Hendra Wijaya
The ongoing US-Israel war on Iran has sent shockwaves through global energy markets, pushing European nations to urgently search for alternative suppliers and trade routes across the Mediterranean. This scramble has elevated the strategic importance of North African states, with Algeria leveraging its established gas export infrastructure, Egypt offering refining capacity and Suez Canal access, and Libya emerging as a potentially pivotal player in Europe's diversification efforts.
Libya's hydrocarbon endowment is substantial by any measure. The country holds approximately 48 billion barrels of proven oil reserves—the largest on the African continent—and currently produces around 1.5 million barrels per day. Its natural gas reserves are also considerable, and its geographic position offers direct access to European markets through Mediterranean shipping lanes and the Greenstream pipeline, which links the Mellitah complex to Italy.
While Libya cannot realistically substitute for Gulf producers in terms of sheer export volume, it can nonetheless become a significant contributor to global diversification strategies, extending beyond Europe to other international markets. The central question facing the country is whether it can capitalize on this moment despite deep structural constraints and persistent insecurity.
The paradox at the heart of Libya's energy sector is striking: the nation is simultaneously a major exporter and a state plagued by energy insecurity. Despite its vast reserves, Libyan citizens endure regular electricity blackouts caused by an inefficient domestic energy system. More than 70 percent of the country's gas production is consumed locally, primarily for power generation, leaving insufficient supply to meet both domestic demand and export commitments.
The consequences for gas exports have been severe. Shipments declined from roughly 200 billion cubic feet in 2019 to just 35 billion cubic feet in 2025—the lowest level in 22 years. Compounding this shortfall, at least 200 billion cubic feet of gas is flared annually due to underdeveloped infrastructure, representing a wasted resource that could otherwise generate electricity, support industrial development, or boost export revenues.
The financial burden of Libya's energy subsidies is enormous. The International Monetary Fund has estimated the total cost at approximately $17 billion, equivalent to roughly 35 percent of GDP—among the highest ratios worldwide. A substantial portion of these funds subsidizes imported refined fuels, a necessity created by the country's underdeveloped domestic refining capacity, which cannot meet local demand.
These challenges are further exacerbated by Libya's political fragmentation, institutional disputes, and periodic production disruptions linked to conflict. The risk is clear: increasing exports without addressing domestic energy problems could improve energy security abroad while neglect continues at home, potentially fueling further instability in an already fragile nation.
The global energy crisis presents Libya with a genuine opportunity to boost hydrocarbon revenues, but it also carries significant dangers. As analysts have noted, heightened demand for Libyan oil and gas could reinforce the economic model the country has struggled to escape for decades—one based on extracting resources, exporting them, distributing revenues, and postponing structural reform.
This pattern traps Libya in the so-called "resource curse," a phenomenon that promotes economic stagnation and inefficiency while preventing the country from capturing the full economic potential of its resource wealth. Breaking free requires using increased energy proceeds to transform the domestic energy system, not merely to sustain existing patronage networks.
A comprehensive reform agenda would include capturing flared gas, modernizing electricity generation and transmission infrastructure, expanding domestic refining where economically viable, reforming subsidy structures, investing seriously in renewable energy, and participating in sustainable regional energy cooperation. Libya's National Sustainable Energy Strategy aims to generate 22 percent of electricity from renewable sources by 2035—an ambitious target requiring major improvements in security and governance conditions. Increased revenue flows could help jump-start this process.
The country's approach to heightened foreign interest will also prove critical. Libya's first major oil and gas licensing round since 2007 concluded in February, with major international companies securing new licenses. Among the winners were Chevron of the United States, Eni of Italy, QatarEnergy, Repsol of Spain, MOL of Hungary, Aiteo of Nigeria, and TPAO of Türkiye.
Commercial and geopolitical interests are rarely separable in the energy sector, and for Libya this dynamic creates genuine bargaining power—if managed coherently. Rather than allowing the country to become an arena where external actors compete for individual assets and relationships, Libyan authorities could leverage diversified partnerships to attract investment and technology while reducing dependence on any single partner.
The transformation Libya seeks should extend beyond its borders. A strategic objective of becoming an integral player in a Mediterranean energy hub would involve expanding cooperation with neighboring states and leveraging existing production capacities and infrastructure. To Libya's east, Egypt possesses a large electricity system and significant refining and processing capacity. To its west, Tunisia provides access toward the wider Maghreb region and increasingly toward European markets. Libya sits between them with enormous hydrocarbon resources, considerable solar potential, and existing energy connections with both neighbors.
Steps toward deeper regional energy integration are already underway. In January, Egypt and Libya signed an energy cooperation agreement covering exploration and the development of crude-oil refining. The two countries are also discussing further collaborative opportunities, signaling a recognition that pooled resources and shared infrastructure may offer the most viable path toward maximizing the region's energy potential.
For Libya, the convergence of global energy insecurity and regional integration momentum presents a rare window of opportunity. Whether the country seizes it or falls back into familiar patterns of dysfunction will depend largely on whether its leaders can forge a coherent strategy that balances export ambitions with domestic energy needs—and whether they can resist the temptation to simply distribute short-term windfalls rather than invest in long-term transformation.
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