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Chaos in Libya: It's the oil, stupid
Chaos in Libya: It's the oil, stupid
Avoiding a Protracted Conflict in Libya
Avoiding a Protracted Conflict in Libya

Chaos in Libya: It's the oil, stupid

Originally published in Reuters

There seems no end to the bad news coming out of Libya.

UN-led negotiations to unite the divided country — it has two parliaments, two governments, two militia coalitions that have been competing for control of a rapidly failing state since summer 2014 — are stalling. Fighting continues apace in Benghazi, the city that was the first to rebel against the rule of Muammar al-Gaddafi in 2011 and is now a byword for extremism. The Islamic State is growing by the day in the Gulf of Sirte in the center of the country, imposing its cruel dictates and making inroads elsewhere in the country. Criminal gangs – often the same militias that have had the run of the country since Gaddafi’s fall – are doing a brisk trade in people smuggling, sending off desperate migrants and refugees on rickety boats across the Mediterranean.

Oh, and by the way, Libya is also going broke.

That last tidbit should be surprising. Libya has Africa’s largest oil reserves and has long been an important supplier of light sweet crude, the kind made into gasoline and kerosene. It also had tons of money in both hoards of cash reserves and investments across the globe.

But the oil, which used to bring in 96 percent of the country’s income, is not flowing anymore. From a high of at least 1.6 million barrels per day at the beginning of 2011, Libya is lucky to export a fourth of that today. Militias have taken control of oil fields, pipelines and export facilities across the country. At first, they sought to extort the central government to keep the oil flowing. But since the country was divided into two rival governments, they are simply fighting to keep oil revenue from each other: you take over my oilfield, I block your pipeline. Since earlier this year, IS has jumped into the fray, simply destroying facilities to keep any government from getting its revenues — although, in the longer term, it may very well want to control the oil itself.

The little oil that still flows out of the country is worth a lot less than it was a year ago, due to falling international prices. Much less revenue is flowing into state coffers, which have been ransacked by profligate spending, corruption and outright theft over the past three years. From over $110 billion in 2013, hard-currency reserves have gone down to an estimated $60 billion – not that anybody seems to know for sure. The assets of the Libyan Investment Authority, the sovereign wealth fund that owns shares in businesses (including the Italian football club Juventus) and real estate across Europe, are being fought over in courts by the rival governments.

Those two governments – one in Tripoli, Islamist-leaning and supported by Qatar and Turkey; another in Tobruk, backed by Egypt and the United Arab Emirates – are also fighting for control of the remaining cash cows: the Central Bank of Libya, which holds the reserves, and the National Oil Company, which sells the oil and gas that is still being produced. Inasmuch as Libya still has a state, these two institutions are among the few remaining centers of technocratic know-how, and they are being torn apart. They have only survived thus far because they continue to finance both governments — including the salaries of the militiamen holding them hostage — but time is not on their side. Attempts to sell oil outside these official channels have been foiled so far, but the more messy the situation in Libya gets, the more likely these will one day succeed.

There are no easy solutions to this situation. If you stop paying the militias, they will become even more predatory. The international community is not inclined to do so, but if it were simply to seize Libya’s assets or impose an oil embargo in order to impose a peace deal, economic collapse would likely ensue. The only way out is to persuade those fighting for control of Libya’s wealth that their prize is dwindling fast and that they are better off finding a way to share it. On the current trajectory, they risk their country becoming a fully failed state, in which case they will also have to fight the Islamic State and perhaps some of Libya’s neighbors for the rich pickings of its resource wealth.

Many of the thuwwar (rebels) of 2011 have turned out to be gangsters no less brutal and corrupt than the thuggish regime they overthrew. But there are still decent Libyan patriots on both sides who can make peace and lead their fellow citizens out of a certain economic disaster that is likely to be far more deadly than the current conflict. Libya needs cash to import nearly all basic goods. Shortages are already making life difficult for ordinary people, on top of the general insecurity.

The initial step is recognizing that Libya’s civil war is only secondarily about ideology, religion or rival claims of legitimacy. First and foremost, it is about who will control the country’s oil and petrodollars. That is what Libyans and outside actors like the UN that are trying to bring peace need to focus on, so that oil and gas can start flowing again, the economy can be stabilized, and a unity government can turn to the urgent task of restoring security, fighting the Islamic State and other radicals, and building the new Libya so many were hoping for in 2011.

Avoiding a Protracted Conflict in Libya

The continued violence between the two local forces competing for power, and their inability to cooperate has locked the conflict in a stalemate that sees no immediate end. In this excerpt from its Watch List 2019 - Second Update, Crisis Group urges the European Union and its member states to work towards an internationally-monitored ceasefire.

This commentary is part of our Watch List 2019 – Second Update.

Since the outbreak of violence in Tripoli last April, the prospect of a negotiated settlement to end the competition for power in Libya has only grown more remote. The military offensive launched by the Libyan National Army (LNA), which is headed by Field Marshal Khalifa Haftar and based in the east, against forces allied with the UN-backed Government of National Accord (GNA) in Tripoli has thwarted UN-led efforts. Those had been aimed at forging a new power-sharing deal or charting a consensual roadmap to reunify critical Libyan state institutions, split between east and west since 2014. The pursuit of outright victory has displaced earlier strategies aimed at reconciling the two rival political and military authorities. For Haftar-led forces, success means capturing the capital, expelling armed groups opposed to the LNA, imposing transitional arrangements that would sideline Prime Minister Faiez Serraj’s GNA, and gaining control of state funds held by the Central Bank of Libya. For the Tripoli-based government, winning entails pushing the besieging forces outside the boundaries of western Libya and implementing a political roadmap that marginalises Haftar.

Diplomatic paralysis pervades this state of affairs. UN Security Council members are divided and unable to call for a cessation of hostilities, mostly owing to U.S. opposition to a draft resolution that would have done just that. The U.S. claims it resisted the draft resolution because it lacked a mechanism to ensure compliance, but its stance more likely reflected White House sympathy for Haftar and for his Saudi, Emirati and Egyptian supporters. More broadly, continued military support (in violation of a UN arms embargo) and funding for Haftar from Saudi Arabia, the United Arab Emirates (UAE), Egypt, France and Russia, and to pro-GNA forces by Turkey and Qatar, are fuelling both sides’ willingness to continue the fight.

Much is at stake for Europe. A protracted conflict in Libya would further destabilise its southern neighbourhood with direct economic and security ramifications, and would continue undermining EU cohesion in dealing with migration. Against the backdrop of UN Security Council paralysis, however, the EU and its member states likely have little leverage to stop the war, especially as European capitals are divided between those that betray a bias toward either Haftar (as in Paris) or the GNA (as in Rome). Still, the EU and member states could and should contribute to de-escalating tensions in the following ways:

  • Urge governing authorities in Tripoli and eastern Libya to reconsider their uncompromising positions and nudge them toward agreement on an internationally-monitored ceasefire, followed by negotiations for new political, military and financial arrangements under UN aegis and with EU technical and financial support;
     
  • Through joint or concerted high-level diplomatic missions representing all EU member states, or by tasking the EU foreign policy chief Mogherini to represent a common EU position, persuade Abu Dhabi, Riyadh and Cairo to recognise that a prolonged LNA offensive is unlikely to produce the swift or “clean” victory that would stabilise Libya and that their interests are better served at the negotiating table. They should similarly seek Ankara’s and Doha’s cooperation in persuading the GNA to sit with the LNA;
     
  • Seek to persuade President Donald Trump’s advisers, who themselves appear somewhat divided, to adopt a more even-handed approach toward the Libyan conflict by calling for a cessation of hostilities, including through the UN Security Council;
     
  • If and when a ceasefire is in place, support an economic dialogue to reconcile the Central Bank of Libya’s two separate administrations and address financial grievances that deepen the conflict, thus paving the way for a military de-escalation and a return to talks.

Tanks and Banks

Neither side shows appetite to accept a ceasefire.

After three months of war, more than 1,000 battlefront deaths and 100,000 displaced civilians, neither Haftar nor Serraj is near victory. Tripoli government forces scored a tactical win in late June when their fighters expelled Haftar’s forces from Ghariyan, a town 80km south of the capital. But in Tripoli’s southern suburbs, where front lines might shift daily, rival forces have been locked in a stalemate for the past three months and airstrikes from both sides continue. Despite this, and the casualty toll, neither side shows appetite to accept a ceasefire, as both view the conflict as existential and believe they can prevail on the battlefield. This means the deadly war around Tripoli likely will drag on and this, in turn, could bring additional military support from both sides’ external backers, triggering new fighting and likely further stalemate, but with even greater destruction.

The fighting around Tripoli is unlikely to end without greater regional support for a ceasefire. Libya’s institutional fractures, which have become conflict lines, and the existential narratives embraced by both sides reflect deeper geopolitical divides through the Middle East and North Africa. Haftar receives support from the UAE, Saudi Arabia and Egypt, who argue he is the only Libyan leader who can rein in Islamists of all stripes, whether the Muslim Brotherhood, jihadists or Qatari and Turkish-backed GNA-aligned militias in Tripoli, all of whom they view as a single undifferentiated enemy. The support offered to Haftar by his regional backers, like that offered to the GNA by its own Qatari and Turkish defenders, reveals the depth of the schism and the significance of this dividing line in regional politics. Tacit U.S. support for this worldview (dictated more by White House priorities elsewhere in the region than by a concrete U.S. vision for Libya), and the push to reshape the regional order espoused by the Emirati, Saudi and Egyptian axis, has also deepened Libya’s internal divides.

While international rifts and competing regional ambitions remain an overarching conflict driver, locally, interlocking competing narratives of political and military legitimacy, a battle for power, tribal rifts and recriminations, and a deeply polarised media are making the war even more intractable. But another important, often overlooked, conflict driver is competition over oil revenues, specifically management of and access to state funds, held by the Central Bank of Libya. Since 2014, the Central Bank has been divided into two rival administrations reflecting the country’s broader institutional divides: the internationally-recognised headquarters in Tripoli and the Benghazi branch, which operates as the central bank but is loyal to the east-based government and parliament. The Benghazi branch, which funds Haftar, has no access to the country’s oil revenues, which have accrued to the Central Bank in Tripoli. Instead, eastern authorities have funded themselves – illegitimately, in Tripoli’s eyes – by issuing almost $30 billion in promissory notes processed by east-based commercial banks. But this parallel funding scheme has strained the banks, which began to show signs of stress just as Haftar launched his offensive in April.

De-escalating the Libyan conflict necessitates resolving this longstanding financial dispute and the immediate banking problems it poses. Failure to mend the financial rift could prompt the Haftar-backed government to pursue independent oil sales, which would ultimately deepen the split between the duelling authorities in east and west.

Haftar sees no role for the UN or those who have risen to power as a result of UN mediation.

Zero-Sum Logic and Muddled Roadmaps

Although neither side is likely to win on the battlefield, the LNA and GNA-aligned forces, both captive to zero-sum logic, have rejected calls for a ceasefire and resuming talks. Instead, they propose conflicting political roadmaps that exclude their opponents from future negotiations. Haftar repeatedly declared that the assault on Tripoli will proceed and that, once it succeeds, he will impose a new transitional government. This would entail dismantling the governing bodies created by the 2015 UN-backed Skheirat agreement, disbanding his opponent’s militias, forming a constitutional committee and holding a referendum on a draft constitution, followed by elections. In this, Haftar sees no role for the UN or those who have risen to power as a result of UN mediation.

For his part, Serraj has publicly refused talks with Haftar. Apparently convinced that pro-GNA forces were close to military victory, he announced his own roadmap in June, from which he specifically excluded Haftar. Serraj’s plan consists of holding a nominally inclusive National Conference under UN aegis that would appoint a judicial committee to draft a new election law. In an attempt to bring east-based leaders to his side, he made vague promises about economic decentralisation and fairer resource distribution.

In principle, Serraj’s proposal hits all the points favoured by his Western interlocutors (inclusivity, decentralisation, elections and a UN umbrella), and for this reason it received endorsement from the UN, EU and some member states. However, he – like Haftar – has a distorted assessment of the power balance on the ground, overestimating his own strength and underestimating his adversary’s. This translates into an unrealistic belief that either side can implement its own roadmap without first reaching a settlement with the other.

Recommendations for the EU and Its Member States

The EU and member states should urge parties on both sides of the conflict to move away from their rhetoric of imminent triumph and toward more pragmatic positions that would open space for a possible de-escalation, an internationally-monitored ceasefire and resuming political and security sector talks, in the first instance to create new security arrangements in the capital. Through joint or concerted high-level diplomatic missions representing all EU member states or by tasking the HR/VP Mogherini to represent a common EU position, they should emphasise to decision-makers in Abu Dhabi, Riyadh, and Cairo that a prolonged LNA offensive is unlikely to produce a swift or “clean” victory that would stabilise Libya, and dissuade them from playing out their regional rivalries on the outskirts of Tripoli.

Instead, given the stalemate and the fact that prospects of a quick LNA victory have faded, they should argue that those countries’ best interests lie in convincing Haftar to agree to a ceasefire and support UN-led talks for a political and military settlement. They should underscore that continued airstrikes in the capital are alienating public support for the LNA’s cause while also empowering the very armed groups that Haftar’s offensive was meant to drive out of Tripoli. Likewise, they should press the GNA’s backers to refrain from supporting a counteroffensive by Tripoli-based forces that would pursue LNA forces beyond Tripoli’s environs eastward or to LNA-controlled oil installations. They should seek Ankara’s and Doha’s cooperation in persuading the GNA to sit with the LNA at the negotiating table.

[The EU and member states] should support UN efforts to forge an agreement on the management of Libya's finances.

A ceasefire would allow all sides, and their foreign backers, to work together on new security arrangements in the capital, the shortcomings of which were one of the original triggers of the conflict. In particular, the two sides need to agree on the role of armed groups, namely which ones continue to operate or demobilise, and decide who will secure what areas.

The EU and members states should also press the Trump administration – which at times has appeared inconsistent and divided between the White House on the one hand, and the State Department and Pentagon on the other – for clearer and more even-handed U.S. policy toward Libya. This should include U.S. support for a UN Security Council resolution calling for a cessation of hostilities. To this end, the EU should seek to persuade the White House that a protracted conflict in and around Tripoli will not unify Libya under one ruler, but will rather fragment and destabilise it further. Such ongoing fighting may well undermine U.S. anti-terrorism objectives: prolonged conflict almost certainly will strengthen armed groups, including those linked to radical Islamist organisations such as al-Qaeda and ISIS, whose affiliates have started operating with impunity in southern Libya since the outbreak of hostilities in April.

European diplomats also should press Washington to reject demands made by pro-LNA emissaries aimed at lifting or circumventing UN-imposed restrictions over Libya’s crude oil exports. For this purpose, they should convey the message to the U.S. administration, in particular the White House, that authorising independent oil sales to eastern authorities could, in the short run, give the upper hand to Haftar forces but poses the graver, long-term risk of consolidating the split between western and eastern authorities.

Finally, the EU and member states ought to intensify efforts to help reunify the rival Central Banks and offer technical advice on how to avert a looming banking crisis; likewise, as Crisis Group previously advocated, they should support UN efforts to forge an agreement on the management of Libya’s finances. They should step in to promote a financial and economic dialogue between rival branches of the Central Bank, especially at a time when the U.S. (which traditionally has led initiatives regarding Libya’s financial sector) has become far less active diplomatically. Failing to manage this dispute will only prolong the war and compound Libya’s post-2011 humanitarian emergency.