Analyst: Lengthy disruption to Libyan oil supply likely

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 3 -- Even as rebels took control of key oil facilities at Brega in eastern Libya, the country’s 2-week-long civil war appears to have reached a deadlock, with higher oil prices the likely outcome.

“In recent days, rebel forces have successfully beaten back attempts by the regime to retake towns and strategic sites, but thus far there is no sign of an imminent assault against Qadhafi's power center in Tripoli,” said analyst Raymond James & Associates.

As a result of the standoff, the analyst predicted that, “An extended period of conflict—with commensurately lengthy disruption to oil supply—is looking even more likely than before.”

The disruption of supplies from Libya already is having an impact on European countries, according to International Energy Agency Executive Director Nobuo Tanaka, who added that the situation could worsen if violence in the northern African country persists.

The IEA official told Dow Jones Newswires that speculation was partly to blame for sharp oil price movements. “The market is tightening because of economic recovery, but certainly speculation has a role and amplifies volatility,” he said.

Still, Tanaka said supplies are plentiful, as “the Organization of Petroleum Exporting Countries and Saudi Arabia have enough spare capacity and are ready to produce more.”

Meanwhile, in an effort to break the deadlock, rebel forces in eastern Libya have called on international powers to launch airstrikes—a call that has so far gone unheeded in Western capitals, wary of deeper implications for wider conflict.

“Let's just call a spade a spade: A no-fly zone begins with an attack on Libya to destroy the air defenses,” said US Defense Sec. Robert Gates, who added that such an operation would require more warplanes than are on a single US aircraft carrier.

US Sec. of State Hilary Clinton underlined deeper concerns in Washington over helping the rebel-held area of east Libya, saying that “many of the al-Qaeda activists in Afghanistan and later in Iraq came from Libya and came from eastern Libya, which is now the so-called free area of Libya."

The remarks by Gates and Clinton echoed earlier comments by France's Minister for European Affairs Laurent Wauquiez who explained his country’s objection to the proposal of establishing a no-fly zone or any other form of military intervention in the North African country.

“We have to be careful about the political signal to the Arab world,” Wauquiez told OGJ. "Might it not work against us by saying: the West is assaulting us because there is oil in Libya.”

Contact Eric Watkins at hippalus@yahoo.com.



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