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Oil Zone Fighting Threatens Libya with Economic Collapse
Oil Zone Fighting Threatens Libya with Economic Collapse
Quick Fixes Won’t Block Libya’s People Smugglers for Long
Quick Fixes Won’t Block Libya’s People Smugglers for Long
Burned equipment, including a charred and flattened crude oil tank in the background, is seen at the Ras Lanuf crude oil tank farm near Ras Lanuf, Libya, 17 October 2016. CRISIS GROUP/Claudia Gazzini

Oil Zone Fighting Threatens Libya with Economic Collapse

New clashes over Libya’s oilfields could wreck the fragile remains of the country’s economy. Beyond security help, international actors must support compromises on state financing between the opposing factions and help pull Libya back from the brink.

Libyans have seen rare glimmers of hope in recent months, with an uptick in oil exports and recent reverses inflicted on the jihadists of the Islamic State. But new fighting over the country’s oil crescent has upset precarious balances and threatens the country with a dangerous economic meltdown.

The new trouble began on 7 December, when a coalition of militias began an offensive to take control of the oil export facilities of the Gulf of Sirte, an area known as the “oil crescent” that is one of Libya’s main economic lifelines. The attacking forces moved from Jufra, south of Sirte, and advanced to Ben Jawwad, some 30 km west of Libya’s largest oil export terminal. Forces loyal to General Khalifa Haftar, which control the area, responded with airstrikes and pushed the assault force back to Jufra.

The rump government in Tripoli, the Presidency Council headed by Prime Minister Faez Serraj and backed by the UN and several Western powers, has distanced itself from this operation and stated it played no role in mobilising this force. Crisis Group warned in September and November that such an attack would be perilous.

Yet many Libyans, including members of units who launched the assault, claim the operation was carried out under the leadership of al-Mahdi al-Barghathi, the defence minister in Serraj’s government. Tripoli-based officials have been sounding the alarm for months about preparations for such an assault, alleging that Barghathi was providing legal cover and funds for the operation, and also coordinating the recruitment of men and provision of weapons.

The aim of the offensive was clearly to strike a blow against Haftar-led forces, whose control of the oil crescent is ill-tolerated by various Tripoli-based groups, including some members of the Presidency Council. Haftar took over the oil crescent in September. Since then he has greatly increased his negotiating position, having already established his Libyan National Army (LNA) as the dominant politico-military force in eastern Libya and seizing control of much of Benghazi over the course of 2016. For those attacking, regaining the oil crescent would not only mean controlling the oil terminals there, but also opening strategic supply roads to Benghazi, where forces allied with the Council against Haftar have suffered successive defeats since the beginning of the year.

But Haftar’s takeover of the oil fields has also allowed a 50 per cent rise in Libya’s oil exports at a time where Libya’s foreign cash reserves are growing dangerously depleted. And the new fighting comes just as Libyans had welcomed the liberation of Sirte from the Islamic State, with the last few blocks of the coastal city under the jihadist group’s control seized on 5 December.

Politically, the 7 December operation reveals further fragmentation in the coalition that is backing the Presidency Council and will likely make it more difficult to reach a negotiated solution to the Libyan conflict. In particular, Barghathi’s apparent role in the offensive is divisive. Several members of the Presidency Council, as well as the main military force in the west from the city of Misrata, had opposed such an escalation. It also raises the question of whether an already weak Presidency Council, facing increasing challenges in its own camp, has lost control of its defence ministry. And it affords its opponents in the east the opportunity to discredit it further. On 8 December, the day after the offensive on the oil terminals, Haftar-aligned forces retaliated by attacking Brak air force base, south of Sirte, inching closer to a confrontation with the Presidency Council-aligned Misrata forces now controlling Sirte.

The Attack on the Oil Crescent

Crisis Group on the Ground Crisis Group's Senior Analyst for Libya, Claudia Gazzini, walks through destroyed crude oil storage tanks in the Sidra tank farm, near Ras Lanuf, Libya, 16 October 2016. CRISIS GROUP/Claudia Gazzini

The 7 December offensive was carried out by a self-proclaimed “Operations Room for the Liberation of the Oil Fields and Ports”.

According to sources familiar with the operation, a surprisingly small force of some 600-800 men drawn mostly from former members of the Shura Council of the Benghazi Revolutionaries, an anti-Haftar military coalition, and another military grouping called the Benghazi Defence Brigade. Both are Islamist-dominated militias driven out of the eastern city earlier this year. It also includes men loyal to Ibrahim Jadran, the former commander of the Petroleum Facilities Guard in the area, who controlled it prior to Haftar’s takeover in September. Close associates of Barghathi were also actively involved in the operation: one is Idris Musa Bughuetin, the Operations Room’s commander; another is Osama al-Obidi, a colonel who was captured by the LNA on 7 December and transferred to its headquarters in Merj.

Barghathi has told the Presidency Council that he did not order that attack. Yet there is strong evidence to the contrary. According to defence ministry sources, for the past three months Barghathi has been coordinating with Qatar-based Islamist politician Ismail Sallabi, who is also from Benghazi, and members of the Benghazi Defence Brigades in Tripoli in preparation for the offensive. They also allege that he has been tapping into the defence ministry’s budget (never earmarked for such an operation) while Sallabi obtained other funds from Qatar to recruit men. Sources in Misrata add that Barghathi and his aides have been purchasing weapons on the local arms market (a common practice even for officials in Libya, as an arms embargo prevents the legal purchase of weapons from abroad).

The credibility of the Presidency Council and its defence minister is at stake. If it is true that the Council had no knowledge of the offensive being planned, which is what it publicly stated in a 7 December communiqué, this attack underscores its weakness and inability to control what is happening on its own turf (since the offensive was planned and the force recruited in Tripoli). It is unlikely that the Council was fully in the dark, as preparations for the offensive were an open secret. Indeed, it may be that the Council, or some of its members, covertly backed the offensive to undermine Haftar and retake the crucial oil crescent. This would suggest political and military naivety, as such an assault was always unlikely to succeed without the support of Misratan armed groups, the most important in western Libya, and a way to counter Haftar’s air superiority.

“We Are Dying of Hunger”

Buildings destroyed in bouts of fighting line a road in Benghazi, 19 July 2016. CRISIS GROUP/Claudia Gazzini

The greatest repercussions, however, are economic. Since Haftar seized control of the oil crescent in September, he allowed oil exports from the terminals to resume and repairs to damaged facilities to be carried out. Revenues from these sales, made by the Tripoli-based National Oil Corporation (NOC), are paid to the Central Bank of Libya. Both institutions, whose unity the international community has sought to defend since the conflict began, recognise and work with the Presidency Council. The Haftar-supporting eastern government tried to create its own branches of the NOC and Central Bank, but Haftar himself has so far worked through the Tripoli-based NOC chairman.

Now, even if the 7 December offensive stops, it has already broken the delicate equilibrium that allowed the NOC to both cooperate with Haftar forces in the oil crescent and also to collaborate with the Presidency Council. Haftar could well claim that the Council has allowed state funds to be used to finance the offensive, end cooperation with the NOC and perhaps once again block exports.

So far Haftar has made no such move. But his continued cooperation in oil exports appears to be conditional on the Central Bank of Libya not disbursing funds to the Presidency Council through ad hoc procedures, which is what the Council and its international backers are asking the Central Bank to do. At present, such ad hoc procedures are frozen by political disagreements between Libya’s rival political entities – which may be one reason the 7 December operation happened in the first place.

If Haftar does cut back exports, this would put huge new strain on Libya’s struggling economy. The loss in oil exports due to the ports’ closure (when they were controlled by Jadran) and blockades of critical oil and gas infrastructure elsewhere over the last three years have significantly reduced oil production. From a high of 1.8 million barrels per day (bpd) in the era of the late former leader Muammar Qadhafi, it remained under 400,000 bpd for much of 2016. Since Haftar took control of the fields, it has begun to recover, reaching 600,000 bpd in November. Together, low oil production, prices and exports have resulted in a fiscal deficit of 56 percent of GDP in 2015, expected to remain approximately the same for 2016.

At this rate, Libya could be bankrupt by the end of 2017

At this rate, Libya could be bankrupt by the end of 2017. Foreign currency reserves are estimated to now be below $40 billion, compared to $75 billion in March 2015, the last known public figure. Even if, in the NOC’s optimistic scenario, production returns to 1 million bpd at a price of $50 a barrel, the country will barely recover. It is already suffering a severe liquidity crisis, with commercial banks limiting cash withdrawals. Libyans have to queue for hours to withdraw a maximum of $300 per day; sometimes weeks can go by without any cash in the banks. The U.S. dollar is traded at four times its official rate on the black market and inflation is rising rapidly, as most food and consumer goods are imported.

Such is the public frustration that a woman recently climbed on top of a fountain in downtown Tripoli, stripped off her veil and shouted: “We are dying of hunger. Do you want us to sell our honour to feed our children?

Healing the Divide

Clouds dot the skyline over Merj, in Eastern Libya, 16 July 2016. CRISIS GROUP/Claudia Gazzini

Not enough attention has been given to healing the divide of Libya’s main economic institutions, which the Libyan Political Agreement signed in December 2015 has not ended. An improving relationship between the two rival governors of the Central Bank of Libya, Saddik ElKebir, based in Tripoli, and Ali al-Hibri, based in al-Bayda in the east, broke down in early June when Hibri authorised the distribution of Russian-minted banknotes. The Presidency Council has done little to address this, and in November, U.S. Secretary of State John Kerry and other international officials personally intervened to improve increasingly difficult relations between ElKebir and the Presidency Council. Likewise, Tripoli-based NOC chairman Mustafa Sanallah and his Benghazi-based counterpart Naji al-Mogrebi, who had agreed to work together this summer, have not communicated since October. Sanallah also has his own problems dealing with the Council.

In this chaotic political context, it is essential to stabilise the country’s economy and prevent further destruction of oil and gas installations. Even in the absence of an overarching political settlement there are important steps that can be taken.

First of all, the Presidency Council and its international backers must urgently prevent any further escalation in the Gulf of Sirte. One way to do so would be for the Presidency Council to launch an investigation into the 7 December offensive with the aim of determining who is responsible for organising the attempted assault on the oil terminals. Such steps might help quell tensions, reassert the authority of the Council and enable the consensus to get funds flowing to it again.

In this chaotic political context, it is essential to stabilise the country’s economy and prevent further destruction of oil and gas installations.

Secondly, with regard to economic considerations, the UN Security Council should reiterate its strict ban, outlined in UN Security Council Resolution 2146, against selling oil outside legal channels. It should insist on the principle that military forces in control of oil and gas facilities allow the NOC unhindered access to, and operation of, such facilities. Adherence to this principle would reduce the growing nervousness of the Presidency Council about its dire financial situation and help avert the prospect of economic disaster in the coming year.

Thirdly, the UN and backers of the diplomatic process in Libya should consider the necessity, now more than ever, of a serious economic track that encourages the various factions, even if they take time to reach a political settlement, to take interim measures to address urgent economic challenges.

Militarily, Libya’s conflict has been, in regional terms, relatively low-intensity. Keeping it that way, consolidating the defeat of the Islamic State in Sirte and extremists elsewhere, and eventually resolving it will require addressing the political divides, a process that has proven deeply frustrating and has been faced with many setbacks in the last year. A way to revive hope for a political settlement should begin with addressing looming economic problems before they get more serious, and strike economic compromises that help solve immediate governance problems. In other words, amid the necessary focus on getting Libya’s security balances right, policymakers should not forget to address the country’s bottom line.

Contributors

Senior Analyst, Libya
claudiagazzini
Project Director, North Africa
boumilo
A Libyan coast guardsman stands on a boat during the rescue of 147 illegal immigrants attempting to reach Europe off the coastal town of Zawiyah, 45 kilometres west of the capital Tripoli, on 27 June 2017. AFP/Taha Jawashi

Quick Fixes Won’t Block Libya’s People Smugglers for Long

A recent dramatic decrease in migrants reaching Europe may be partly explained by payoffs to armed groups in Libya. In this Q&A, Crisis Group’s Senior Analyst for Libya, Claudia Gazzini, warns about the risks associated with this policy, arguing that while working with armed groups may be necessary in the short term, any durable solution requires putting Libya’s economy and politics back on track.

What are the latest migration figures from Libya?

Italian officials report that the number of migrants and refugees travelling from Libya along the Central Mediterranean route to Europe fell sharply in July and August 2017 compared to the same period last year. In 2016, approximately 160,000 people travelled on makeshift boats from Libya to Italy. Based on trends during the first six months of 2017, it appeared that these numbers would increase by 20 per cent. Instead, the number of crossings in July 2017 was half of what it was in July 2016, and in August, 20 per cent of what it was a year earlier. This comes as welcome news to European Union (EU) policymakers, particularly Italian officials who have sought desperately to curb migrant flows from Libya. But it may have come at a price that should cause concern – some international NGOs say European efforts to stop migrants from crossing the sea is encouraging their abuse in Libya.

As the primary gateway for migrants and refugees reaching Europe through the Mediterranean Sea, Libya is at the forefront of the EU’s migration policies. In late 2014, the EU launched its Naval Force Mediterranean (EUNAVFOR MED), also known as Operation Sophia, whose goal is to save lives at sea and to disrupt human smuggling and trafficking networks between Libya and Europe. The EU also invested in training coast guards, facilitating voluntary repatriation flights and enhancing UN agencies’ migrant related activities. But until mid-2017, migrant flows from Libya to Europe continued to increase.

Stabilising Libya's Economy Essential to Curb the Flow of Migrants

Fixing Libya's Economy Essential to Curb Migrant Flows CRISIS GROUP

How do you explain recent changes in the numbers using Central Mediterranean route?

There are a series of factors behind it. First, the previously dysfunctional Libyan Coast Guard has received new equipment from Italy and training from the EU. It also coordinates with Italian naval forces in Libyan territorial waters to dissuade smugglers. Smugglers are not the only ones at risk off the Libyan coast: the Coast Guard has threatened to shoot the vessels of some international NGOs which both Libyan and Italian authorities accuse of colluding with smugglers and encouraging migrant flows – accusations the NGOs reject. The Libyan Coast Guard also has ordered that foreign rescue vessels remain 90 nautical miles off the Libyan coast, making it more dangerous to cross the Mediterranean and thus deterring migrants.

Until recently, militias in the towns west of Tripoli from which most migrants depart had provided protection to smuggling and trafficking groups.

Second, Libyan armed groups appear to have been co-opted. Until recently, militias in the towns west of Tripoli from which most migrants depart had provided protection to smuggling and trafficking groups. According to credible reports, Libya’s UN-backed and Tripoli-based government, possibly with Italy’s support, has made direct payments to militias and armed groups to thwart the passage of smuggler vessels and migrants. Italy has denied any role in such payments while the Tripoli-based government has downplayed financial incentives, stating they simply promised immunity for armed groups formerly involved in people smuggling and gradual integration into state security forces.

It is unclear whether Italy made payments directly or whether it simply funded local authorities who in turn paid off militias. The alleged payments could be an extension of the Tripoli government’s longstanding strategy to use financial incentives to win the allegiance of armed groups. With these armed groups frequently implicated in the mistreatment of migrants, the EU’s July 2017 announcement of a €46 million fund to address migration issues in Libya – much of which is being managed and disbursed by Italy – already had drawn the fire of international NGOs, even before the recent allegations against Italy.

A third possibility is that armed groups formerly involved in people-smuggling may be turning to more lucrative fuel smuggling. The Libyan state subsidises gasoline and diesel at ridiculously low prices (less than $0.10/litre at the official exchange rate; $0.02/litre at the black-market rate); smuggling these refined fuels out of the country can generate about $0.30/litre in profits. The business is estimated to be worth up to $2 billion per year.

Migrant Arrivals to Italy by Sea in 2016-2017 CRISIS GROUP

Is the European approach sustainable?

European governments, particularly those facing electoral challenges from the far-right, understandably want a quick solution to their urgent migration crisis. But there is a risk the current approach could boomerang in the longer term if, in seeking quick results, the EU and member states inadvertently undermine simultaneous efforts to address Libya’s economy and political crisis. This could imperil the recovery necessary for stability.

Even if it works in the short term, [paying off armed groups] is likely unsustainable.

Paying off armed groups is risky. Even if it works in the short term, it is likely unsustainable. Armed groups are fickle, as Libya’s recent history has demonstrated. Their cooperation is typically based on the promise of rewards, financial or otherwise. Tomorrow they may find another patron with a different mission. As a result, any payoffs to militias should be aimed at eventually integrating them into a security structure answerable to the Libyan state to constrain the rents they could obtain from criminal activities.

More broadly, providing resources to one faction at the expense of others feeds ethnic, tribal and political bickering while reinforcing the impunity of armed groups. Whatever the short-term gains, fuelling the country’s militia culture likely will impede a political solution and undermine the political project that Europeans ostensibly support: fostering a more coherent and effective Libyan state. There is also a moral dimension. The round-up of migrants by armed groups, without oversight or training, exposes them to widespread abuse, including torture, rape and extortion.

Paying off troublesome militias is nothing new in Libya, and has been part-and-parcel of politics there since the outbreak of conflict in 2014. Because these groups retain considerable power and cannot simply be brushed aside, payoffs may seem both necessary and inevitable. But there are other ways to encourage their cooperation – chiefly offering armed group members, and their families, a licit alternative to the illicit economy and ensuring they end their criminal behaviour.

Ongoing UN-led efforts are bringing armed groups in Tripoli under the authority of the internationally-recognised government. It is important that attempts to co-opt armed groups involved in human trafficking outside Tripoli not contravene this effort, by accidentally empowering factions that resist government oversight. So far it appears that the deals cut with militias in Sabratha and Zawiya areas, west of Tripoli, were not coordinated with the UN representatives liaising with the Tripoli armed groups. The UN-backed government and its international partners should coordinate efforts to ensure they are working in concert toward a unified security sector.

Nobody should have any illusions about the difficulty of reducing militia influence, whether through financial or other incentives.

Nobody should have any illusions about the difficulty of reducing militia influence, whether through financial or other incentives. One mistake made earlier this year was to delay payment of the Presidential Guard, a new military force charged with securing key installations in the capital. Administrative bottlenecks (and perhaps also corruption and competition between local factions) delayed the disbursement of a budget for this.

The EU’s efforts to support the Libyan Coast Guard also has faced difficulties with many recruits, including former members of armed groups accustomed to receiving bribes. Wives of these coast guards, who were used to regular payments from smugglers, often opposed their husbands’ training at sea without up-front payment from the EU.

It will take time to find the right model of financial incentives, institutional grounding and accountability. All of these should be factored in when seeking to dissuade people-smugglers.

You were recently in Libya’s south west. Can you describe how realities on the ground there fit into the bigger picture of trans-Mediterranean migration?

South-west Libya is the missing link in the EU’s action plan, as the region, called the Fezzan, is central to the migration issue. Due to a de facto open border with Niger, it is the entry point for a majority of sub-Saharan African migrants. Yet the EU largely has ignored the region; its officials and those of member states have rarely set foot there. Access to the south west is difficult for Westerners, with no functioning airport or hotels. Special arrangements are needed to visit, not least because the patchwork of armed groups and local tribes means territorial control changes hands every few hundred kilometres.

Despite the challenges, Europe needs to increase its presence [in Libya's south west] to develop an accurate understanding of local challenges and needs.

Despite the challenges, Europe needs to increase its presence to develop an accurate understanding of local challenges and needs. This is crucial to formulate any sensible plan, whether to invest in border guards or promote economic development, both of which are indispensable for revamping Libya’s legitimate economy.

Locals are entirely dependent on the illicit economy, including the smuggling of people and goods. But the EU should resist the temptation of bypassing the central state to work with local authorities – who are often no less divided – on local economic initiatives. The EU should only back projects that are sustainable and fit within the framework of a united Libyan state.

How do you see Libya’s future?

Libya remains politically adrift and economically unstable. The country’s rival factions are in desperate need of reconciliation and stabilisation. The fragile government led by Prime Minister Faiez Serraj risks becoming a mere placeholder, used by the EU or some of its member states to pursue a European – rather than Libyan – agenda, such as curbing migration. Failure to pursue Libyan interests will further discredit this government within Libya.

Ignoring the Libyan agenda also runs counter to the goal of building a stable country, capable of serving as an effective partner with the EU for managing migrant flows and other interests. Libya’s economy once absorbed millions of migrant workers, mostly from Africa. It is potentially wealthy and in need of reconstruction. Such an effort that could also create many jobs, mostly for non-Libyans. Immediate solutions, however politically expedient, should not come at the expense of progress toward a long-term solution of the conflict. If they do, the recent dip in migrant crossings could prove short-lived.

What should the international community do to address Libya’s multiple crises and help rebuild a united country?

The international community should work within a coherent nationwide stabilisation plan rather than dealing with Libya through piecemeal and potentially contradictory efforts. Interested powers, particularly European, should prioritise three things in particular.

Libya’s economic deterioration must be addressed [by interested powers, particularly European].

First, Libya’s economic deterioration must be addressed. Its vast oil wealth must once again become a lifeline for all rather than a weapon for various factions promoting political and personal interests. This will only be possible by stopping the pervasive predation on state resources not only by militias, but also by politicians, state officials and business people. Stabilising Libya’s economy would allow migrants to enter the Libyan labour market rather than seeking opportunities in Europe.

Second, the UN’s special representative, Ghassan Salamé, must work on rebuilding Libyan trust toward the international community, damaged over the past three years as the UN rushed the negotiations. This could breathe new life into the political process.

Third, an attempt should be made to reconcile Libya’s military factions in order to stem violence on the ground. Fostering dialogue among armed groups – starting first at the local level in the south and west and then convening nationwide talks – is vital.

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