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Libya: Amid Political Limbo, Time to Rescue the Economy
Libya: Amid Political Limbo, Time to Rescue the Economy
Members of the Libyan army stand after a fire broke out at a car tyre disposal plant during clashes against Islamist gunmen in the eastern Libyan city of Benghazi on 23 December 2014. AFP/Abdullah Doma
Report 157 / Middle East & North Africa

Libya: Getting Geneva Right

After six months of worsening clashes, Libya is on the brink of all-out civil war and catastrophic state collapse. All parties must press the two rival authorities to join a national unity government, resolutely uphold the UN arms embargo, and persuade regional actors to stop fuelling the conflict.

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Executive Summary

Libya’s deteriorating internal conflict may be nearing a dramatic turning point. Over six months of fighting between two parliaments, their respective governments and allied militias have led to the brink of all-out war. On the current trajectory, the most likely medium-term prospect is not one side’s triumph, but that rival local warlords and radical groups will proliferate, what remains of state institutions will collapse, financial reserves (based on oil and gas revenues and spent on food and refined fuel imports) will be depleted, and hardship for ordinary Libyans will increase exponentially. Radical groups, already on the rise as the beheading of 21 Egyptians and deadly bombings by the Libyan franchise of the Islamic State (IS) attest, will find fertile ground, while regional involvement – evidenced by retaliatory Egyptian airstrikes – will increase. Actors with a stake in Libya’s future should seize on the UN’s January diplomatic breakthrough in Geneva that points to a possible peaceful way out; but to get a deal between Libyan factions – the best base from which to counter jihadis – they must take more decisive and focused supportive action than they yet have.

Since mid-2014, fighting has spread and intensified. Aerial bombardment and attacks on civilian infrastructure have increased; at least 1,000 Libyans have died (some estimates are as high as 2,500), many of them non-combatants; and internally displaced persons (IDPs) and refugees have increased from 100,000 to 400,000. The fledging post-Qadhafi state is beginning to buckle: basic goods and fuel are in short supply; in some urban areas people no longer have reliable access to communications or electricity and are using firewood for cooking. The likelihood of major militia offensives in cities like Benghazi raises the spectre of humanitarian disaster. Moreover, Libya faces the prospect of insolvency within the next few years as a result of falling oil revenue and faltering economic governance, as militias battle for the ultimate prize: its oil infrastructure and financial institutions.

As the crisis has deepened, the positions of the rival camps have hardened, and their rhetoric has become more incendiary. Libyans, who united to overthrow Qadhafi in 2011, now vie for support from regional patrons by casting their dispute in terms of Islamism and anti-Islamism or revolution and counter-revolution. The conflict’s reality, however, is a much more complex, multilayered struggle over the nation’s political and economic structure that has no military solution. A negotiated resolution is the only way forward, but the window is closing fast.

The two rounds of talks the UN hosted in Geneva on 14-15 and 26-27 January 2015 mark a minor breakthrough: for the first time since September 2014, representatives of some of the factions comprising the two main rival blocs met and tentatively agreed to a new framework that will at least extend the talks. This is testimony to the tenacity and relentless shuttle diplomacy of Bernardino León, the UN Secretary-General’s Special Representative. The road is long, and there will be setbacks, for example if parties refuse to participate or pull out; the General National Council (GNC) in Tripoli only belatedly agreed to participate in the talks, while the Tobruk-based House of Representative (HoR) announced it was suspending its participation in them on 23 February. Yet, this is the only political game in town and the only hope that a breakdown into open warfare can be avoided. To build on León’s initiative and ensure that ongoing discussion produces an agreement with nationwide support, however, members of the international community supporting a negotiated outcome must reframe their approach and do more to support him.

The way in which they have tended to frame the conflict should be modified first. The dominant approach to the parties has been to assess their legitimacy. The question, however, should no longer be which parliament, the HoR or the GNC, is more legitimate or what legal argument can be deployed to buttress that legitimacy. Chaos on the ground and the exclusionary behaviour of both camps have made that moot. An international approach that is premised on the notion the HoR is more legitimate because elected but does not take into account how representative it really is encourages it to pursue a military solution. Conversely, it feeds GNC suspicion that the international community seeks to marginalise or even eradicate the forces that see themselves as “revolutionary” (among them, notably, Islamists), as has happened elsewhere in the region.

Libya needs a negotiated political bargain and an international effort that channels efforts toward that goal. Outside actors will have to offer both sides incentives for participation and make clear that there will be consequences for those who escalate the conflict. Immediate steps should be taken to reduce the arms flow into the country and prevent either camp from taking over its wealth. The alternative would only lead to catastrophe and should not be an option.

In sum, the UN Security Council and others supportive of a negotiated political solution should:

  • de-emphasise “legitimacy” in public statements and instead put the onus on participation in the UN-led negotiations and on behaviour on the ground, notably adherence to ceasefires and calls to de-escalate. Rather than interpreting the legal and constitutional consequences of the Supreme Court’s ambiguous ruling on this question, they should indicate that those consequences are best negotiated as part of a wider roadmap toward a new constitution and permanent representative institutions;
     
  • be more forthright in confronting regional actors who contribute to the conflict by providing arms or other military or political support – notably Chad, Egypt, Qatar, Sudan, Turkey and the United Arab Emirates (UAE) – and encourage them to press their Libyan allies to negotiate in good faith in pursuit of a political settlement. Military intervention on counter-terrorism grounds, as requested by Egypt, would torpedo the political process, and for now should be opposed. Regional actors who attempt to support negotiations, notably Algeria and Tunisia, should be encouraged and helped;
     
  • devise, without prejudice to the UN’s efforts to achieve reconciliation, political and military strategies to fight terrorism in coordination with Libyan political forces from both camps but refrain from supporting outside military intervention to combat the IS. The GNC and its supporters should unambiguously condemn IS actions, and the HoR should refrain from politicising them.
     
  • keep in place the UN arms embargo, expressly reject its full or partial lifting and strengthen its implementation to the extent possible;
     
  • consider UN sanctions against individuals only if so advised by the Secretary-General and his representative. If enacted, they should be linked to the political process and applied or lifted according to transparent criteria for individuals on all sides, focusing on incitement to or participation in violence; and
     
  • protect the neutrality and independence of financial and petroleum institutions: the Central Bank of Libya (CBL), the National Oil Company (NOC) and the Libyan Investment Authority (LIA); and ensure that these manage the national wealth to address the basic needs of the people and contribute to a negotiated political solution.

Tripoli/Brussels, 26 February 2015

Libya: Amid Political Limbo, Time to Rescue the Economy

As the UN-backed effort to form a unity government is yet to bear fruit, the conflict in Libya could face further escalation in 2017. In this excerpt from our Watch List 2017 annual early-warning report for European policy makers, Crisis Group urges the European Union and its member states to first focus on supporting a political settlement, which will contribute to solving the wider issues of uncontrolled migration flows and instability in the region.

This commentary is part of our annual early-warning report Watch List 2017.

The Libyan conflict will most likely continue without a decisive political and military settlement in 2017. Various political actors contest the legitimacy of the Government of National Accord, but a lack of consensus – among Libyans, neighbouring states and international stakeholders – on what should replace it suggests it will remain in place even as its effectiveness deteriorates and its opponents consolidate their positions. In this state of suspended animation, the European Union (EU) and its member states should make it their top priority to help stabilise Libya’s economic situation. The country’s financial collapse would cripple its few functioning and critically important institutions, precipitate a humanitarian crisis, fuel the war economy, complicate efforts to tackle migrant and refugee flows and, more broadly, further hinder international attempts to put the country on a more stable political footing.

Stalemate, But For How Long?

The interim government created by the Libyan Political Agreement on 17 December 2015 has had limited success in imposing its authority since its arrival in Tripoli in April 2016 and is unlikely to survive in its current form. But what will replace it? And how?

A best-case scenario would see its composition, organisation and responsibilities renegotiated – and Prime Minister Fayez Serraj and other core Presidency Council members replaced – to meet the approval of the Tobruk-based House of Representatives, whose endorsement is required to implement the agreement in both letter and spirit. This is not a silver bullet; it would need to be accompanied by a bottom-up process based on local governance where possible, with the aim of linking the urgent need to rebuild the central state with the reality of diffuse local power. At the very least, stabilising the centre offers opportunities to build institutional capacity and improve service delivery until solutions to thornier issues, such as demobilising militias and restructuring the security sector, can be found.

In the absence of concerted international pressure on Libyan factions to negotiate a new political deal, a breakthrough is unlikely.

The worst-case scenario is that forces under General Khalifa Haftar, bolstered by recent military successes in Benghazi, the Gulf of Sirte “oil crescent” and southern Libya, make good on his pledge to try to retake Tripoli. This would lead them into a major military confrontation with Tripoli-based Islamist militias and forces from Misrata that have been fighting the Islamic State.

The more likely scenario is that Libya remains in limbo. This is because Haftar’s forces are unlikely to advance significantly toward Tripoli, even with Egyptian, Emirati and perhaps Russian backing, as they lack sufficient support in western Libya. At the same time, in the absence of concerted international pressure on Libyan factions to negotiate a new political deal, a breakthrough is unlikely. The question then becomes how to stop the economic situation from deteriorating further until an opportunity for a political breakthrough arises.

Map of Libya. International Crisis Group.

The Oil Must Flow

Whatever its ideological and geopolitical dimensions, the conflict is largely about control of hydrocarbon resources and access to state funds. According to the National Oil Corporation (NOC), oil sector closures have cumulatively cost over $100 billion in lost revenues from oil exports since 2013, resulting, according to the Central Bank of Libya, in a fiscal deficit of 56 per cent of GDP for both 2015 and 2016. The Bank’s foreign-currency reserves are estimated to have fallen below $40 billion, compared to $75 billion in March 2015. Oil production has increased since September 2016 – when Haftar-aligned forces seized most oil facilities in the Gulf of Sirte – from around 250,000 barrels per day (b/d) to 700,000 (still far below the 1.8 million b/d of 2010). Even if production reaches 1 million b/d by the end of March 2017, as the NOC projects, the economic outlook remains bleak. With crude oil prices at $50 a barrel, production increases will not cover expected government expenditure of around $40 billion in 2017. Libya could be bankrupt by the end of the year.

Even before then, without careful economic stewardship and proactive government measures, the economy is likely to worsen and hardships increase for a population mainly dependent on government salaries. The liquidity crisis (with banks unable to dispense much cash) could worsen, the dinar could come under further pressure, and basic services such as electricity could face severe constraints due to poor management and cash-flow problems.

Political factors make the outlook even grimmer. Rifts and rival claims for control of the NOC, Central Bank and Libyan Investment Authority (LIA, the sovereign wealth fund, with over $60 billion of assets) could limit the activities of these key institutions, constraining public spending. Moreover, the Central Bank appears unwilling to authorise transfers to the government because the latter lacks parliamentary recognition. The government’s consequent inability to access and use state funds could undermine the loyalty of security forces, whose salaries it pays, and stimulate the illegal economy, including trafficking of migrants and subsidised goods.

Focus on the Economy (and Security Forces)

Europe has two strategic priorities in Libya: ensuring that the country is not a source of regional instability and finding a partner able to reduce the migrant flow. For both objectives, a political settlement is key. It may seem elusive now but will be far more difficult to accomplish in a collapsing economy, as warlordism and zero-sum calculations intensify. Such deterioration would not only increase the flow of migrants from sub-Saharan Africa but also see the number of Libyans trying to cross the Mediterranean continue to rise, a trend that started in 2016.

Economic troubles are negatively affecting the security forces, including those tasked with countering illegal migration. Some units are suspected of taking bribes to look the other way or even becoming party to the people-smuggling. This in part enabled over 160,000 migrants to cross the Mediterranean from Libya in 2016 – a record high, alongside a record number of deaths. Seeking agreements from the government on migration control, as the EU and its member states are doing, is a fool’s errand as long as it has no effective control over the security forces (even leaving aside human rights concerns). The government will not be able to exercise that control without a peace settlement based on a political process accompanied by a security track that involves key military actors and addresses disputes on security forces’ structure and chain of command.

The EU and its member states should [...] channel their energy toward addressing the economy.

While the EU and its member states should not walk away from the overarching goal of a comprehensive solution to the conflict, they should at the same time, and urgently, channel their energy toward addressing the economy. In particular, they should intensify efforts to broker an agreement on the disbursement of the 2017 budget between the government, House of Representatives and Central Bank. To resolve the internal rifts within the Central Bank and NOC, they should urge Prime Minister Serraj to promote talks between the rival chains of command in these institutions, as he did in 2016.

The EU and its member states should continue to make clear that they will not tolerate oil sales or related contracts outside official channels and ensure, through more careful vetting and improved monitoring, that Libyan security forces participating in EU anti-migration efforts are not involved in, or profiting from, people-smuggling or maritime trade of subsidised fuels. They should also ensure that any greater reliance on Libyan authorities for anti-migration measures does not result in migrants being denied the protection to which they are entitled under both international and European law.