Brent crude oil prices rose last week to nearly $117 per barrel, an increase of $6 in the span of almost one week, on account of the tension in the Middle East and the possibility of a military strike on Syria. However, and as is known, Syria is not a major exporting country, so it seems that the main concern involves the repercussions of possible war in the region in general, and the possibility of violence and unrest in Syria's neighboring countries. The fact of the matter is that the Middle East is encountering several problems in its oil-related sectors. Some problems are the result of the absence of strong state institutions, or the absence of political accord among a country's ruling class. This situation is typical of Iraq, which continues to face great difficulties in increasing its oil productive capacity to planned levels, resulting in a large deficit in the current year's budget. The same goes for Libya, where armed militias often shut down oil production from fields and exportation from ports. Some militias have even reached out to international oil companies, offering to sell them oil directly for their individual benefit in the black market. The sharp decline in Libyan oil supplies has led to a significant increase in prices. The rise in crude prices may be attributed to three main factors: The significant likelihood of an attack on Syria; oil output in Libya falling by about 1 million barrels per day relative to the country's productive capacity, the most important factor over the short term leading to high oil prices worldwide; and the possibility of unrest and terrorism spreading across the Middle East as a result of the conflict in Syria, possibly affecting the flow of crude oil supplies. Different political groups with disparate ideologies and political attitudes took part in the Libyan revolution to topple the Gaddafi regime, including armed militias, the Muslim Brotherhood, and local and tribal factions. In addition, there were several overt and explicit disputes, from the outset, among various tribes. Since the ouster of Muammar Gaddafi in October 2011, there has been a political climate marred by violence on the one hand, and continuous attempts by the rebels to exclude one another, on the other hand, with a view to monopolize power. As would be expected, this turbulent political climate has had its toll on the oil industry, and other economic sectors in the country. Interruptions in Libyan supplies started back in December 2012, when production from El Sharara field (340 thousand barrels per day) stopped. This is in addition to the hurdles faced by the ports of Zueitina and Ras Lanuf, leading to limited decreases in production in the beginning. It is worth noting that the national Libyan cadres, including engineers and workers at the Libyan National Oil Corporation, managed to restore production immediately after the revolution to productive-capacity levels at around 1.6 million barrels per day, despite the fact that all foreign oil companies had withdrawn during the revolution, fearing for the safety of their employees. These companies did not return until later, after the revolution succeeded and security was somewhat restored. However, the sit-ins and occupation of oil fields and export ports have increased lately, adversely affecting petroleum operations where production fell to 1.37 million barrels per day during the first quarter of the year. With the militias taking over in recent months, production fell further to 1.2 million barrels per day. Things deteriorated gradually, as protests shut down exports and production at the port and refinery at Ras Lanuf, a vital industrial area. The reasons behind protests and occupation of facilities include the lack of security in the country and deep disputes among ruling factions, opening the door to chaos and exploitation of circumstances by this or that party, especially armed parties, or those backed by influential political entities in the present administration in Libya. Such chaos is not limited to Libya, but also blight Iraq, and what is worrisome is that it has started to spread to other countries in the region, with growing political turmoil. In Libya, for example, the militias closed last week pipelines from El Sharara and El Fil fields in the south of the country, preventing the delivery of crude oil to ports. The productive capacity of the two fields is about 500 thousand barrels per day (i.e. one-third of the country's productive capacity). Oil workers, with the help of militias, also blocked the exportation of oil from the port of Marsa Brega for nearly a month (from late July to late August). Recently, production fell to less than half of the country's productive capacity. Labor unrest in Libya is a reflection of broad tumult that the Libyan administration has not been able to deal with since the overthrow of the Gaddafi regime. Industrial action as such and militias' acts also represent a blatant example of the government's failure to safeguard security. Recent reports indicate that Libya's crude oil output has fallen to about 650 thousand barrels per day, compared to about 1.4 million barrels per day in July. Concerns in the markets are mainly over the decline in production. In truth, conflict with the militias has prompted the government to threaten to fire at tankers attempting to unload oil to the black market, after being sold by militias. What would be even more troublesome is if this "oil" dispute between the government and the militias descends into an open-ended conflict that hurts the country's economy, with the militias seizing a huge source of revenues while at the same time depriving the treasury access to it. But how would militias benefit from the millions of dollars in question? Of course, in order for the armed groups to sell oil to international companies, they will need experienced brokers, who would receive lucrative commissions for marketing this oil. The militias also work with large armed groups both inside and outside Libya. Seizing resources in this manner leads to higher financial revenues for terrorist and obscurantist militias, helping them expand their deadly work into many countries. Furthermore, the stoppage or decline of production deprives the Libyan treasury from hundreds of millions of dollars, at a time when the citizens' aspirations for more help from the government have only increased. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
