Libya could go bankrupt, warns West

War-torn Libya faces the prospect of bankruptcy, due to the dual problem of falling global oil prices and declining production in the country, the US and five European countries warned on Saturday.

Voicing alarm at the deteriorating security situation in the oil-rich North African state, Britain, France, Germany, Italy, Spain and the United States, issued a joint statement warning of further troubles ahead if something drastic wasn’t done to plus the growing financial hole.

"We remain deeply concerned about the economic impact of the political and security crisis on Libya's future prosperity," the joint statement said.

"In light of low oil production and prices, Libya faces a budget deficit that has the potential to consume all of its financial assets if the situation does not stabilise."

Global oil prices rallied slightly this week, but have fallen 60 percent in six months.

The joint statement comes after an attack an oil field partly owned by France's Total killed at least 11 workers last week. Most had their throats slit.

"We share the UN's assessment that these attacks constituted a major break in the public pledges made by the main commanders to refrain from actions that could harm the political process. There can be no military solution to Libya's problems,” the countries said in the statement.

The West has blamed the attack on the “Alshuruq Operation" – an offensive launched by the Libya Dawn umbrella group of militias to capture eastern oil fields and facilities that are currently controlled by forces loyal to the Tobruk-based parliament.

Libya has been deeply divided since last summer, when two rival governments – one elected and based in the eastern city of Toburk, and the other largely made up of former parliamentarians and based in Tripoli – began vying for power.

Libya's oil output has collapsed since the Alshuruq Operation Oil is Libya's main natural resource, and accounts for about 95 percent of the national revenue. Pre-revolt output of about 1.6 million barrels per day (bpd) but production fell to about 350,000 bpd in December when Libya Dawn attacked the terminals.

"The only people who ultimately benefit from continued fighting over Libya's oil terminals and cities are terrorists," said the statement.