Political conflict in Libya means an economy that's largely dependent on oil production has no room to grow, the European Union said.

A progress report on Libya from the European Commission said a blockade on oil exports by eastern federalists has "severely" affected Libya's fiscal situation.

The report, published Thursday, said the closure of eastern export terminals has cut Libyan oil production from a pre-war level of 1.6 million barrels per day to around 250,000 bpd. With an economy that relies on the petroleum sector for 90 percent of its revenue and more than 70 percent of gross domestic product, the security situation was directly responsible for economic stagnation.

"The lack of security has a negative impact on business climate," the progress report said. "With the security situation featuring so prominently on the agenda, thus far little attention has been paid to the diversification of the economy and job creation."

The United Nations Security Council last week passed a Chapter VII resolution that authorizes U.N. member states to board vessels and return any oil illegally seized from Libyan ports to the Libyan government. The resolution was in response to the U.S. Navy's capture -- at Tripoli's request -- of oil tanker Morning Glory, a North Korean-flagged ship, in international waters of the Mediterranean Sea. The ship had taken on a cargo of oil from a rebel-held port in eastern Libya.