Thursday, September 1, 2011

Libya’s oil issue

As Muammar Qaddafi’s defeat seems to be nearing, international energy markets are eagerly anticipating the resumption of Libya’s oil production.  Libya’s National Transitional Council (NTC) announced this week that the production would be back online in weeks not months and the pre-revolution contracts would be honored.  While a few offshore fields could resume operation soon, international oil markets anticipate the return of pre-war 1.6 million barrels per day in the months to come.  But expectations of a full-scale restoration of output may be too high given the ongoing chaos in Libya, shortage of foreign workers who fled the country and damages sustained by some oilfields and export terminals.  A lack of clarity on Libya’s future government and a course of its energy policy add to the uncertainty about levels of oil production.
While energy markets await Libya to profit from its oil wealth, some oil experts caution against oil bonanza and resource curse.  Contrasting one oil-rich country, Norway, to others that have suffered from oil curse, Financial Times ran a fascinating story in 2009 on how an Iraqi geologist helped organize Norway’s oil industry and carefully chart a course of its success.  According to Farouk al-Kasim, “fantastic self-restraint,” slow and prudent exploitation of oil, saving instead of wasting oil money, and a successful cooperation between the state and capitalistic entities were the fundamentally key factors of Norway escaping the resource curse.  Sharing his advice with Libya, al-Kasim said:  
For god's sake don't go very quickly about it. And then you have time to think in terms of institutions, legislation, transparency. Build up defenses against the oil curse as you go along. Take it slowly, make sure you don't create a bonanza that drowns all common sense.
But Libya is not Norway.  A prospect that a country with an institutional memory of a 42-year old dictatorship and in a chaotic transition to uncertainty will heed to al-Kasim’s advice is doubtful.  It may require a handful of Farouk al-Kasims within Libya to create the Norway-type miracle.

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