The 2011 ouster of dictator Muammar Gaddafi had many analysts and industry experts predicting a straightforward recovery for the nation's oil industry, but protests have kept many of the ports shut and 2013 production levels fell well short of even the most modest projections. 

Prime Minister Ali Zeidan suggested the protests could soon be crushed, announcing on Monday that he had ordered the Defense Minister to deploy the military against the oil ports, ending a blockade that's been ongoing since July and restoring production. That's the plan, at least.

The truth about Libya
The reality is that while Libya was roughly divided between revolutionaries and Gaddafi loyalists in 2011, the nation is fractured along scores of different ethnic, religious and geographical lines now. Militias with little or no tie to the central government run major cities, and the Libyan military's ability to restore order by force in even limited conflicts has been tested, and rarely proven very effective.

The military may well succeed in temporarily forcing the protesters away from the main oil terminals, but there is no reason to believe the Zeidan government is equipped to either keep the terminals open, or to respond to the mounting grievances that have protest blockades popping up in the country's most vital economic hubs in the first place.

Libya has become a bastion of instability in northern Africa, and looted weapons from the 2011 regime change have spread across the region, fueling wars in Mali and elsewhere. Whatever chance there was to use the post-Gaddafi euphoria to unite the nation has been squandered, and the problems in Tripoli are going to continue to mount from here.

Eni's hopes dashed
Italian oil giant Eni (E 1.18%) was supposed to be the big beneficiary of Libyan oil growth, and the company indeed did everything it could to ingratiate itself both to the new regime and the locals.

The millions of dollars it has poured into goodwill programs for Libya no doubt looked like a bargain in the face of so many untapped oil reserves just a stone's throw from Europe, and could have paid off big. Instead, Libya is a wreck, and while Eni is still in a good position to operate in Libya, it is an open question if the nation will ever be stable enough for those operations.

The news is bad for Eni investors, as three consecutive misses on earning estimates are likely just the beginning, and so long as the estimates are built around the obsolete assumptions of Libyan production they must be considered woefully over-optimistic.

With $33.5 billion in debt, Eni badly needed the Libya production, and even though it by no means threatens their survival, the lack of Libyan production makes the stock look awfully expensive at current multiples.

Then there's Goldman Sachs
The other major Western company involved in Libya is Goldman Sachs (GS 0.22%), which made headlines in the region this week with the announcement that Libya's sovereign wealth fund is suing them for "deliberate exploitation" in their advisory role.

Libya's sovereign wealth fund, like those of many oil producing nations, is substantial (estimated at $50-$60 billion in various reports), and if Libya was still pumping out oil to bankroll their recovery from the ugly 2011 war, that fund could've been a growing client for Goldman.

Instead, that fund is likely to eventually see some liquidation to pay for reconstruction, and to keep the government solvent in the absence of oil revenue that their budgets are based on.

That may be a small drop in the bucket for a big company like Goldman Sachs, and while it insists the lawsuit itself is baseless, the backlash from Libya could conceivably harm its role in other nations' sovereign wealth funds. Either way, Libya is not going to be a growth market for it, either.

As far as investing in Goldman Sachs goes, the financials are reasonably strong, and a case could be made assuming the Libya lawsuit eventually goes away that it is a bargain at these levels. I'd personally hold off, however, because for a company as enormous as this, bad publicity has a way of snowballing, and less volatile choices could definitely be found elsewhere.