US sanctions against Libya are crippling the country's oil exports as market participants fear being accused of financing the regime of leader Muammar Gaddafi, a person familiar with the situation said.
"I talk to a lot of guys at some of the banks and a couple of oil companies and they are shut down in terms of Libya, essentially because they can't accept payments," the person told AFP.
"The Treasury Department have told them to shut down," he said. "It can ultimately end up halting all the exports, we are on track for that, because everybody is on board with these sanctions."
The International Energy Agency, the developed countries' watchdog, said Friday that Libya is now exporting between 500,000 and 600,000 barrels of crude oil a day, compared with a daily average of 1.3 million in 2010.
On February 25, US President Barack Obama imposed sanctions on Gaddafi, four members of his family, and Libyan government agencies over a brutal crackdown on anti-regime protesters.
Days later, the US Treasury announced it had frozen at least $32 billion in Libyan assets, calling it the largest blocking under any sanctions program in the country's history.
The sanctions targets include US companies' subsidiaries controlled by Libyan companies, such as US oil groups operating in the country under the control of the Libyan state oil company.
ConocoPhillips halted its exports, while Marathon Oil said it had stopped paying taxes and licence fees to the Libyan government. ExxonMobil, the biggest US oil firm, currently has no activities in Libya.
In response to a question about whether it would stop crude oil purchases from Libya, replied in an email: "ExxonMobil is complying with the UN and US sanctions against the government of Libya."
Banks, which typically play an intermediary role in transactions, no longer want to be involved, further tying up the market.
According to The Wall Street Journal, Morgan Stanley, which buys oil in Libya for its clients, no longer does so due to the sanctions.
Contacted by AFP, the Wall Street investment bank declined to comment on the report.
The United Nations Security Council and the European Union have also imposed severe sanctions on the Gaddafi regime, notably freezing the financial assets of some of the top officials.
On Saturday, the British newspaper Financial Times reported that despite the US, UN and EU sanctions "hundreds of millions of dollars" from oil exports continue to flow into Gaddafi's regime.
The European Union is set to expand sanctions against Libya to include its sovereign wealth funds and central bank, European officials said Tuesday.
The sanctions are expected to go into effect Friday, officials in Rome and Brussels said.
The Libyan Arab Foreign Investment Company, meanwhile, has a 7.5 per cent stake in Italian soccer club Juventus. As a result of Libya's significant, intertwined interests in Italy, Rome has had a lot at stake as world governments clamp down on Gaddafi.
An Italian official said Italy had been active in proposing certain entities be included in the broadened sanctions, denying that Italy had been passive or reluctant to freeze Libyan assets.
Last week, Italy's treasury minister warned about instability in Europe if the revolutionary forces in the Arab world were to suddenly yank their sovereign wealth investments in European companies.