Libya’s National Oil Corporation needs reform – and fast

Alamy via Reuters

Following the departure of Farhat Bengdara, chairman of the Libyan National Oil Corporation (LNOC), the embattled state body faces more challenges in the midst of an already volatile political landscape.

Bengdara had several disagreements with Abdul Hamid Dbeibah, prime minister of Libya’s internationally recognised government in Tripoli, over his management of the oil company’s funds.

The ex-chairman’s hasty exit resulted in the appointment of Masoud Sulaiman as acting head. As a current board member with deep expertise in LNOC operations, Sulaiman is at least highly familiar with the industry. Previously, he chaired Sirte Oil Company, an LNOC subsidiary.

A new beginning?

Oil and gas accounts for around 95 percent of the Opec member’s revenues, while eastern Libya – under the control of Khalifa Haftar – produces about two-thirds of its oil. The LNOC has oversight of Libya’s oil revenues.

In a recent interview with National Libyan TV, Sulaiman outlined LNOC’s strategic plan to increase oil production from its current 1.4 million barrels per day to a long-term target of 2 million bpd.

Last month, the chairman revealed that nearly 1,000 oil wells under LNOC remain shut and emphasised the urgent need for funding to encourage local companies to participate in exploration, field development and maintenance. 

To address some of LNOC’s escalating challenges, the chairman has issued a decree limiting direct appointment orders, mandating that all contractual procedures follow a transparent bidding process. 

Sulaiman is also taking steps to restructure LNOC, streamline its operations and potentially shut down recently established overseas subsidiaries. 

Such a move could affect Mediterranean Oil Services, which has offices in Düsseldorf, Dubai and a newly opened branch in Istanbul, as well as Murzuq Oil Services in London and LNOC’s procurement office in Houston.

Tackling the barter system 

Since Libya’s first commercial oil export in 1961, petroleum has been the backbone of its economy. Relatedly, the country has suffered from the “Dutch Disease” over the last six decades, a term describing its overreliance on oil revenues while failing to diversify or liberalise its economy.

Furthermore, a practice known as the “barter system” has decimated Libya’s crude revenues over many years. The phrase refers to the exchange of crude oil for refined fuel products rather than selling it on international markets. 

This practice was legally introduced several decades ago as an emergency measure to help manage urgent payments and prevent delays in financial circulation given squeezed refinement capacity. However, the system has been increasingly exploited in the last two years.

Historically, annual crude-for-fuel swaps ranged between $2 billion and $4 billion, but in the past two years, this figure has more than doubled. A 2023 report from the Libyan Audit Bureau revealed that over $7 billion had been spent without being recorded in the Ministry of Finance’s accounts. 

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Concerns mounted further when the Prime Minister of the National Unity Government issued a decree granting a newly formed company a 40 percent stake in two major oil fields.

These recent developments have been flagged by experts, citing them as potential violations under the “prevention of illicit export of petroleum, including crude oil and refined petroleum in and from Libya.” In fact, these concerns were formally addressed in UN Security Council Resolution 2769 (January 2025).

Sulaiman has enacted steps to curb “bartering” by directing managers to review the crude oil shipment programme, prioritise direct transactions with refineries (not intermediaries) and ensure sales comply with LNOC’s policies.

Potential crisis ahead

LNOC was established in 1968 as the Libyan General Petroleum Corporation with its headquarters in Benghazi in the kingdom of Libya era. Today, based in the capital Tripoli, LNOC and its 15 subsidiaries, joint ventures and overseas companies all face severe challenges, which threaten its stability and credibility in international oil markets. 

Without rapid reform of the country’s oil sector, a national financial crisis could be on the cards, with public sector salaries at risk within months. 

The coming months will be crucial in determining Libya’s economic and political direction. The country must proceed with caution and seek technical assistance from advanced economies and organisations capable of offering practical sustainable solutions. 

A sudden halt to the crude oil swapping programme without a viable alternative could be catastrophic, effectively crippling Libya’s economy.

Salem Maiar is a consultant in Libyan natural resources, finances and geopolitics