The loss of Libya's crude oil production, due to the ongoing unrest, has put pressure on world oil markets. After eight months of fighting, Libya's oil industry, that once produced 1.6 million barrels per day (bpd), is trying to restart its activities to restart the flow of cash into the country and restore the local economy. Although many export terminals, pumping stations and pipelines were severely damaged by the war, Libya's oil output has now risen to more than 350,000 bpd.

Libya possesses 3.5% of the world's total oil reserves. With its total reserves estimated at 46.5 billion barrels --double those of the United States -- Libya is the largest oil economy in the African continent, followed by Nigeria and Algeria. The Libyan economy, with a GDP that reached US$76 billion in 2010, is largely dependent upon revenues from the oil sector; these account for almost the entirety of its exports and for more than half of the GDP. Libya also possesses 1.500 billion cubic meters of proven natural gas reserves.

In its monthly report, the Vienna-based Organization of Petroleum Exporting Countries (OPEC) predicts that Libya might come back to "full capacity" within 18 months. This opinion is not shared by the International Energy Agency (IEA), whose newly appointed director Maria van der Hoeven declared that: "Our experts believe that the full recovery of Libya's production will probably take place sometime in 2013 or further on, but not earlier".

The Battle for Reconstruction

After the battle for a "free Libya," there will be a battle for reconstruction. Foreign companies are already on the warpath to either retain the positions they had under the old regime, or to expand into new activities. Reconstruction will also involve rebuilding infrastructure damaged by the war and completing the infrastructure works that had already been initiated by the Gaddafi regime.

In the oil business, the main Western energy companies that are going to restart oil production in Libya are Italian ENI, French Total, Spanish Repsol, German Wintershall, Austrian OMV and US Occidental Petroleum. Possible new entries are Russian Gazprom and Chinese CNOOC.

The Nigerian paper, Nigerian Tribune, published an article mentioning that, as could be expected, the interest of the major powers in Libyan oil might become a major source of contention in the immediate future. "Oil infrastructure may also become a likely target by terrorists and nationalists as they challenge western influence and presence. This is a delicate challenge that the Libyan National Transitional Council must manage with tact and wisdom. They must avoid the temptation of corruption and mismanagement, especially when the political season which will be a part of the process of establishing a democratic Libya commences," the Tribune wrote.

Although both the companies and Libya share a common interest in fostering a new start for the oil industry, however, analysts, oil companies and Western governments worry that the new Libyan leadership, due to internal division, might jeopardize a post-revolutionary recovery and the timely resumption of oil production. Also, military remnants of the conflict might continue to present challenges.

These potential problems are why, according to the Tunisian media outlet Tunisia Live, it is important to establish a set of proactive policies to involve key partners to facilitate the reconstruction of the country. "Referring to their history, the Libyans will be skeptical of any extended international presence, whether for humanitarian, reconstruction or economic assistance. However, such a presence will certainly require the creation of a legal and constitutional framework to enable all participants to benefit from the Libyan development and economic equity," Tunisia Live writes, adding that "it is necessary to prevent the realignment of economic strategies of the various parties involved in the former regime. It is indeed likely that informal networks of economic powers persist in the country following the fall of the regime. Furthermore, rebel forces will want to find a place in the new formal structures alongside economic elites – a cohabitation that promises to be arduous".

Recovering the Libyan Economy

The path towards the recovery of the Libyan economy will be long, as several actors are trying to get their share, creating internal infighting. According to the Petroleum Economist, the only way for Libya to recover its economy is to set a transparent oil and gas framework, free from corruption. This is easier said than done: it will not be easy for Libya to get rid of an environment of corruptiion that has characterized Libya for decades.

As reported by Reuters, there is already emerging in Libya "a power struggle within the oil sector between rival government and industry factions with poorly-defined responsibilities," The news agency reports that these rivalries are being played out between the oil-rich east and the capital, Tripoli; and between the interim rulers of the National Transitional Council and within the National Oil Corporation (NOC).

To add confusion, many key NOC staff left in "mysterious" circumstances, amid allegations of corruption and ties with the former government. This, Reuters reports, has created confusion for foreign companies, and there are already signs that this is affecting daily operations: No one actually knows who is in charge and who is leading the Libyan oil industry.

In the meantime, the Libyan people are the most affected: as oil revenues will not be redistributed among the population in the near future, it is they who will continue to suffer the effect of years of economic mismanagement.

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