Prime Minister's Abduction Reflects Growing Political Risks

BMI View: Libyan Prime Minister Ali Zeidan's abduction on October 10 highlights the country's elevated political instability, which is reflected in our short-term and long-term political risk ratings. Instability will hinder the country's energy export capacity, which will result in upside pressures for global oil prices over the coming quarters.

Libyan Prime Minister Ali Zeidan was seized from the Corinthia Hotel in Tripoli in a pre-dawn raid on October 10 and held for several hours by armed militiamen. The government said that the premier was taken by two groups called the Libya Revolutionaries Operations Room and the Crime Combating Authority, based on false information that the public prosecutor had issued an arrest warrant for him. The prime minister was reportedly held at the interior ministry anti-crime department in Tripoli, before local armed residents backed by brigades from nearby districts rescued him during the day.

The motives of the abduction remain unclear. The militias justified the raid by saying that Zeidan should be indicted for corruption for aiding U.S. forces in their capture on October 5 of Abu Anas al-Liby in Tripoli - a Libyan citizen suspected of involvement in the 1998 bombings of US embassies in Kenya and Tanzania that killed 224 civilians. The seizure was widely criticised in Libya as a breach of the country's sovereignty by the US. Although Zeidan had expressed surprise about the US operation, that failed to convince his critics, given that US Secretary of State John Kerry had previously stated that the Libya government had been informed of the mission. We believe that the abductors' motives might be more wide-ranging. For instance, Zeidan said on October 7 that Libya was being used as a base to export weapons throughout the region, and called on the West to help stop militancy in the country. Earlier, the prime minister appealed for British help to remove weapons from the country in September. Such moves are likely to have antagonised some of the hundreds of armed militia groups which effectively control different swathes of Libya's territory and are outside the central government's control.

Political Risks Unlikely To Abate
MENA - Political Risk Rating, Out of 100

Whatever the motives of the abduction, it indicates once more that the political situation in Libya has been deteriorating steadily over the past few months, with the Libyan government facing a myriad of challenges. In an attempt to control the militias, Tripoli has sought to put some of them under the payrolls of the defence and interior ministries. However, their allegiances remain in doubt. The two groups held responsible for the abduction are affiliated with the interior ministry, which shows that Zeidan's government is unable to exercise its authority over elements near the state as well as over non-state political actors.

In addition, the country's largely uncontrolled territory is an ideal breeding ground for hardline Islamist organisations such as al-Qaeda in the Islamic Maghreb (AQIM) group, an offshoot of the global Jihadist organisation. AQIM used northern Mali as its base of operations until the French military intervened in the country earlier in 2013. Reports are suggesting that southern Libya, an area largely outside of the control of the central government, has recently become a new base for al-Qaeda fighters. Finally, power groups in several regions are increasing their calls for independence. This challenge is clearest in the eastern Cyrenaica region, long an anti-Qadhafi stronghold and the area in which much of the country's hydrocarbon wealth is located. Protesters in Cyrenaica have caused significant disruptions to upstream and downstream operations in the oil industry over the past few months, and threatened to sell oil independently for the region.

We have recently lowered our short-term political risk rating to 39.8 from 41.0 out of 100, owing to a decline in the 'social stability' component ( see 'Security Risks On The Rise', August 9), and we flag that further downward revisions might be on the cards. Libya's long-term political risk rating, at 27.5, is also among the lowest in the Middle East and North Africa region (MENA), reflecting our view that the country's political transition will remain difficult over the longer term.

Instability Reflected In Global Oil Prices
Brent - Crude Oil Prices, US$/bbl

Brent oil prices came in at US$111.5 per barrel on October 11. Prices increased by 2.3.% on October 10, largely as a result of worries that heightened political risks in Libya following Zeidan's abduction could threaten the country's export capacity. As a result of the aforementioned disruptions in the hydrocarbon industry, oil production in Libya averaged 575,000 barrels a day (b/d) in August, the lowest level since a rebellion toppled the country's former ruler Muammar Qadhafi in 2011. Although production has subsequently increased as a result of the re-opening of its major western fields of El Sharara and El Feel, oil production currently averages approximately 700,000b/d, of oil in total, less than half the levels seen before 2011. We believe that political instability will continue to hit Libya's energy exports going forward. BMI's Oil & Gas Research team projects net hydrocarbon exports declining by 46.7% and 5.0% in real terms in 2013 and 2014, respectively, which will result in upside pressures for global oil prices over the coming quarters.

This article is tagged to:
Sector: Country Risk
Geography: Libya, Libya, Libya, Libya

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