Libya positions its oil sector for renewed investment

Libya’s vast oil and gas resources continue to attract international interest, but deep political, fiscal and institutional weaknesses raise serious questions about whether that potential can be translated into reliable commercial returns, according to an analysis by Jonathan M. Winer, a former US diplomat and non-resident scholar at the Middle East Institute.

Winer draws a comparison with Venezuela, where despite holding some of the world’s largest proven oil reserves, international energy companies have judged the country commercially “uninvestable”. The comparison gained renewed relevance after ExxonMobil recently advised US President Donald Trump that Venezuela’s political fragmentation, sanctions exposure and payment risk continue to outweigh its geological appeal.

The same commercial logic, Winer argues, increasingly applies to Libya.

Strong geology, weak conditions

Libya holds Africa’s largest proven oil reserves and produces high-quality light, sweet crude, which is cheaper to refine than the heavy sour oil typical of Venezuela. In principle, Libya could significantly increase output. The National Oil Corporation (NOC) has long cited installed capacity of around 1.6 million barrels per day and has repeatedly pointed to higher production potential with sustained investment.

In practice, however, Libya’s post-2011 experience has shown how difficult it is to convert geological promise into durable energy production. Political fragmentation, economic mismanagement, payment arrears and infrastructure decay have repeatedly disrupted operations, even for major international oil companies.

Renewed interest, unresolved risk

Libya’s first upstream licensing round in more than 17 years has drawn strong international attention. The NOC is offering 22 onshore and offshore blocks under production-sharing terms, and several major operators have resumed or expanded engagement.

Italy’s Eni has restarted offshore exploration drilling after a multi-year hiatus, while BP and Shell have signed agreements to study hydrocarbon potential at multiple fields. Companies qualified to participate in the bid round include Chevron, TotalEnergies, ExxonMobil, OMV and Sonatrach.

On 24 January, Libya announced a 25-year development agreement with TotalEnergies and Chevron, involving an estimated $20bn in investment and targeting an increase in oil production of up to 850,000 barrels per day. NOC chairman Masoud Suleiman said the results of the bid round would be announced on 11 February.

Yet Winer stresses that the central issue for investors is not the availability of oil and gas, but whether Libya’s political and economic environment allows projects to deliver predictable returns.

Oil and fuel as political instruments

Libya remains divided between competing centres of authority, including an interim government in Tripoli whose mandate expired years ago and a rival eastern administration aligned with General Khalifa Hifter. Although national institutions are formally unified, they remain subject to persistent political interference.

While Libyan law designates the NOC as the sole authority for hydrocarbon contracting, its effectiveness depends on access to approved budgets, stable cash flow and institutional protection. In January 2026, Suleiman stated publicly that the NOC had received no approved operating budget throughout 2025, while debts to service companies continued to accumulate.

Historically, such arrears have been a clear warning sign, often preceding deferred maintenance, service-company withdrawals and subsequent production declines.

Libya’s oil output has shown resilience, averaging around 1.37 million barrels per day in 2025, the highest level in a decade. However, production remains highly vulnerable to political decisions. In August 2024, disputes over central bank authority led to the shutdown of multiple oilfields and export terminals, taking more than half of Libya’s output offline for weeks.

Fuel smuggling and gas decline

Disruptions to Libya’s energy system are systemic rather than episodic. Armed groups, political factions and local actors have repeatedly blocked production, exports or fuel distribution to extract concessions or apply political pressure.

Investigative reporting by The Sentry found that Libya’s subsidised fuel imports are widely diverted into smuggling networks controlled by armed and politically connected actors. The organisation estimated that fuel worth $6.7bn was siphoned off in 2024 alone, contributing to chronic shortages and inflated prices in the domestic market.

Gas production has emerged as a particularly sensitive indicator of institutional stress. Libya’s gas exports to Italy via the Greenstream pipeline fell by about 30% in 2025 to roughly 1.0 billion cubic metres, reflecting underinvestment, infrastructure degradation and fiscal strain rather than geological limits.

Currency pressure and payment risk

Libya’s fiscal and monetary pressures further complicate the investment outlook. With oil prices hovering around $60 per barrel, hydrocarbon revenues are insufficient to cover public wages, fuel imports and foreign-currency demand simultaneously.

On 13 January 2026, the Central Bank of Libya reported oil revenues of $287m for the month, compared with nearly $1bn in foreign-currency sales. Outstanding letters of credit from 2025 totalled around $4.3bn.

These imbalances pushed the parallel exchange rate briefly to nine dinars per dollar, before the central bank devalued the official rate by nearly 15% to approximately 6.37 dinars per dollar. For foreign investors, delayed or discretionary payments remain a critical deterrent.

Political support versus commercial reality

Winer argues that international political backing alone cannot resolve Libya’s investability problem. The UN-facilitated political process remains stalled, and external engagement has done little to address budget execution, payment discipline, exchange-rate management or infrastructure decay.

In some cases, political signalling may even worsen outcomes by raising expectations without improving execution, encouraging memoranda of understanding rather than final investment decisions.

Conclusion

Libya is not Venezuela. Its oil is higher quality, its reserves easier to develop, and its national oil company retains a degree of technical competence.

But the comparison remains instructive. Resource wealth does not equate to investability, and political enthusiasm does not overcome structural risk. Until Libya’s institutions can consistently pay contractors, honour contracts, maintain infrastructure and stabilise the broader economy, major energy investments are likely to remain constrained — regardless of diplomatic support or headline announcements.