Libya is all set to export nearly 900,000 barrels of oil per month to Egypt, beginning this month.
Egypt is making use of the deal to try and pay off part of its obligations to various international energy firms and hopefully work towards rebuilding its battered economy.
Ever since President Mubarak was deposed back in 2011, Egypt has wrestled with political instability, falling currency reserves, and an ever-spiraling budget deficit. Sharp drops in tourism and civil unrest have not helped matters at all.
Reuters reports that Nouri Berouin, chairman of the Libyan National Oil Company, has stated it would be supplying Egypt with around one million barrels of crude every month, at world prices, in an effort to revive the economy.
The Prime Minister of Libya, Ali Zaidan, has also indicated that Libya is considering further financial aid to Egypt but has not yet come to a decision regarding the proposed $2 billion in aid. Reuters quotes an unnamed official of the Libyan central bank:
“Libya owns stakes in three banks in Egypt and companies in various sectors. We will invest whenever these companies need liquidity, debt repayments and capital for operation,” he said, declining to be identified.
“Our investments in Egypt are very strategic and we will do what’s needed to support that. Egypt’s security and stability are as important to us as our own,” he added.
It’s likely that this move will help Egypt gain some relief from the recent fuel shortages that have afflicted the nation, since Libya’s shipments will account for roughly 5 percent of Egypt’s oil demand. It is unclear how far beyond the typical six weeks the Libyan arrangement with Egypt may continue, but it is possible the deal may extend well beyond that.
Currently, Egypt is in the midst of negotiations to try and secure up to $4.8 billion in loans from the International Monetary Fund so as to shore up its finances.
Libya, meanwhile, has seen a surge in oil exploration and development, particularly as things have returned to normal in the wake of Muammar Gaddafi’s deposal. UPI reports that Tatneft, the Russian oil company, recently said that it would send its staff members back to Libya following preliminary meetings with the Libyan National Oil Corp.
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Prior to Libya’s civil chaos in 2011, Tatneft had invested in excess of $250 billion but then saw losses amounting to billions of dollars due to that nation’s civil uprising. Tatneft is also the first Russian firm to seriously enter Libya’s oil market after it bought up acreage when Libya held international auctions back in 2006.
However, Tatneft has not indicated whether, or when, it will resume oil exploration and production operations. The nation’s oil sector continues to undergo restructuring and remains somewhat unstable.
Last year, however, the Libyan economy rode on oil production to grow more than 100 percent, reports Middle East Online. From their reporting of the International Monetary Fund’s analysis:
“Economic growth in 2012 exceeded 100 percent, reflecting a strong recovery from its collapse during the revolution” which overthrew Moamer Gathafi, IMF team leader Ralph Chami said following a February 20-March 7 mission to Libya.
Libya is heavily reliant on oil and gas, which collectively account for more than 80 percent of GNP and nearly 97 percent of all export revenue. It may safely be said that as Libya’s oil and gas production and development operations return to normalcy, the nation’s economy will continue to improve.
In 2011, the country saw inflation hover around 11 percent. However, over 2012, that decreased to 6 percent, and further drops are projected over 2013. After Gaddafi’s removal, the UN sanctions long held over Libya were mostly removed; that has made for significant mobility when it comes to domestic and international trade.
However, Libya still has a long way to go in terms of combating corruption, compensating for lacking infrastructure, and generally undergoing development.
From the IMF report, in conclusion:
“Sustainable, employment-generating growth will require a business environment that is conducive to private-sector development with a focus on diversification of the economy to create employment opportunities in the private sector.”
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