MUSCAT : On Monday, the eastern government of Libya, controlling three-quarters of the nation’s oil production, announced a complete shutdown of all oilfields, halting both production and exports. This bold move follows the Western administration’s removal of central bank governor Sadiq Al Kabir, intensifying the conflict between the two rival governments.

The Government of National Stability in Libya’s east, which oversees the majority of the country’s oil production, made the decision to cease operations in response to mounting tensions with the Western Government of National Unity. The removal of Sadiq Al Kabir, who played a key role in distributing oil revenues between the two factions, has further strained relations, raising fears of a broader Middle East conflict.

The suspension of Libya’s oil output has already begun to impact global oil prices. US crude jumped nearly 8 per cent in three sessions, driven by Middle East unrest and the Libyan disruption. According to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, this situation is a major contributor to the recent price hike. While oil prices are expected to rise in the medium term, concerns about slowing global growth may temper the increase.

Meanwhile, US Federal Reserve Chairman Jerome Powell hinted at potential interest rate cuts to boost economic growth, which could further elevate oil demand in the world’s largest economy. However, his comments at the Jackson Hole Symposium last week left the timeline for these cuts uncertain.

As tensions escalate, the oil market remains on edge. Opec has already lowered its global demand forecast due to weakening consumption in China, projecting a growth of 2.1 million barrels per day this year, a reduction from earlier estimates.

The situation in Libya, combined with rising Middle East tensions and the potential loss of up to 1 million barrels per day of oil supply, is heightening concerns about global energy stability. Brent and West Texas Intermediate (WTI) crude prices have fluctuated, with markets re-assessing the risk of prolonged disruptions.

Adding to the turmoil, Hezbollah’s recent attacks on Israel and the ongoing conflict in Gaza have further fueled uncertainty. The Iran-backed group launched hundreds of rockets and drones at Israeli targets, escalating the conflict and potentially destabilizing a region crucial to global oil supplies.

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