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Chaos in Libya: It's the oil, stupid
Chaos in Libya: It's the oil, stupid
Reviving the JCPOA after Maximum Pressure
Reviving the JCPOA after Maximum Pressure

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.

Reviving the JCPOA after Maximum Pressure

Reviving the Iran nuclear deal could help alleviate the threat of nuclear proliferation and cool regional tensions. In this excerpt from our Watch List 2021 for European policymakers, Crisis Group urges the EU and its member states to support the Biden administration in re-engaging with Tehran and to facilitate trade between Europe and Iran.

The Trump administration’s “maximum pressure” campaign, which defined its Iran policy and underpinned much of its approach to the wider Middle East, did not succeed. Its punitive approach was meant to curtail Iranian nuclear activity, which increased instead, and to lower regional tensions, which rose dramatically. Tehran responded to U.S. unilateral sanctions with a series of breaches of the Joint Comprehensive Plan of Action (JCPOA), slowly weakening the landmark 2015 nuclear accord. The deal’s further erosion could spark a non-proliferation crisis. Enmity between the U.S. and Iran, manifested in risky tit-for-tat military exchanges in the region, additionally strained relations between the Islamic Republic and U.S. allies Saudi Arabia and the United Arab Emirates (UAE). The mutual distrust simmered for years, frequently coming perilously close to a boil.

Joe Biden’s election to the U.S. presidency has raised hopes for a new U.S. Iran policy in 2021 that can help bring down the temperature in the Middle East and alleviate the threat of nuclear proliferation by reviving the JCPOA. To assist in these endeavours, the EU and its member states should: 

  • Support the Biden administration in re-engaging with Tehran and returning the U.S. to the JCPOA if Iran restores its compliance with the deal.
     
  • Encourage the Biden administration to facilitate international humanitarian support to Iran in response to the COVID-19 pandemic, including Tehran’s request for an International Monetary Fund loan.
     
  • Facilitate growth in trade between Europe and Iran as a crucial element in delivering the benefits envisioned under the nuclear agreement and laying the foundation for discussions with Tehran on a broader agenda, including Iran’s regional power projection and ballistic missile program. At the December 2020 EU-Iran High-Level Dialogue, both sides affirmed their interest in deepening bilateral cooperation. 
     
  • Encourage Gulf Arab states and Iran to enter an inclusive regional dialogue aimed at reducing frictions and opening communication channels to prevent dangerous misunderstandings.

A Vital Opening for Nuclear and Regional Diplomacy 

The 2018 U.S. withdrawal from the JCPOA put the nuclear deal under significant stress. Instead of delivering an improved accord, as the Trump administration boasted it would, it ended up demonstrating the importance of the existing one. Sweeping sanctions put in place by Washington in pursuit of maximalist demands, compounded in 2020 by the impact of the COVID-19 pandemic and Tehran’s mismanagement, have driven Iran’s economy into three years of recession in a row and quashed Iranian expectations that the agreement would yield financial rewards. 

Tehran has in turn broken its commitments to restrict its nuclear program. Notably, since 2019 it expanded its enriched uranium stockpile, raised the level of enrichment, and stepped up its research and development activity. On 2 December, following the killing of senior Iranian nuclear scientist Mohsen Fakhrizadeh the previous month, which media outlets and others widely attributed to Israel, the Iranian parliament passed legislation that would enable further breaches of the JCPOA. The government has already implemented the first of these parliamentary instructions by raising the uranium enrichment level to 20 per cent in early January. Another measure instructs the Iranian government to stop allowing enhanced international inspections under the Additional Protocol to the nuclear Non-Proliferation Treaty, which Tehran has been voluntarily implementing as part of the JCPOA, by 21 February if the JCPOA’s other signatories do not deliver various economic benefits laid out in the deal by that time. Limiting access would be a serious concern for the UK, France and Germany – the so-called E3 – who, along with China, Russia and Iran, remain JCPOA participants. 

The EU, which convenes the JCPOA signatory states under the Joint Commission, has played a pivotal role in diplomatic efforts to keep the accord alive, viewing it as the best available framework for holding Iran’s nuclear activities in check. But, at least in Tehran’s view, both the EU and E3 have failed so far to match their declared commitment to the deal with meaningful sanctions relief.

As the JCPOA began to unravel, regional tensions ratcheted upward in a series of incidents that risked major escalation.

As the JCPOA began to unravel, regional tensions ratcheted upward in a series of incidents that risked major escalation. Some of these incidents involved Iran and the U.S. alone, but others, such as a string of attacks on commercial shipping in the Gulf, underscored the entanglement of their respective allies as well. The danger is heightened by the near absence of consistent communication and decades of accumulated distrust between Iran and the two major Gulf Arab powers, Saudi Arabia and the UAE, which have precluded a security dialogue needed to mitigate tensions. These Gulf Arab states – along with Israel – are also pressing the U.S. not to rejoin the JCPOA or lift sanctions without concrete commitments from Tehran on matters that they consider of paramount concern, such as Iran’s ballistic missile program and what they view as its destabilising role in Yemen, Lebanon, Syria and Iraq. 

Recommendations for the EU and its Member States

The EU can play an important role in stabilising the nuclear agreement and championing constructive dialogue among Gulf actors. Having spent the past two and a half years hailing the JCPOA’s importance, the EU and its member states can claim vindication as they urge both Washington and Tehran to return to compliance with the agreement. Strong diplomatic support for reviving the JCPOA will strengthen the Biden administration’s hand against domestic critics urging it not to relinquish the leverage purportedly accumulated as a result of the “maximum pressure” approach. The Joint Commission can also help develop a roadmap and a timetable for Iran’s and the U.S.’s full resumption of their JCPOA obligations.

The EU and member states could buy more time and space for the incoming Biden administration by offering Iran, with Washington’s green light, some economic incentives of their own. For instance, they could revive President Emmanuel Macron’s 2019 initiative to pre-purchase Iranian oil as long as Iran agrees to halt any additional nuclear and regional escalation before the new U.S. administration moves to effectively dismantle the sanctions. European states should also work with the private sector to expand trade between Europe and Iran, which has deteriorated despite initiatives such as the Instrument in Support of Trade Exchanges (INSTEX), through providing European firms willing to re-engage with the Iranian market or invest in Iran with economic incentives, such as tax breaks. As part of its engagement with the new Biden administration, the EU should press for any measures that can provide immediate humanitarian relief to Iran, including approval of Tehran’s International Monetary Fund loan request for dealing with the COVID-19 pandemic.

European states should also work with the private sector to expand trade between Europe and Iran.

Shoring up the JCPOA does not mean dismissing non-nuclear concerns. European governments, like the U.S. and some of its regional allies, are apprehensive about Iran’s ballistic-missile development, its support of various armed non-state actors, and its human rights record. But stabilising an existing agreement that addresses a key strategic issue offers the best foundation for follow-on negotiations with Tehran.

In parallel to the nuclear file, Europe can help de-escalate regional tensions by encouraging and supporting dialogue between Iran and Gulf Arab states and emphasising that diplomacy offers the best way to both prevent violent incidents from spinning out of control and lay the foundations for a durable regional security framework. Launched as a diplomatic initiative by a core group of European states, with support from the EU high commissioner and the UN secretary-general, regional actors should be prepared to take ownership of such a dialogue to maximise the chances of success. While the Biden administration would need to nudge the Gulf Arab states to talk to Iran, European governments can hold preparatory discussions to understand interests, concerns and aspirations, as well as offer to provide venues for the dialogue, possibly in coordination with the U.S. They could also convene technical discussions among regional states, backed by the relevant UN agencies, to foster cooperation on issues of common interest, such as climate change, public health and maritime security.