Libya's National Oil Company on Sunday declared force majeure at its Zawiya Refinery after clashes inflicted damage in the facility, threatening to throw another wrench into the Opec member's export commitments and economic progress.
NOC said the declaration was a "level three" or "highest" emergency, after gunfire in the refinery's vicinity caused "significant damage" to storage tanks that led to "serious fires", the company said. It did not identify the belligerents, although Libyan news website Almarsad reported that the fight was between two tribes.
While the fighting has since calmed down, NOC has yet to provide any updates on the damages and when it would lift the force majeure, which is used to describe unforeseeable circumstances that prevents an entity from fulfilling an obligation in a contract, and is often included as a clause in company deals as protection from any liabilities.
"The continued risk of similar damage to the refinery’s storage tanks, which contain highly flammable materials, poses a grave danger to civilian lives," NOC said.
Zawiya is currently Libya's second-biggest crude refinery, with a capacity of 120,000 barrels per day, behind only the 220,000 bpd at the Ras Lanuf refinery. Other smaller facilities are in Tobruk with 20,000 bpd and Brega and Sarir, both with about 10,000 bpd each.
Zawiya is the key to Libya's economy, especially amid economic and political turmoil. As of 2023, the value of the country's petroleum exports was at nearly $30.7 billion, which is almost 85 per cent of all exports, Opec data shows.
Libya’s economy is heavily dependent on oil and gas. Last year, the sector accounted for about 97 per cent of the country's exports, more than 90 per cent of fiscal revenue and 68 per cent of gross domestic product, according to data from the African Development Bank Group.
The country's economy grew a healthy 12.6 per cent last year after a recession-riddled 2022, on the back of sustained oil production made possible by an improved security situation, driven by private consumption and exports, the Abidjan-based lender said.
However, Libya's situation has remained unstable, which has the potential to turn off companies from investing in the country, as the political and stability situations may cause oil price fluctuations, which may potentially harm the security of investments and profitability.
Sunday's move was not the first time NOC was prompted to use force majeure this year. In August and September, the company made similar actions at the Sharara, El Feel and Es Sider oilfields amid political tension in the country. Before those closures, Libya's oil production stood at 1.2 million barrels per day.
That oil disruption also prompted the International Monetary Fund this week to lower Libya's economic growth forecast for 2024, although it upwardly revised its figure for 2025 due to the expected rebound in production.
In its World Economic Outlook released in October, the IMF projected Libya's GDP to moderate at 2.4 per cent growth this year before rising to 13.7 per cent next year, before settling at 2.3 per cent in the medium term.
Libya has some of the cheapest, largely sweet oil in northern Africa. But much of it remained offline following a bloody civil war that erupted between rival factions after the downfall of Muammar Qaddafi in 2011.
The Opec member held nearly 4 per cent of the world's proven oil reserves, with about 48.36 billion barrels at the end of 2023, making it also the largest in Africa, data from the group shows.
However, since 2020, oil production has been relatively stable in the Opec producer at between 1 and 1.1 million barrels per day, except for a short period in May to June 2022. NOC aims to bolster oil production to 2.1 million bpd by 2025, from about 1.2 million bpd currently.
Libya has also announced plans to raise its gas production to 4 billion cubic feet a day in the next three to five years, from the current levels of 2.5 bcf per day, as it focuses on expanding its natural gas resources, its oil and gas minister Khalifa Abdulsadek said in November.