The Libyan Oil Tap

How to Get the Country's Production Back Online

Courtesy Reuters

When the unrest in Libya began this spring, international oil companies and their foreign personnel fled the country. Libya's oil exports ground to a halt, removing approximately 1.6 million barrels per day of light, sweet crude -- low-sulfur oil that is more easily transformed into high-value products like gasoline and diesel -- from global oil markets. The West Texas Intermediate crude oil price inched up to the $80 per barrel level in mid-February, increasing to $86 per barrel by early April, but the Brent crude index, against which Libya's light, sweet crude is generally priced -- surged from around $95 per barrel in the winter of 2010 to over $110 per barrel in late February. It topped $120 per barrel in April.

Libya's oil production is modest in total, but it plays a huge role in the world's supply of high-quality crude. (Of the estimated 12.5 million barrels produced per day, African countries account for 42 percent. Of the African producers, Libya has one of the largest shares.) Global demand for light, sweet crude is growing -- especially in emerging markets, where it is used for transportation fuel and as an alternative source for power generation. The return of Libyan crude to oil markets should ease oil prices, particularly for Brent crude.

This could happen sooner than expected. The end of the conflict in Libya is in sight. The rebel movement, the National Transitional Council, has captured Tripoli and is preparing to establish a new government. Oil revenues will be crucial for the NTC, so the leadership will try to get wells flowing as soon as possible. Before the conflict, such revenue accounted for almost all of Libya's export earnings and a quarter of its GDP. Without it, the new government will be harder pressed to resume basic services or reconstruct the country's damaged infrastructure, even as a supportive international community unfreezes Libya's sizable foreign assets.

Getting Libyan crude oil back to market will not be easy, however. Security, law and order, and political stability must be ensured before international

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