Libyan Oil Isn’t Coming Back Soon

I’m hearing more and more people ask whether an early end to the fighting in Libya might bring Libyan oil back onto the market soon. I thought a quick note was in order to explain why the answer is no.

If Khadaffi manages to hold on, it will be brutal. There is no way that sanctions on Libya would be lifted quickly. The West might resign itself to a Khadaffi victory, but it will not be willing to line his pockets. Non-Western oil companies would be hard pressed to fill in, both because of technical demands, and because of the tricky international politics that would be involved.

In addition, regardless of who prevails, worker safety will be a lingering concern. Foreign oil companies are not going to send their workers back in until they’re confident that they’ll be safe. It will take some time for such confidence to be established.

It’s also worth remembering that prices are currently elevated in substantial part because of fears that unrest will spread. Resumed Libyan production would presumably free up spare capacity elsewhere to respond to further distruptions. But it would not remove basic concerns about contagion. Any market impact would thus be limited.