Al-Shalwi: Is the Drop in Oil Prices After the Hormuz Agreement Bad News for Libya?

Written by: oil and economic expert “Monsif Al-Shalwi”

Global oil markets witnessed a noticeable decline in Brent crude prices over the past hours following the announcement of an understanding between the United States and Iran that includes reopening the Strait of Hormuz and restoring normal maritime traffic. This pushed markets to shed a significant portion of the “geopolitical risk premium” that had been added to oil prices over the past months.

With every drop in oil prices, a legitimate question is repeatedly raised inside Libya:

Does this mean a direct loss for the Libyan economy?

The objective answer is:

Not necessarily. The picture is more complex and balanced than many assume.

First: Why did oil prices fall in the first place?

It is important to remember that a significant part of the recent rise in oil prices was not due to a real increase in global demand, but rather due to market fears of supply disruptions from the Arab Gulf region and the potential closure or restriction of navigation in the Strait of Hormuz, through which nearly one-fifth of global oil trade passes. When signs of de-escalation and agreement began to emerge, those fears eased, and prices fell automatically.

In other words:

The market did not lose actual oil supply; it lost part of the “fear premium.”

Second: What does this mean for Libya?

In theory, yes, a decline in Brent prices leads to lower oil revenues for the Libyan state if it continues for a long period.

However, in practice, the other side of the equation must be considered.

Libya is not only a crude oil exporting country, but also:

• A major importer of gasoline
• A major importer of diesel
• An importer of mazut and other petroleum products
• An importer of part of its gas and fuel needs for power plants indirectly

Therefore, a decline in global oil prices usually leads to lower prices for refined petroleum products that Libya imports.

Third: Where does the paradox lie?

In recent years, the fuel import bill in Libya has become one of the largest items of foreign currency expenditure.

Public opinion in Libya has recently seen large figures related to gasoline and diesel imports, reaching unprecedented levels in some months.

Therefore, lower global oil prices do not only mean lower revenues, but also mean:

• Lower cost of imported gasoline
• Lower cost of imported diesel
• Lower cost of mazut
• Lower shipping and maritime insurance costs
• Lower operating costs for part of the electricity system

Here, the process of economic balancing begins.

Fourth: What is the most important factor?

The most important factor is not oil prices alone.

It is the difference between:

the value of oil exports and the value of imported oil and fuel products.

If oil prices fall by 10%, for example, but the fuel import bill falls by the same percentage or more, the net impact on the economy may be limited or even positive in some cases.

For this reason, any development in oil prices cannot be judged from a single angle.

Fifth: What about the Libyan citizen?

The Libyan citizen does not usually feel global oil price fluctuations directly due to the local subsidy system.

But what matters to him is:

• Electricity stability
• Fuel availability at stations
• Exchange rate stability
• Price stability and inflation control

If lower global fuel prices help reduce the import bill and ease pressure on foreign currency, this may indirectly reflect positively on the economy.

Sixth: Should we be concerned?

Real concern is not about oil falling from $100 to $85, for example.

Real concern arises when prices fall to low levels for long periods, such as below $60 or $50 per barrel, because that affects the state’s ability to finance public spending and development projects.

As for current prices, despite their decline, they remain at historically good levels compared to long-term averages.

Conclusion

It is a mistake to view falling oil prices as bad news for Libya in absolute terms.

It is also a mistake to always consider rising prices good news.

Today’s Libyan economy stands in a middle position between being a crude oil exporter and a major importer of refined fuel. Therefore, any objective assessment must consider both sides of the equation together.

The most important lesson from these developments is that the future of the Libyan economy should not remain hostage to oil price fluctuations alone, but should move toward increasing local refining, reducing fuel imports, and maximizing the value added from every barrel produced.

When a state produces oil and refines more of it locally, it becomes less affected by price rises or drops and more capable of protecting its economy from global market volatility.

Therefore, the real issue that should concern Libyans is not only the price of Brent today, but how many barrels of gasoline, diesel, and mazut are still being imported, and how many opportunities remain to transform Libyan oil from a raw export commodity into a source of added value within the national economy.