For Libya, the Hormuz crisis can be a trap or an opportunity

Libya’s hydrocarbon assets have gained new strategic value as European and other countries hunt alternatives amid the global energy shock tied to the US-Israel war on Iran. The country holds roughly 48 billion barrels of proven oil—the largest reserves in Africa—and delivers much of its output to markets via Mediterranean routes; its Mellitah complex is linked to Europe through the Greenstream gas pipeline. That external interest has been reflected in a recent licensing round that attracted major international firms.

Despite abundant resources, Libya faces acute domestic energy insecurity. Over 70% of its gas is burned at home, primarily to produce electricity, while production has struggled to satisfy both local demand and export commitments. Reported gas exports plunged from about 200 billion cubic feet in 2019 to roughly 35 billion cubic feet in 2025, and at least 200 billion cubic feet of gas is flared annually because of inadequate capture and processing infrastructure. The International Monetary Fund estimates the country’s energy subsidy bill at about $17 billion, or roughly 35% of GDP.

Those internal weaknesses mean that expanding exports could improve energy security abroad while leaving Libyans vulnerable to persistent outages and underdevelopment. Policy-makers and analysts warn that a surge in hydrocarbon revenues risks reinforcing Libya’s longstanding extractive model—exporting resources and distributing proceeds without tackling structural reforms—thereby perpetuating inefficiency and the so-called resource curse.

To avoid that outcome, Libyan authorities are urged to direct new revenues toward modernising the domestic energy system: capturing flared gas, upgrading electricity generation and transmission, expanding economically viable refining capacity, reforming fuel subsidies, investing in renewables and deepening regional cooperation. Libya’s National Sustainable Energy Strategy targets 22% of electricity from renewables by 2035, but achieving that goal will require major improvements in governance and security as well as sustained investment.

Regional integration is positioned as a practical route to leverage Libya’s resources beyond simple exports. Cairo and Tripoli have elevated energy ties—signing an energy cooperation deal and discussing an 800 km, $1 billion pipeline to move Libyan crude to Egyptian refineries—and Libya is also expanding cooperation with neighbours to the west. If Libyans manage foreign interest coherently, diversified partnerships could bring technology and investment while reducing overdependence on any single external actor. Otherwise, intensified external competition for Libyan assets risks making the country an arena for geopolitical rivalry rather than a hub for Mediterranean energy collaboration.