership of key NOC subsidiaries and also the backing of Khalifa Haftar. Eastern Libya has long been calling for el-Kabir’s removal, not only because he has overstayed his mandate, but also because he is closely allied to the Islamist hardliners in Tripoli. Last week, the Ministry of Finance agreed to disburse LD1,000 million (US$223 million) to temporarily cover the NOC’s operational expenses but these problems will not be permanently resolved until there is an officially approved budget.

This excerpt is taken from Libya Politics & Security, our weekly intelligence report on Libya. Click here to receive a free sample copy.