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Oil Zone Fighting Threatens Libya with Economic Collapse
Oil Zone Fighting Threatens Libya with Economic Collapse
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

Former Senior Analyst, Libya
Project Director, North Africa
boumilo

It’s Not a Sprint

Originally published in Körber-Stiftung

The fraught history of the military intervention shows that EU engagement in Libya should first and foremost be guided by strategic vision.

Whatever one thinks of the initial military engagement leading to the eventual downfall of the country’s leader Muammar Qaddafi, there is no doubt that the international community failed Libya after the intervention. Today, Libya is a quasi-failed state, with multiple governments competing for legitimacy. Its accumulated wealth, its oil and a residual Libyan nationalism seem to be all that keeps the country from further fragmentation. This increasing power vacuum has turned Libya into a conduit for desperate migrants trying to reach the shores of Europe. In the absence of a well-functioning state, criminal interests exploit human misery, all the more so as people smuggling remains one of the few viable activities in a collapsed economy. 

The migrant crisis adds a measure of urgency to discussions on Libya and threatens to further divide Europeans at a time when more European unity and strategic vision are needed. The stabilization of Libya and a humane response to the migrant crisis are closely related. Without an effective partner in Tripoli, the EU is unable to stem the flow of migrants in a manner consistent with international law and its own human rights standards. But stabilizing Libya requires patience and a long-term perspective that are hardly compatible with the domestic pressures under which European governments operate when it comes to the question of migration. This has led to a wrong choice of priorities: today the EU and its member states seem more preoccupied with stopping by all means available the flow of migrants than with working for an elusive political solution.

This short-term mind set is illustrated by European support for Libyan coast guards which, in the absence of an inclusive political agreement, can be considered as just another militia. Likewise, various deals rumoured to have been struck with militias to control the southern border of Libya may end up strengthening non-state actors at a time when the international community needs to have a strong state to deal with instead. And pressing the government of Prime Minister Serraj to embrace an agenda driven by European rather than Libyan priorities will not help it gain legitimacy in Libya.

The migrant crisis adds a measure of urgency to discussions on Libya and threatens to further divide Europeans.

It sometimes seems that the left hand of the international community is undoing what the right hand is trying to do. Indeed, the disparity between Libyan priorities and Europe’s anxieties over migration and terrorism is not the only dynamic that makes Libya the victim of outside powers’ competing agendas. There are also the differences over political Islam between Gulf monarchies and other Arab states, and the competing regional visions of Egypt and Turkey.

The result of these clashing interests has been a botched political process that is not only unable to address the growing fragmentation of Libya but is also making it worse. While the government of national accord installed in Tripoli enjoys UN and international backing, as well as the strong support of individual countries, particularly Italy, its authority over the country is limited. General Haftar has effective control over a significant part of the east. The only institutions embodying the unity of Libya are the central bank and the National Oil Corporation. But that unity is increasingly jeopardised by Libyan actors’ predatory behaviour, and the actions of outside powers supporting proxies. Regional actors have not created the internal divisions of Libya, but they contribute to their deepening.

What then can be done? The starting point should be to do no harm and to support the new special envoy of the UN Secretary General in Libya, Ghassan Salamé, as he tries to restore Libyan trust in the international community. The European Union should be more united, take a longer-term perspective and align its priorities with the priorities of Libya. The only sustainable way to stem the flow of migrants into Europe is to have a stable Libya that can not only control its borders, but also offer job opportunities to the migrants that have traditionally come to the country.

The European Union should be more united, take a longer-term perspective and align its priorities with the priorities of Libya.

The reconstruction of Libya can provide such economic opportunities for migrants, but only with a more inclusive and more impartial approach to the political process, and an acknowledgment that a foreign-imposed legitimacy is bound to fail. Security arrangements must be negotiated not just for Tripoli, but for the whole of Libya, starting with the south and the west. Peace also requires that the predatory economy sustaining the war is effectively countered. The European Union and the international community can help in this regard, because the illicit economy is for a large part based on the smuggling of subsidised fuel, a trade that needs international partners to thrive.

Germany has a particular role to play in that effort. Since Germany, at that time an elected member of the UN Security Council, parted ways with its Western partners in 2011 and refused to support the resolution that led to the military intervention, Berlin has not been compromised in the ousting of Qaddafi. Also, Germany has no major interests in the oil economy of Libya. Its interest is in the stabilization of Libya, which will contribute to the stabilization of the Sahel, to better migration policies, and will eventually create opportunities for German companies. Libya is of strategic importance for Europe, not as a buffer state between Europe and sub-Saharan Africa, but as a full-fledged partner that can help manage the much bigger challenges emanating from the poor, populous African states to the south.