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Oil In Libya: Exxon’s Decision To Cut Back Should Not Surprise You

Oil in Libya: When politics and economics meet at a crossroad, the outcome can be disastrous. In Libya’s case, where Col. Muammar Ghadafi has been removed and no strong political leadership took his place, the effects over the county’s economy have been devastating. The following power vacuum continues to dry the nation’s economy, while political quarrels derive in sectarian violence and regional secession.

Rex W. Tillerson with gas pump

The recent announcement –declaring the eastern area (Cyrenaica) autonomous- by the Barqa Movement is different because of the individuals that lead the group. The orchestrators of the declaration are leaders of armed groups that have demonstrated their ability to control the ground. Especially significant is Saddiq al-Ghaiti, the former proxy assistant secretary to the Libyan defense minister who was in charge of securing the country’s borders and oil installations.

After the fall of Mr. Ghadafi, Mr. Ghaiti found himself at the top of the Ministry of Defense but fell afoul with the new Islamists in power due to his association with secularists, and was subsequently dismissed from his post. The announcement was not well received by all Arab tribes residing in the region, which refused to even take part in the assembly. Hence, it should come as no surprise that political analysts have warned that a conflict between the advocates of federalism and the central government may worsen.

Exxon Mobil Corporation (NYSE:XOM)’s decision to cut back operations in Libya should come as no surprise either. The world’s largest publicly-operated energy company announced last Tuesday that operations in the North African country will be reduced. The firm has made public its intentions to shorten staff and operations as a whole in response to recent security threats. Exxon is not the first oil company to see operations threatened in Libya, Royal Dutch Shell plc (ADR) (NYSE:RDS.A) left the country in 2012 after poor results and rising security issues.

Patrick McGinn, told Reuters reporters that “The security and business situation means we can no longer justify maintaining a large office presence in Libya.” Mr. Ghaiti´s decision has surely played a part in the decision made by the oil giant. On the other hand, the country’s new leadership has an incentive to return operations to normal as the economy continues to deteriorate. Check back here for more updates on oil in Libya.

Disclosure: Jodor Jalit holds no position in any of the stocks mentioned.

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