Libya Between Political Division and an Oil-Dependent Economy: Why Has Oil Wealth Failed to Produce Stable Development for Citizens?

By Mohamed Chaieb – ATEP MED / Arabic Digital Center for Media and Development

Libya possesses one of Africa's largest oil reserves and has the financial resources to support a relatively high standard of living. Yet more than a decade of political division, institutional fragmentation, insecurity and weak economic diversification has prevented the country from turning its oil wealth into stable and sustainable development for all citizens.

The contradiction is striking.

Libya is an oil-rich country, but many Libyans continue to face weaknesses in public services, unemployment, regional disparities, infrastructure problems and uncertainty over the future of the economy.

The fundamental question is therefore not whether Libya has sufficient natural resources.

It is:

Why has enormous oil wealth not been consistently transformed into productive investment, stable employment and better public services?

The answer lies partly in the structure of the Libyan economy and partly in the country's prolonged political and institutional fragmentation.

An economy built around oil

Oil and gas remain the foundation of Libya's economy.

According to the World Bank, hydrocarbons accounted for approximately 65 percent of GDP, 93 percent of exports and 72 percent of government revenues in 2024. The figures demonstrate how deeply the country's economic and fiscal system remains connected to oil production.

This dependence has an obvious advantage: when oil production is strong and international prices are favorable, government revenues can increase rapidly.

But it also creates a major vulnerability.

When production is interrupted, export terminals are blocked, oil facilities are damaged or political disputes affect the institutions responsible for managing petroleum revenues, the consequences extend far beyond the energy sector.

Government finances suffer.

Foreign-exchange availability becomes more difficult.

Public spending is affected.

Investment is delayed.

And citizens may ultimately feel the impact through weaker services and greater economic uncertainty.

Libya's oil wealth therefore represents both its greatest economic asset and one of its greatest structural vulnerabilities.

Political division and the management of oil wealth

The central problem is not simply that Libya depends on oil.

It is that oil revenues are managed within a politically fragmented institutional environment.

The country has struggled for years to establish unified and effective national institutions capable of managing public finances, development priorities and resource revenues transparently.

The World Bank identifies institutional fragmentation, contested management of oil wealth and the weakness of the private sector as major structural constraints on Libya's development.

This fragmentation has economic consequences.

A country cannot easily implement a long-term development strategy when political institutions disagree over budgets, public spending and control of key economic institutions.

The World Bank's recent analysis has emphasized that political division has contributed to difficulties in adopting a unified budget and has weakened fiscal discipline and the transparency of public financial management.

The result is a paradox:

Libya has substantial oil revenues, but the institutional mechanisms required to transform those revenues into long-term national development remain fragile.

When oil production becomes a political variable

Libya's recent economic history provides repeated examples of how political and institutional disputes can affect oil production.

In 2024, a crisis surrounding the Central Bank of Libya contributed to disruptions in oil production. According to the World Bank, oil GDP contracted by 6 percent that year, while the overall economy contracted by 0.6 percent.

Oil production subsequently recovered.

The World Bank reported that average production reached approximately 1.3 million barrels per day in 2025, contributing to a strong economic rebound. Real GDP was estimated to have grown by around 13.3 percent in 2025, with oil GDP increasing by 17.4 percent.

But the lesson is important.

Libya's economic performance can change dramatically depending on whether political and institutional conditions allow oil production to continue normally.

This means that economic growth can be highly volatile.

One year can produce strong growth because oil production recovers.

Another can produce contraction because production is disrupted.

Such an economy finds it difficult to plan long-term development.

The latest warning from the oil sector

This vulnerability remains visible in September 2026.

Recent protests and disruptions affecting oil facilities have again raised concerns about production and exports. Reuters reported that Libya's National Oil Corporation said production remained around 1.4 million barrels per day despite disruptions affecting several oil fields, while warning that prolonged shutdowns could force the declaration of force majeure.

The United Nations Support Mission in Libya has also warned that actions threatening energy infrastructure could result in sanctions under existing UN Security Council resolutions. The warning followed the closure of the Sharara-Zawiya pipeline, with potential consequences for oil production, public revenues, fuel availability and electricity generation.

This illustrates the extraordinary sensitivity of Libya's economy.

A dispute surrounding an oil facility is not merely an industrial dispute.

It can become a national fiscal problem.

Where does the oil money go?

The most important development question is therefore not simply how much oil Libya produces.

It is:

How effectively is oil wealth converted into lasting economic and social assets?

Oil revenues can be used in several ways.

They can finance public-sector salaries.

They can support subsidies.

They can finance infrastructure.

They can fund education and healthcare.

They can support reconstruction.

They can also be invested in productive sectors that create jobs and reduce dependence on oil.

The problem is that heavy recurrent expenditure can consume resources without creating sufficient future productive capacity.

The World Bank has noted that restrictions on spending on essential items such as wages and social transfers have limited the authorities' ability to undertake reconstruction and development projects, while service delivery remains weak in areas including health, education, water and electricity.

This raises a fundamental issue of development policy.

Oil revenue should not only finance today's consumption. It should also build tomorrow's economy.

The weakness of the private sector

Another major problem is the limited development of Libya's private economy.

According to the World Bank, the private sector accounted for only around 14 percent of the workforce in 2025, reflecting the continued dominance of the public sector.

This is a critical issue.

An economy cannot become diversified if most employment and economic opportunities remain connected to the state.

A stronger private sector could create jobs in manufacturing, agriculture, logistics, tourism, construction, digital services, renewable energy and other activities.

But businesses require predictable rules, security, access to finance, foreign exchange and functioning infrastructure.

Political fragmentation makes all of these more difficult.

The World Bank has therefore emphasized reforms aimed at reducing the state's heavy economic footprint, strengthening the business environment and improving access to credit and foreign exchange.

Oil wealth and unemployment

The employment question is particularly important for Libya's young population.

Oil production generates enormous revenues, but the petroleum industry itself cannot employ a large proportion of the population.

This creates a structural contradiction.

A capital-intensive oil industry can generate billions of dollars in revenue while creating relatively few direct jobs.

The solution therefore requires using oil revenues to develop other sectors capable of employing people.

Agriculture and food processing could create rural employment.

Construction and reconstruction could generate jobs and stimulate local businesses.

Tourism could diversify regional economies.

Digital services could create opportunities for educated young people.

Small and medium-sized enterprises could provide employment outside the public sector.

The objective should be to transform oil wealth from an end point into a source of diversification.

Regional inequality

Libya's development challenge also has a geographical dimension.

The country is vast, and economic activity is unevenly distributed.

Political instability has contributed to significant disparities between regions in access to services, infrastructure and economic opportunities.

The World Bank has highlighted stark regional disparities and weaknesses in health, education, water and electricity services.

This means that national oil revenues do not automatically translate into equal development.

A national development strategy must ensure that oil-producing areas and less-developed regions both benefit from investment in infrastructure and human capital.

Regional development can also reduce pressure on major cities and create new economic centers.

The cost of institutional fragmentation

The economic cost of Libya's political division extends beyond lost oil production.

The World Bank estimated that instability over the past decade generated enormous economic losses and found that Libya's 2023 GDP could have been substantially higher without conflict.

Political fragmentation also makes long-term planning difficult.

Governments and institutions may focus on short-term spending rather than multi-year development strategies.

Public investment can become fragmented.

Budget management becomes more difficult.

Investors face uncertainty.

And citizens become dependent on state spending rather than a diversified labor market.

The result is a cycle in which political fragmentation weakens economic development, while economic dependence on oil reinforces political competition over resource control.

Can Libya break the oil-dependence cycle?

Breaking this cycle will require more than increasing oil production.

Libya already has significant oil production capacity.

The deeper challenge is building institutions capable of managing oil revenues transparently and investing them strategically.

Several priorities stand out.

First, Libya needs stronger and more unified public financial management.

Second, oil revenues need to be linked to long-term development priorities.

Third, investment in education, health, infrastructure and digital connectivity must become a central part of economic policy.

Fourth, the private sector needs a predictable regulatory environment.

Fifth, young Libyans need access to employment outside the public sector.

And sixth, oil revenues should increasingly support diversification rather than simply financing recurrent expenditure.

The World Bank's 2026 country diagnostic emphasizes stabilization, sustainable shared prosperity, job creation, economic growth and inclusive development as interconnected priorities for Libya.

Oil is a resource — not a development strategy

Perhaps the most important lesson from Libya is that natural resources alone do not guarantee development.

Oil can provide enormous financial resources.

But transforming those resources into sustainable prosperity requires institutions, transparency, investment, human capital and political stability.

Countries with fewer natural resources can sometimes achieve higher levels of diversification and employment because their economies are forced to develop manufacturing, services, technology and human capital.

For Libya, the challenge is different.

The country must use the wealth generated by oil to build an economy that can eventually depend less on oil.

That requires a long-term national vision.

The citizen at the center of the equation

For the ordinary Libyan citizen, the debate over oil production and political institutions ultimately comes down to very practical questions.

Are electricity services reliable?

Are hospitals functioning properly?

Can young people find employment?

Can businesses operate without excessive administrative barriers?

Are roads, water networks and public infrastructure being maintained?

Are oil revenues being converted into schools, hospitals, productive investments and employment?

These questions are more important to citizens than the headline figure for daily oil production.

A country can produce 1.3 or 1.4 million barrels of oil per day and still face serious development challenges if its institutions cannot transform resource revenues into sustainable public services and economic opportunities.

Conclusion: from oil wealth to development wealth

Libya's economic problem is therefore not a shortage of natural resources.

It is the difficulty of transforming extraordinary natural wealth into stable institutions, diversified production, productive employment and reliable public services.

Oil remains indispensable to the Libyan economy. In the short term, increasing production and protecting energy infrastructure are essential for maintaining revenues and economic stability.

But long-term prosperity requires something more.

Libya needs to transform oil wealth into development wealth.

That means investing in people, infrastructure, education, health, private enterprise and productive sectors.

It also means building institutions capable of managing public money transparently and consistently.

The country's future economic stability will ultimately depend not only on how much oil Libya produces, but on what Libya does with the revenues generated by that oil.

The central development question is therefore simple:

Will oil remain the economy's permanent destination, or can Libya use its oil wealth to build an economy that is capable of prospering beyond oil?

The answer will depend on whether political stability, institutional unification, transparency and economic diversification can move from policy objectives to sustained practice.

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Keywords: Libya economy, Libya oil, Libya political division, Libya development, Libya oil revenues, Libya economic diversification, Libya private sector, Libya unemployment, Libya public finances, Libya reconstruction, Libya investment, Libya National Oil Corporation, Libya economic reform, North Africa economy

Sources: World Bank, Reuters, United Nations Support Mission in Libya.

ATEP MED – Arabic Digital Center for Media and Development
Written and published by Mohamed Chaieb
atepmed@gmail.com