Prof. Miral Sabry AlAshry
In press statements, former Deputy Governor of the Central Bank of Libya, Ali al-Hibri, issued a warning about dangerous economic indicators threatening Libya. He warned of the repercussions of a lack of transparency and increasing uncontrolled government spending, given Libya’s near-total reliance on the oil sector as the primary source of national income.
The collapse in oil prices to their lowest levels in four years has sparked speculation that markets could see prices drop to $40 per barrel. Goldman Sachs expects oil prices to decline significantly by the end of 2025 and 2026, based on several scenarios linked to developments in global markets. First, Goldman Sachs lowered its forecasts for average Brent and WTI crude prices for 2026, citing increased recession risks and the potential for increased OPEC+ supply. Second, in the worst-case scenario, Goldman Sachs estimated that Brent crude prices would fall below $40 per barrel by late 2026.
In its oil price forecast, Goldman Sachs estimated that Brent and WTI crude prices would reach $62 and $58 per barrel by December 2025, and around $55 and $51 by December 2026, based on two assumptions. First, the US economy will avoid a recession due to the significant reduction in tariffs scheduled to be implemented on April 9, 2025. Second, supply from eight OPEC+ member countries will increase moderately, with two final increases of between 130,000 and 140,000 barrels each. Under a US recession and OPEC’s baseline scenario, Brent crude oil prices are projected to fall to $58 by December 2025 and $50 by December 2026.
Under a slowing global GDP scenario, with OPEC’s baseline unchanged, Brent crude oil prices are projected to fall to $54 by December 2025 and $45 by December 2026. This slowdown in global GDP and the complete elimination of OPEC cuts could lead to a supply adjustment from non-OPEC countries. Oil prices are likely to exceed expectations given a sharp decline in tariff policy. This is why US President Donald Trump escalated his threats to impose tariffs on China on Monday, April 7, 2025. The European Union has drawn up plans to impose retaliatory tariffs in response to the US decisions, increasing fears of a protracted trade war that could push the global economy into recession.
The collapse in crude oil prices has caused a decline in Venezuelan oil exports due to taxes imposed by President Donald Trump on countries that buy from Venezuela. Kazakhstan’s oil exports have fallen due to the recent agreement with the G8 OPEC+ alliance.
Libya is on the brink of collapse in the near future as the state’s budget break-even point relies heavily on oil prices stabilizing at no less than $72 per barrel. Any drop below this threshold could lead to severe financial imbalances, directly affecting the state’s ability to fulfill its operational and developmental commitments.
It was noted that the National Oil Corporation (NOC) had been allocated around 34 billion Libyan dinars to increase production to two million barrels per day. However, the fate of this expenditure remains uncertain, with concerns raised about its lack of transparency. Libyan citizens are unaware of whether concrete steps have been taken to reach this production goal, which is crucial for achieving a temporary economic equilibrium.
In order to address the structural challenges facing the national economy, particularly its heavy reliance on the oil market and lack of diversified income sources, the Libyan government must disclose its economic policies and develop a clear strategic plan that is transparent, monitored, and accountable. Economic sustainability hinges on effective fiscal policy implementation, promoting foreign direct investment, and enhancing the productivity and efficiency of the private sector to reduce dependence on government spending.
Recent data shows that Libya is facing a severe fiscal deficit of $1.5 billion, as total oil revenues amounted to $778 million while foreign exchange disbursements reached approximately $2.3 billion. This financial crisis is attributed to various structural economic issues, including low oil revenues relative to production and global prices, as well as a significant increase in fuel import costs, which consume about 45% of oil revenues.
Excessive government spending by the two rival governments has led to a significant increase in demand for foreign currency. This is due to the absence of effective policies to control imports or support local production. As a result, 60% of oil revenues are now being used to cover imports. Non-oil revenues have almost completely collapsed, no longer covering even 1% of public spending. This is exacerbated by the malfunctioning of monetary policy tools and the increasing money supply both inside and outside the banking system.
The escalation of smuggling of fuel and goods to neighboring countries is contributing to the worsening foreign exchange crisis. This is putting increasing pressure on the national economy. Without radical solutions or effective regulatory measures, the situation is likely to continue deteriorating.
Libya is indicating a major fundamental flaw in the management of its economy. This issue seems to be out of everyone’s control as long as they continue to operate independently without comprehensive coordination. The absence of a framework regulating public spending and the lack of a clear fiscal and monetary policy from the Central Bank are leading to the continued collapse of the economy. The economic situation in Libya is suffering from a severe crisis that requires swift action and a comprehensive policy. The economic deterioration will continue, and the consequences will be disastrous at all levels. Libya needs comprehensive coordination among all stakeholders to manage the economy and a clear fiscal and monetary policy to restore stability to the country.
The narrowing of the Brent market’s downward trend, a market structure in which spot futures prices are higher than supply at a later date, indicates growing investor concern about declining demand for crude oil and the possibility of a supply glut. Trump’s tariffs on China began at 104%, adding a 50% increase after Beijing failed to raise its retaliatory tariffs on US goods. Beijing also vowed not to succumb to what it called US blackmail after Trump threatened to impose an additional 50% tariff on Chinese goods if the country did not lift the 34% retaliatory tariffs.
China’s aggressive response weakens the chances of a quick agreement between the world’s two largest economies, raising growing fears of a global economic recession. Growth in Chinese oil demand, which currently stands at between 50,000 and 100,000 barrels per day, is at risk if the trade war continues. However, a stronger stimulus to boost domestic consumption could mitigate the losses.
The decline in oil prices was worsened by the decision of OPEC+, which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, to increase production in May by 411,000 barrels per day. Analysts believe this move will push the market into a surplus.
Goldman Sachs expects Brent and WTI crude prices to drop. West Texas Intermediate (WTI) crude oil prices are projected to fall to $62 and $58 per barrel by December 2025, and to $55 and $51 per barrel by December 2026. With the decline in oil prices, the price of Russian ESPO crude oil fell below the $60 per barrel price ceiling for the first time ever. Data from the American Petroleum Institute showed that US crude oil inventories fell by 1.1 million barrels in the week ending April 4, compared to expectations in a poll for an increase of about 1.4 million barrels.
In Libya, oil production declined by 8.5% in 2024 due to the crisis in the Central Bank of Libya, dropping from 1.17 million barrels per day to 0.54 million barrels per day in September. Production increased to 1.3 million barrels per day by the end of October. Oil prices remained at around $80 per barrel, as they were in 2023, amid declining global demand, particularly from China, and rising regional geopolitical risks.
Libya’s economic trends over the past decade have been severely impacted by ongoing instability, with losses estimated at approximately $600 billion over ten years in constant 2015 dollars. Libya’s GDP increased by 74% in 2023. Key challenges also include heavy reliance on oil, lack of diversification, low productivity, and deteriorating healthcare and education quality. In the medium term, Libya faces the challenge of diversifying its economy and reducing its dependence on hydrocarbons. Stability and improved governance will be key components of Libya’s economic recovery, as evidenced by the severe economic losses incurred due to instability in recent years.
Oil production is expected to recover to 1.2 million barrels per day in 2025 and 1.3 million barrels per day in 2026, boosting GDP growth to 9.6% in 2025 and 8.4% in 2026. Non-oil GDP growth is projected to reach 1.8% in 2024, driven by consumption, and will average around 9% over the period 2025-2026.
Despite lower oil revenues in 2024, fiscal and external surpluses are projected to reach 1.7% and 4.1% of GDP, respectively, due to lower spending and imports. Now, after Trump’s escalation with China and the world, and the collapse in the price of a barrel of oil, Libya cannot continue. Its economy is based on oil, and with a per capita gross national income of $7,570 in 2023, Libya falls into the upper-middle-income bracket. This, too, will decline due to fluctuating oil prices.
By prioritizing non-oil sectors and encouraging private-sector-led growth, Libya can implement projects to boost its development indicators, thereby improving citizens’ lives, aligning with global action, and finding rapid solutions that could reverse Libya’s economic decline.
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Prof. Miral Sabry AlAshry is Co-lead for the Middle East and North Africa (MENA) at the Centre for Freedom of the Media, the Department of Journalism Studies at the University of Sheffield.
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