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Oil prices jumped to the highest in almost two weeks on Monday following reports that Libyan production had been shut down over political wrangling between its two governments.
Brent crude futures were up 2.5 per cent to $80.97 a barrel by midday in New York, while the US benchmark, West Texas Intermediate, gained almost 3 per cent to $77.04.
Tensions have also been high in the Middle East. On Sunday, Israel’s military launched a wave of air strikes in southern Lebanon, raising fears of a ratcheting-up of regional tensions, but it was the Libyan news that pushed oil prices noticeably higher, analysts said.
“In recent weeks oil prices have downplayed geopolitical risks because there has been no major disruption of supply. That could change,” said Phil Flynn of the Price Futures Group.
Libya exports about 1mn barrels a day of crude, according to Opec figures, with most of the production in the east of the country.
The north African oil-exporting country has been in chaos since the Nato-backed uprising in 2011 that toppled Muammer Gaddafi.
On Monday, the country’s eastern government, which is not recognised internationally, said it would shut down all production and exports, which analysts said was part of an escalating power struggle between its two rival factions over the position of the central bank governor.
Abdul Hamid Dbeibeh, prime minister of the Tripoli-based government in the west, has been trying to replace Sadiq al-Kabir, governor of the Central Bank of Libya. The central bank holds billions of dollars in oil revenue, which is Libya’s only source of income.
Kabir, who is backed by the east-based parliament, has refused to step down, although a delegation from the Dbeibeh government is reported to have taken over the premises of the bank. He also has the support of Khalifa Haftar, the warlord who controls eastern Libya.
“The oil shutdown is a negotiating tactic,” said Wolfram Lacher, Libya specialist at the German Institute for International and Security Affairs. “Everyone will now negotiate over the leadership of the CBL.”
He said it was “clear by now” that Dbeibeh’s attempt to replace Kabir and the CBL board “was not working”, and that although the government delegation has physical control of the bank premises it could not run it.
“To do that it would require recognition by foreign partners of the new leadership as legitimate and that depends on domestic acceptance of this change,” he said. “The move is being seen as entirely illegal.”
Repeated attempts by the UN to hold elections and unite the country under one government have failed. Under UN security council resolutions, only the central bank in Tripoli is authorised to control and disburse the oil revenues. Kabir has been in his position since 2012.