Oil and Gas ProductionThe priority will be on resuming production across Libya’s oil and gas fields. Although some of the fields have already resumed production, it could take until the end of 2012 before they return to previous levels of 1.6 million barrels per day.
Western countries such as Britain and France, which have backed the opposition’s attempts to overthrow the old regime, will be hoping for improved relations with Tripoli, as well as lucrative energy contracts. However, those contracts that were entered into under Qaddafi’s rule, or with the NTC during the conflict, risk being renegotiated or even cancelled. It is likely that contracts concluded with countries that helped with the overthrow of Qaddafi may well be honored. However, those that were signed with the Chinese, Russian and Brazilian firms will be most at risk.
Notifications of losses to the political risk market may top USD$500 million, with German and French exporters who had entered into contracts for the supply of capital goods to the oil and gas industry in Libya likely to be hit hardest. Many of these contracts have been frustrated as a consequence of non-payment and import/export embargoes. Some losses will be the result of physical damage incurred from political violence.
Another concern is the already apparent divisions within the NTC, where some opposition groups have objected to the influence of Benghazi-based tribes from those based in other parts in the country. Also, Libyan Islamists have already made their objections to the NTC’s proposal to replace the old regime with a secular, pro-Western government. Friction between these groups could still result in future sectarian violence so overcoming these divisions will be one of the key challenges. It should be remembered that most of the sectarian violence in Iraq actually happened after the overthrow of Saddam Hussein, rather than before.
One of the first objectives must be the demobilization and disarmament of the population. However, this will prove extremely difficult to achieve in practice. With over some 40-odd separate militias taking part in the rebellion, huge stores of munitions have been liberated and spirited away back to their various tribal strongholds.
Pages of editorial comment will no doubt be devoted to the demise of Qaddafi over the coming days and what this means for potential foreign direct investment for Western companies going forward. However, while the current spotlight is on Libya, one must not lose sight of the potential for continued political upheaval in the region. The regimes of Syria and Yemen still represent a serious risk to further destabilization.
Willis clients will be able to read more about the risks across the Arab region in the latest Political Risk Index, published this week in conjunction with Oxford Analytica. Call your Client Advocate for details.