Libya has once again captured international attention—not with political reconciliation or security reform, but with oil. A newly signed 25-year agreement with TotalEnergies and ConocoPhillips, valued at roughly $20 billion, is being framed as a cornerstone of Libya’s long-delayed economic revival. For Western capitals scrambling to diversify energy supplies amid global instability, the deal looks like a strategic win. For Libya, it is being sold as proof that the country is “open for business.” But beneath the surface, the agreement raises a more troubling question: is this investment a path to stabilization, or simply a sophisticated subsidy for a failed state economy dominated by militias, smugglers, and entrenched elites?
On paper, Libya should be an energy powerhouse. It holds Africa’s largest proven oil reserves, sits close to European markets, and produces high-quality crude at relatively low cost. Yet more than a decade after the fall of Muammar Qaddafi, Libya remains politically fractured, militarily fragmented, and institutionally hollow. Competing governments in Tripoli and the east claim authority, while real power on the ground is exercised by armed groups that control territory, infrastructure, and revenue streams. Oil production continues not because the state is strong, but because it is too valuable to fully collapse.
More than a decade after the fall of Muammar Qaddafi, Libya remains politically fractured, militarily fragmented, and institutionally hollow.
This is the paradox at the heart of Libya’s $20 billion oil bet. Western energy firms are negotiating with internationally recognized authorities that possess formal legitimacy but limited coercive power. The revenues generated by oil exports flow through nominally state institutions, yet the distribution of those funds is shaped by militia leverage, patronage networks, and political blackmail. In this environment, large-scale foreign investment does not bypass corruption—it institutionalizes it.
Fuel smuggling offers the clearest illustration of this dysfunction. Libya’s heavily subsidized fuel system creates massive arbitrage opportunities, with refined products smuggled across borders into Tunisia, Malta, and beyond. These operations are not run by petty criminals; they are embedded in militia economies and often protected by armed actors with ties to political authorities. The result is a perverse cycle in which the Libyan state imports fuel at significant cost, sells it domestically at a loss, and then watches it disappear into illicit export markets. Any expansion of production or refining capacity under current conditions risks feeding this parallel economy rather than strengthening public finances.
Supporters of the new oil deal argue that this is precisely why large, long-term investment is necessary. Their logic is rooted in economic shock therapy: stabilize production, increase revenues, and allow economic gravity to pull Libya toward order. By locking in Western firms with decades-long commitments, the argument goes, Libya gains not only capital and expertise but also international stakeholders with an interest in stability. Energy infrastructure, in this view, becomes an anchor around which political normalization can slowly form.
Libya’s heavily subsidized fuel system creates massive arbitrage opportunities, with refined products smuggled across borders into Tunisia, Malta, and beyond.
The problem is that Libya has already tested this theory—and it has failed repeatedly. Oil revenues have flowed for years without producing durable institutions or unified governance. Instead, they have entrenched a rentier system in which access to force determines access to wealth. Militias blockade terminals to extract concessions. Political factions weaponize production levels for leverage. Foreign actors back local proxies to secure influence over energy corridors. More money entering this system does not automatically change its incentives; it amplifies them.
For Western policymakers, the temptation to prioritize energy security over governance reform is understandable. Libya offers proximity, scale, and a non-Russian supply at a time of global volatility. But the strategic risks are substantial. By underwriting Libya’s hydrocarbon sector without addressing its security architecture, the West risks becoming complicit in a system that rewards coercion and undermines sovereignty. This does not produce a reliable partner; it produces a transactional dependency managed by unelected power brokers.
There is also a regional dimension that cannot be ignored. Libya’s instability spills south into the Sahel and east across the Mediterranean. Smuggling networks overlap with arms trafficking and human migration routes. Militia financing derived from oil and fuel diversion indirectly fuels broader insecurity that European and Middle Eastern states are already struggling to contain. Energy deals divorced from security reform thus export risk rather than contain it.
Libya’s oil has always been both a blessing and a curse. Today, it is again being presented as a solution to problems it has historically exacerbated. The question is not whether Libya needs investment—it does. The question is whether the West is investing in a future Libyan state, or simply paying a premium to manage chaos a little longer.
Published originally on January 25, 2026.
