Libya used to produce about 1.6 million barrels of light crude oil, compared to about 30 million barrels per day by OPEC, and 89 million barrels per day of total global output. Libya it also used to consume about 300 thousand barrels per day, which means that its oil exports stood at about 1.3 million barrels per day. At first glance, these figures show that Libya's output does not constitute a significant proportion of global output. However, the markets do not take into their account an oil-exporting country's output alone. The markets are also affected by the continuous flow of oil supplies – or lack thereof, no matter its size, by whether or not this flow undergoes destabilizing events that halt oil exports, or lead to a shortage in the quantities that can be exported, and also by the extent of the time required by the state concerned to restore oil exports to their previous levels. The markets are also influenced by the destination of the oil exports of the country in question – which in Libya's case is Europe- and the possibility of compensating the shortage in supplies with crude oil of similar grade as the oil in shortage – and in Libya's case, the exported oil's grade is light crude. Libya also supplies Italy and Spain with natural gas, which must be compensated as well. The shortage in Libyan oil in the past months has led to higher oil prices worldwide, with Brent crude reaching about 127 dollars per barrel, before progressively falling to 110 dollars at present. This is mainly due to two reasons: One, the decision by Saudi Arabia and other GCC countries (the UAE and Kuwait) to increase their output and supply the markets with oils that are the same grade as the light Libyan crude, and two, because of the swift military victory in Tripoli. It is also possible to add other dynamics that impact the markets, such as the European sovereign debt crisis, and a weak U.S. economy as a result of high unemployment rates, leading to lower demand for oil in the Western industrialized countries at present. All these factors raise several pressing questions in the markets, including: When will Libyan oil exports be resumed, and in which quantities? Here, the estimates vary according to their sources. Shukri Ghanem, the last official responsible for the Libyan oil sector, expects that exports will be gradually resumed, reaching their previous levels in approximately 18 months. The IEA, meanwhile, expects production to be resumed in some fields, stating that output would reach its pre-uprising levels by 2015. This is while the Italian company ENI, the largest foreign oil company operating in Libya, maintains that a period of six to 18 months is required to restore output to its previous levels, taking into account that the timeframe for this to happen and the extent at which it does, both rely on security conditions in the country and in the direct perimeter of the oil fields, not to mention the amount of time required to repair infrastructure and build storage tanks. According to the state-owned Arabian Gulf Oil Company, the latter is in the process of dispatching technicians to the Sarir and Misla oil fields in preparation for kick starting production in September, at around 250 thousand barrels per day. The inconsistency among these forecasts is due to the fact that each source has its own information and estimates. But more importantly, there is the issue of security and stability in the country in the upcoming period, and of how feasible it will be to mobilize the technical teams required by the Libyan Oil Corporation and the international companies to repair current and future damages. Notably, there is also the question of whether armed resistance by pro-Gaddafi factions would continue, and whether priority would be given in counter-insurgency efforts to oil targets, as has happened in Iraq, where oil facilities continue to be attacked to this very day – and where the oil output has dropped below its pre-invasion levels. These are two questions that remain open-ended, pending future developments and speculation. The second relevant parameter is the policy pursued by Riyadh and other GCC countries in offsetting the shortage in Libyan oil supplies. It is expected that the Gulf nations would continue to offset the shortage in Libyan oil supplies based on their policies that seek to balance supply and demand in the global oil markets, and maintain a moderate price range, whenever possible. In fact, this policy, which has been the focus of OPEC over the past decade, has been recently meeting with public opposition from Iran. At every occasion since OPEC's ministerial meeting on June 8, labeled as ‘the worst meeting in OPEC's history', Iran has been reiterating its hostility to this policy and challenging Saudi Arabia's leading role in OPEC. However, despite this counter-campaign, it is expected that Saudi Arabia and the GCC countries concerned would continue to pump adequate supplies to the market, and prevent any unforeseen shortages. In truth, Iran's policy stems from its general anti-GCC direction and the difficulties it is facing in marketing its oil because of the embargo, such as the difficulties met by the Indian companies in paying for the Iranian oil they purchase, for example, and the difficulties experienced by Iran when it comes to increasing its output beyond 3.7 million barrels per day. Finally, stability in the markets and moderate prices will depend on the condition of the global economy. If we assume that we are facing over the medium term a period of weakened Western economies, and by extension weakened global demand for oil, the key factor will then be the condition of the emerging market economies (China, India, Brazil, and South Korea). So far, these have managed to shield their economies from the fallout of the downturn in the West, and eschew as much as possible the path taken by Western economies, despite the interconnected nature between the two in terms of their joint investments and mutual trade. Thus, a key consideration is the ability of the emerging countries to maintain this. In conclusion, any significant setback in the economies of emerging nations will no doubt adversely impact global demand for oil. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
