Libya's Energy Crossroads: Geopolitical Risks and Frozen Assets Amid De-Escalation Hopes

The Libyan energy sector stands at a precarious crossroads. Despite achieving a 12-year high in oil production of 1.23 million barrels per day in May 2025, the industry remains hostage to geopolitical volatility. Ongoing clashes, frozen assets worth billions, and external power plays create a high-risk, high-reward environment for investors. This article examines how de-escalation efforts—and their fragility—shape the sector's stability and opportunities.

Geopolitical De-Escalation: Fragile Progress, Persistent Risks

Recent truces, such as the May 14 agreement, have temporarily calmed violence in Tripoli. Yet, the assassination of militia leader Abdelghani al-Kikli in May reignited factional fighting, underscoring the fragility of political unity. The Government of National Unity (GNU) faces accusations of corruption and has lost public trust, while rival factions like the Government of National Stability (GNS) in the east exploit divisions.

The National Oil Corporation (NOC), Libya's energy lifeline, has managed to avoid direct disruptions to production, but its autonomy is challenged by militia control over infrastructure and external actors like Russia's Wagner Group. Meanwhile, international majors such as BP and Shell are testing the waters: BP aims to revive the Sarir oilfield (targeting 200,000 bpd), while Shell explores the Atshan field (1.68 billion barrels of oil equivalent).

The Frozen Assets Dilemma: A Double-Edged Sword

The Libyan Investment Authority (LIA), with $70 billion in assets—half frozen under UN sanctions—represents both a liability and a potential lifeline. In January 2025, the UN allowed partial reinvestment of frozen funds, but accrued interest and reinvested capital remain locked. This asset freeze limits the government's ability to fund infrastructure upgrades, refineries, or diversification projects critical to energy sector stability.

The NOC's 2025 tender, which revised Production Sharing Agreements (PSAs) to boost returns to 35.8% IRR—the highest in the sector—has attracted majors. However, without unfreezing LIA assets, Libya cannot modernize its oil infrastructure or address bottlenecks like its underperforming refineries (operating at just 90,000 bpd).

Investment Considerations: Risks vs. Rewards

Risks:
1. Political Instability: Renewed clashes or a collapse of the GNU could trigger force majeure declarations, halting production.
2. Infrastructure Decay: Aging pipelines and ports require $30 billion in upgrades—a sum unattainable without unfrozen funds.
3. External Influence: Russia's Wagner Group and Turkey's TPAO continue to exploit factional divisions, complicating governance.

Opportunities:
1. Strategic Location: Libya's proximity to Europe and OPEC's projected 3-million-bpd deficit by 2030 make it a swing supplier.
2. High Returns: BP's and Shell's ventures offer 35.8% IRR, among the highest globally, though risks are asymmetric.
3. Frozen Asset Unfreezing: If sanctions ease further, LIA funds could finance critical infrastructure, stabilizing production and attracting more investment.

Strategic Investment Advice

• Major Oil Companies: Invest in diversified portfolios of firms like BP or Shell, which have risk-mitigation expertise and access to NOC's PSAs. Avoid direct exposure to Libyan assets until governance improves.
• ETFs: Consider ETFs with African energy exposure (e.g., Africa Energy ETF) for diversified risk.
• Geopolitical Hedging: Pair energy investments with short positions in regional conflict stocks or gold as a safe haven.

Conclusion: A Fragile Window for Optimism

Libya's energy sector is a paradox: record production contrasts with systemic instability. De-escalation efforts have bought time, but lasting stability requires resolving governance disputes, unfreezing assets, and curbing external interference. For investors, Libya offers exceptional upside for those willing to accept geopolitical risk—a bet on the NOC's resilience and a thaw in the LIA's frozen billions.

The path forward is narrow, but for the bold, Libya's energy crossroads could become a bridge to significant returns.

Data sources: International Monetary Fund (IMF), National Oil Corporation (NOC), UN Security Council reports.