Not Over Till Its Over

Jim Brown
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Despite the fanfare and celebration in Tripoli the battle is not over. Even if Gadhafi is captured the fighting could continue for days or weeks. Yogi Berra once said, "It's not over till it's over" and that is definitely true in Libya.

Rebel forces have occupied most of Tripoli and at least three of Gadhafi's sons have been captured. He has seven sons and daughter and one son has already been killed. The troops defending the city and the Gadhafi compound gave up and joined the rebels but Gadhafi was nowhere to be found.

Gadhafi also has strongholds in the cities of Sirte and Sabha. He could be in hiding there or he as already fled the country. Until he has been found there is no real end to the confusion.

I wrote over the weekend that just winning the battle did not mean oil production would immediately restart. The Brent futures dove to $105 from $109 Sunday night but they quickly recovered as knowledgeable traders bought the dip knowing there would be no quick solution.

Despite the "victory" by the rebels NATO plans hit at least 40 targets in Tripoli over the last 24 hours and that suggests there is still a coordinated resistance by the government forces. Many of the government troops do not want to be captured by the rebels. Thousands of civilians have been beaten, raped, tortured, etc over the last six months in a campaign of terror designed to prevent civilians from rallying in support of the rebels. Many of those troops would be beaten, tortured and killed if captured by the rebels. Their only hope is to keep fighting but only to defend themselves not specifically in support of Gadhafi.

There are also some mercenary units still in the fight. Gadhafi brought in thousand of mercenaries from Africa to fight when some of his own troops refused to fight civilians or defected to the other side. Those mercenaries are suddenly out of work and their employer has disappeared. Now they have to figure out how to get out of Libya alive because the rebel troops will offer them no quarter if captured. They will have to fight to the death or fight to the border in hopes of escaping.

The Rixos hotel where foreign journalists are staying also remained under control of government forces.

Once Gadhafi is located the National Transitional Council will find itself with an entire set of new problems and one of the biggest will be restoring order. Altercations are already breaking out between civilians in Tripoli and the rebel forces. The rebels have been living off the land to some extent on their march to Tripoli. That means taking handouts from grateful citizens or simply taking what they need in the form of food, fuel and transportation. Civilians waiting in line for fuel on Monday became hostile when rebels drove up and demanded fuel for all their vehicles and an altercation ensued. How quickly the rescuers can become the villains once the bigger evil is no longer a threat.

The council has always expressed a desire to move the new government from Benghazi to Tripoli once the war was over. That may not be such an easy task. Benghazi is 12 hours by car from Tripoli but it is light years in terms of tribal loyalty and customs.

Tribes loyal to the NTC in Benghazi and responsible for the initial uprising, have no support in Tripoli. Groups in and around Tripoli have decades of hostility towards the outlying tribes. Coming up with an organization that can govern ALL of Libya without reverting to a military rule of some sort is going to be very difficult.

Factions in the oil rich communities are not going to be friendly to the NTC telling them what to do. Gadhafi was able to control all the factions by keeping them hostile at each other so they would not join together in revolt against him. He enforced his actions with a steel fist through the various military forces led by his sons. Without that steel fist to keep law and order the country could easily breakdown into regional entities similar to Iraq and the Kurds.

Keeping the country from breaking apart into a half dozen regional factions and maintaining order will be the first challenge for the NTC once the fighting is over. Providing food, health care, electricity and water, fuel and civil order is likely going to be a huge task for the next six months.

Finding time to put the oil industry back together may take a back seat to the urgent civilian problems.

The battles over the oil fields are already beginning. A manager at the Libyan oil firm, AGOCO, said they did not have any problems with Western firms as well as Italian, French and UK companies, going back to work in Libya. However, the new government had some political issues with Russian, Chinese and Brazilian companies who did not support the rebel effort.

Russia and China opposed the revolution and opposed NATO's help for the rebels. Italian firm ENI said it was making plans to restart production and oil and gas production could restart from some fields by winter.

Libya's former Oil Minister, Shokri Ghanem, who defected from his government position in May, told Reuters "some" oil output could be restarted in a few months but it would take up to 18 months or more before any large amount of production could be restarted. In a Reuters poll of energy analysts the majority felt it would take at least a year and probably two years before production resumed to any material pre war levels.

There were about 75 Chinese companies operating in Libya before the war with 36,000 employees and 50 projects. Russian companies Gazprom Neft and Tatneft had projects worth billions as did Petrobras. The director general of the Russian-Libyan Business Council told reporters "we have lost everything as a result of our lack of support for the NATO mission."

Total SA could be the big winner because they provided support for the rebels in terms of oil and fuel. You can bet the NTC will remember them when contracts are handed out.

U.S. companies Marathon, Conoco, Hess, Occidental and Suncor abandoned Libyan installations at the beginning of the war and had little direct involvement in future events. It is unknown how their return will play out with NTC. You would think the NTC would favor them because they can restart existing production quicker than turning existing fields over to new players. Marathon has been in contact with the NTC about restarting the Waha field. However, Marathon said it would not return employees until their safety could be guaranteed.

This is going to be a long and complicated process and I would seriously doubt if returning production depressed prices because of the long road ahead. It could take two years to recover the 1.0 mbpd that is not expected to come easily. In that period global demand is expected to rise by 2.8 mbpd while overall global production is only expected to rise by 1.4 mbpd. When Libyan production is fully restored it will have already been eclipsed by stronger demand growth.

Jim Brown

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