Libya-Turkey exploration deal to fuel long-standing political, regional rivalries

A preliminary deal allowing Turkey to engage in oil and gas exploration work in Libya was already reviving and fueling domestic and regional tensions, analysts and industry sources said Oct. 10.

A memorandum of understanding Turkey signed Oct. 3 with the Tripoli-based Government of National Unity says both parties have a "shared interest in ensuring exploration and development of, and increasing production of hydrocarbons of both countries".

The deal has already faced the wrath of some of Turkey's and Libya's rivals, and has also exacerbated political divisions between the west and east of Libya.

The Sirte-based Government of National Stability, and the Tobruk-based House of Representatives have opposed deal, while Egypt and Greece have already labeled Turkish exploration in Libya's Mediterranean waters as illegal.

Analysts at S&P Global Commodity Insights said the agreement "raises the risk of tensions" between in the east and west of Libya resuming, which could have a knock-on effect on the country's oil sector.

"We expect production to hold at 1.1 million b/d through year- end, given eastern general Khalifa Haftar's July 20 agreement with former rival [GNU PM Abdul Hamid] Dbeibah to end blockades," the S&P Global analysts said in a recent note.

"Resurging violence alongside shifting political alliances will continue to threaten production, which could fall just as quickly as it grew."

Libya's crude production has recently recovered to around 1.1 million-1.2 million b/d after former rivals, eastern general Khalifa Haftar and interim prime minister Abdula Hamid Dbeibah agreed a deal to end a long-standing oil blockade in mid-July.

Libya's oil sector has been severely impacted by ongoing political turmoil, with various groups seeking control of the state-owned National Oil Corp. and its revenue.

Iliasse Sdiqui, associate director at Whispering Bell, a risk management company covering North Africa, said Haftar's Libyan National Army could eventually be prompted to reconsider the use of force and explore alternative political paths to satisfy the interests of Egypt and other regional stakeholders.

"Politically, the development would encourage Egypt, Greece, France and other EU countries to double down on their support for the GNS and diplomatic efforts to unseat the GNU," Sdiqui said.

Exploration focus

In the MoU, seen by S&P Global, the two parties agreed to work together on the "development of projects related to exploration, production, refining transportation distribution and trade of hydrocarbons".

The deal also said the NOC will invite Turkish upstream company Turkiye Petrolleri Anonim Ortakligi to participate in onshore and offshore projects in Libya

The two companies are encouraged to establish joint ventures and partnerships, seismic research vessels and drill ships available in Turkey.

Sdiqui said Turkey was well aware it was required to have a physical presence in eastern Libya and obtain the buy-in of Haftar to engage in offshore exploration in the east.

"While Turkey has engaged in outreach efforts to woo eastern stakeholders over the past few months, Ankara is yet to build a strong enough support base that can be leveraged for commercial operations," Sdiqui said.

Ankara's gas exploration in the waters offshore Cyprus and plans to drill offshore Greece over the past few years have faced the wrath of Europe and other regional countries.

Turkey and Greece have long been at odds over the division of maritime zones in the Mediterranean and the Aegean.

Turkey maintains that international law allows for a continental shelf to be measured only from a "mainland", and not from islands sitting on that continental shelf, while Greece says the shelf extends from islands also.

Turkey has used its interpretation of international law as the basis for its drilling in some areas around Cyprus, which it claims also lies on its continental shelf.