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The Prize: Fighting for Libya’s Energy Wealth
The Prize: Fighting for Libya’s Energy Wealth
Table of Contents
  1. Executive Summary
El-Sharara oil field, Libya, 24 March 2015. CRISIS GROUP/Claudia Gazzini
Report 165 / Middle East & North Africa

The Prize: Fighting for Libya’s Energy Wealth

The imminent collapse of Libya’s economy could impoverish millions, foster chaos and more radicalisation. At the heart of Libya’s misery is frenzied competition for control over the country’s oil resources. Ongoing UN-led talks should urgently prioritise economic governance, local ceasefires and armed defence of oil facilities.

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Executive Summary

Libya’s economic conditions could turn sharply for the worse, as rival authorities vie to control rapidly shrinking national wealth. The struggle affects oil fields, pipelines and export terminals, as well as the boardrooms of national financial institutions. Combined with runaway spending due to corruption and dwindling revenue because of falling exports and energy prices, the financial situation – and with it citizen welfare – faces collapse in the context of a deep political crisis, militia battles and the spread of radical groups, including the Islamic State (IS). If living conditions plunge and militia members’ government salaries are not paid, the two governments competing for legitimacy will both lose support, and mutiny, mob rule and chaos will take over. Rather than wait for creation of a unity government, political and military actors, backed by internationals supporting a political solution, must urgently tackle economic governance in the UN-led talks.

The Prize: Libya's Hydrocarbon Wealth

In this video, our Senior Libya Analyst, Claudia Gazzini, explains the complex overlapping issues around the fight for Libya's energy wealth and how we went about researching the topic. CRISIS GROUP

Since the Qadhafi regime fell in 2011, Libya has been beset by attacks on, labour strikes at and armed takeovers of oil and gas facilities, mostly by militias seeking rents from the fledging central government. Initially brief and usually resolved by government concessions, the incidents gradually took on a life of their own, in an alarming sign of the fragmentation of political, economic and military power. They show the power accrued by militias during and since the 2011 uprising and the failure of efforts to integrate them into the national security sector. The dysfunctional security system for oil and gas infrastructure presents a tempting target for IS militants, as attacks in 2015 have shown.

One aspect of the hydrocarbon dispute is a challenge to the centralised model of political and economic governance developed around oil and gas resources that was crucial to the old regime’s power. But corruption that greased patronage networks was at that model’s centre, and corrupt energy sector practices have increased. A federalist movement some consider secessionist controls a number of the most important crude-oil export terminals. It exploits the situation by pursuing its own sale channels, adding to the centrifugal forces tearing Libya apart.

This complicates efforts to resolve a political conflict that in July 2014 triggered a split between rival parliaments, governments and military coalitions – one based in the capital, Tripoli, the other in the east, and both with support from competing regional players. Convinced of its legitimacy, each fights to control key institutions. As the most important, the Central Bank of Libya (CBL) and the National Oil Company (NOC), are under Tripoli’s control, the internationally recognised parliament in Tobruk and its government in al-Bayda are trying to set up parallel institutions. The sides also contest the assets of the Libyan Investment Authority (LIA, the sovereign wealth fund), in international courts. In anticipation of a unity government, most regional and all other international actors with a stake remain committed to the established CBL, NOC and LIA. They understand that these institutions jointly represent upwards of $130 billion and have senior technocratic expertise critical to rebuilding the state.

The longer negotiations stall, however, the greater the risk the Tobruk/Bayda authorities (which consider the Tripoli-based CBL and NOC biased against them) will be able to create rival institutions or weaken the existing ones. At the same time, Libya’s once-significant wealth (derived almost entirely from oil and gas sales) is haemorrhaging, due to corruption and mismanagement. Combined with reduced crude-oil exports because of damage to production and export sites, pipeline and other infrastructure blockades and the sharp decline in international oil prices, this makes remedial action urgent. Poor economic management already causes some shortages of fuel and basic goods; a wider economic crisis like a sudden, uncontrolled devaluation of the dinar, would severely harm millions. This would likely cause new security crises, encouraging more predatory behaviour by militias whose salaries the state pays, increasing the importance of the parallel economy (notably smuggling) and spurring new refugee flows.

Even as UN-led negotiations for a Government of National Accord (GNA) continue, several steps should be taken, including at a minimum:

  • reiterating international determination that there can be only one CBL, NOC and LIA, with a GNA to appoint their senior managers; and oil sales or related contracts outside official channels will not be tolerated;
     
  • prioritising economic governance in the UN-led talks so as to secure agreement on short-term economic policy and interim management of key institutions. This should be done in a separate negotiating track, including representatives of both authorities and with the support of international financial institutions such as the IMF and the World Bank;
     
  • brokering of local ceasefires in the UN-led talks’ security track, or other channels where relevant, to increase revenues in the short term by allowing reopening of blockaded oil fields, pipelines and export facilities. Security arrangements for repair and reopening of damaged facilities should be negotiated in the longer term; and
     
  • making the question of the armed groups guarding oil facilities another priority security-track topic. Some of these have considerable arsenals and allies across Libya and are largely autonomous, so cannot be ignored. Including these armed groups could also help improve the protection of oil and gas infrastructure against attacks by IS affiliates.

The slow progress of the UN-led talks on political questions should dissuade neither the belligerents nor the internationals from encouraging such interim steps. That Libya has kept, against all odds, a minimum level of economic governance and even briefly increased oil exports shows that interim economic arrangements are possible; they could even deliver political gains by building confidence and demonstrating that compromise can be mutually beneficial. But this needs a push from outside, the resolve of both local and international actors – notably regional powers that have oscillated between backing a political solution and supporting one side or another – to maintain the integrity of the financial institutions and perseverance from negotiators. Above all, it entails convincing the two sides they are fighting over a rapidly diminishing prize and would be better off agreeing to these steps so as to share a bigger pot.

Tripoli/Brussels, 3 December 2015

French President Emmanuel Macron (C) walks with French Foreign Affairs Minister Jean-Yves Le Drian (2nd L), Libyan Prime Minister Fayez al-Sarraj (R) and General Khalifa Haftar (L), commander in the Libyan National Army (LNA), arrive for summit. PHILIPPE WOJAZER / POOL / AFP

Making the Best of France’s Libya Summit

Four main Libyan leaders meet in Paris on 29 May to sign a roadmap to peace, including 2018 elections with united international backing. But with Libya’s UN-backed peace process at risk from the meeting's format and the accord that France has brokered, the sides should instead commit to a broader declaration of principles. 

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What’s new? On 29 May France will host a summit on Libya bringing together the country's four principal competing leaders to sign an agreement on a roadmap to new elections in 2018. The event’s stated purpose is to unite international actors behind a single roadmap and ensure Libyan leaders adhere to it.

Why does it matter? If successful, the meeting could signal the rival leaders’ willingness to compromise and inject new momentum into a sputtering peace process. Yet both the meeting’s format and the accord that France has brokered have stirred significant controversy both in Libya and abroad.

What should be done? France should revise the draft agreement and consider presenting it as a declaration of principles on political, security and economic steps, without necessarily compelling the four Libyan leaders to sign it. This would avoid causing resentment among those constituencies not represented in Paris and undermining the UN-led peace process.

Overview

France’s decision to host Libya’s main political and military leaders on 29 May is both audacious and risky. If Paris pulls it off, it will be unprecedented and signal the rival leaders’ willingness to compromise. But the proposed draft accord circulated thus far is problematic and, if not appropriately modified, could unintentionally undermine UN-led, consensus-based peacebuilding efforts currently underway. Reaching an accord could generate a brief moment of enthusiasm but risk being followed by recriminations when signatories – facing opposition by some of their allies back home – renege on their pledges. French organisers should avoid imposing too rigid a framework and consider not seeking a signed agreement for now. Instead they could use the event to push Libyan leaders toward compromise and a divided international community toward greater convergence through a broader declaration of principles on political, security and economic steps that would help stabilise and unite the divided country.

The Paris Summit

On 29 May, France is scheduled to host a meeting in Paris bringing together Libya's four principal competing leaders to endorse a roadmap for the country’s stalled peace process, which is to be sanctioned by key external stakeholders, including the UN. The proposed draft agreement, as circulated to international partners days prior to the event, calls for Libya to organise elections by the end of 2018, support adoption of a constitutional framework, reintegrate military forces through the ongoing Egypt-led security dialogue and reunify financial institutions.[fn]Document titled “Draft Accord Libya Conference”, version 7, 22 May 2018, circulated by France to foreign states invited to the event. This document, which contains thirteen points, was leaked to the Libyan and foreign media and was widely discussed inside Libya. A copy of the draft accord is available on the website of Italy’s La Repubblica daily newspaper, https://bit.ly/2sk9YRa. French officials say the draft agreement is under ongoing revisions following further consultations with international and Libyan stakeholders and is only likely to be finalised “at the very last minute, just prior to the meeting”. Crisis Group phone interview, French diplomat, 27 May 2018.Hide Footnote

France’s intentions are clear. The meeting, which President Emmanuel Macron will host, is designed to gather international and regional actors around a single agenda, put an end to individual, uncoordinated peace initiatives and press Libyan leaders to fall in line. French officials say the moment has come for a concerted push to hold elections later this year. They argue that successful voter registration to date shows there is popular demand for this even if some Libyan leaders appear keen to maintain the political status quo.[fn]Crisis Group phone interview, French official, Paris, 26 May 2018. The official said France sought a binding agreement, negotiated with Libyan parties, that would hold them accountable.Hide Footnote

Such a fresh initiative could inject much-needed adrenaline into a sputtering peace process and should therefore be welcomed in principle. Yet both the meeting and proposed accord have stirred significant controversy both in Libya and abroad.[fn]Several Libyan interlocutors expressed dismay at the draft accord’s content. A Benghazi-based politician said: “This document is just wrong in every respect. It is so categorical”. Another from Misrata said: “What a disastrous draft agreement. It just shows such a superficial understanding of Libya’s problems and solutions”. Crisis Group phone interviews, Benghazi and Misrata, 26 May 2018.Hide Footnote Many Libyans are concerned that the initiative will subvert the UN-led process, which has been the lodestar of international efforts so far, and short-circuit its outcome.[fn]Crisis Group phone interviews, Libyan politicians, Tripoli, Misrata, Benghazi, 23-26 May 2018.Hide Footnote A Misratan politician said:

We don’t see where the UN fits in all of this. What is the link between what the French are doing and what the UN representative has stated he wants to do? Is the agreement to be signed in Paris supposed to replace the Action Plan?[fn]Crisis Group phone interview, Misrata, 23 May 2018.Hide Footnote

The UN-led process is based on the Action Plan unveiled in September 2017 by Ghassan Salamé, the UN Secretary-General's Special Representative for Libya, who is conducting consultations in preparation for a national conference comprising a broad range of Libyan political actors as an essential building block for elections, a constitution and the country’s institutional unification. However, French officials say this event is aimed at supporting the UN’s efforts, not at supplanting them, and takes place under the UN’s aegis.[fn]Crisis Group phone interviews, French officials, Paris, 25-27 May 2018.Hide Footnote

Libyan political actors also have expressed concern over who will be attending the Paris event and who will be left out (including by staying away). Libyan invitees include Faiez Serraj, head of the internationally recognised government in Tripoli; Khalifa Haftar, leader of the Libyan National Army, which controls much of eastern Libya; Aghela Saleh, speaker of the House of Representatives elected in June 2014 and based in the eastern city of Tobruk; and Khaled Mishri, the recently elected head of the High State Council, a Tripoli-based chamber intended to play an advisory role under the December 2015 Libyan Political Agreement. Each will be accompanied by a four-person delegation.

A number of other Libyans have been invited to attend on the margins but will not be asked to sign the agreement.

A number of other Libyans have been invited to attend on the margins but will not be asked to sign the agreement. This two-tier approach has caused resentment among some Libyans. A delegation from the city of Misrata, a key military and political constituency in Libya’s west, refused to travel to Paris when informed they would not be treated on par with the other four delegations.[fn]Crisis Group phone interview, Misratan politician, Misrata, 27 May 2018.Hide Footnote

As Crisis Group has argued, negotiating through individual personalities without ensuring a broader consensus across the political and military spectrum is likely to be counterproductive.[fn]See Crisis Group Middle East and North Africa Briefing N°57, Libya’s Unhealthy Focus on Personalities, 8 May 2018.Hide Footnote In the past, this approach has obstructed peace efforts, as France knows very well: a July 2017 meeting Macron hosted between Serraj and Haftar produced a photo-op but both men abandoned most of their commitments quickly afterward.[fn]The 25 July 2017 meeting between Serraj and Haftar held in La Celle Saint-Cloud, outside of Paris, resulted in a joint declaration but most of the commitments the two men made they failed to implement. See “Libya-Joint Declaration (25 July 2018)”, French ministry of foreign affairs, https://www.diplomatie.gouv.fr/en/country-files/libya/events/2017/article/libya-joint-declaration-25-07-17.Hide Footnote While the four invited leaders and the institutions they represent are critical to achieving peace, Libya remains a fragmented polity with multiple potential spoilers. These four individuals do not capture the ideological, tribal and political rifts that run through the country, and indeed have done much to deepen them. A number of armed groups from towns around western Libya have issued a statement that they do not consider the Paris meeting to represent them.[fn]Declaration by fourteen Libyan armed groups from western Libya, 27 May 2018.Hide Footnote

Representatives of the UN, EU, African Union, Arab League and fifteen member states will also attend. Among these are countries, such as the United Arab Emirates and Qatar, and Egypt and Turkey, that are in open conflict with one another elsewhere in the region. For France to persuade these states to attend the summit is a signal achievement and a hint of possible international convergence on Libya.[fn]Crisis Group phone interview, French official, Paris, 27 May 2018.Hide Footnote But some Western countries, including ones with an important role in the diplomatic process in Libya such as Italy, the U.S. and UK, have expressed scepticism over what a European diplomat labelled a French “display of stubbornness”, referring to the Elysée’s insistence that the event go ahead on the scheduled date despite their misgivings.[fn]Crisis Group phone interview, European diplomat, Tripoli, 23 May 2018. Several Western diplomats said the meeting was insufficiently prepared and advised the French government to take more time to refine the document. Only three weeks elapsed between the time the idea of the summit first emerged in early May and when it will take place. These foreign officials view France’s determination to host the summit as driven by Macron’s need for a foreign policy success after having failed to persuade U.S. President Donald Trump not to withdraw from the Iranian nuclear deal. Crisis Group phone interviews, Western diplomats, 24-26 May 2018.Hide Footnote One of Libya’s neighbours feels the meeting reflects French priorities only, and as such could not produce international consensus. An Egyptian diplomat said:

We are very much in favour of elections and putting an end to this interim period as soon as possible. But it has to be done right and we do not understand why France is precipitating things. If the electoral process is botched, it will leave behind a great vacuum.[fn]Crisis Group phone interview, Egyptian diplomat, Cairo, 24 May 2018.Hide Footnote

The Problems with the Proposed Agreement

The latest circulated draft that France wants Libyan leaders to sign states four goals: elections before the end of 2018; support for adopting a constitutional framework; bridging deep rifts inside security institutions; and uniting equally split financial institutions. These are laudable objectives in principle, but the elections in particular are linked to an arbitrary and probably unachievable deadline. It would be difficult to hold elections this year because Libyan parties have yet to agree on which elections (presidential and/or parliamentary) to hold and in what sequence. Some want presidential elections at all cost and as soon as possible, while others say elections would be too divisive in the current polarised climate, and still others prefer to preserve a status quo favourable to their hold on power.

Most importantly, setting a deadline for elections without due preparation and at least the parties’ public commitment to respect the results is certain to raise tensions.

Staging elections this year is unrealistic from a strictly technical perspective as well. Neither the legal nor the constitutional framework is in place – hurdles that may prove impossible to overcome within a short timeframe. Most importantly, setting a deadline for elections without due preparation and at least the parties’ public commitment to respect the results is certain to raise tensions. French officials say they are considering rephrasing the reference to an elections deadline in the final accord to state that they should take place “preferably” before the end of 2018.[fn]Crisis Group phone interview, French official, Paris, 27 May 2018.Hide Footnote

The stated objectives also give too little attention to conditions required for success. The proposed accord is vague on the timeline for approving the draft constitution, which the Constitution Drafting Assembly (CDA) completed in 2017. Yet the elections will require some constitutional framework that defines the powers and responsibilities of elected officials. Libyan actors have yet to decide whether to amend the 2012 interim constitutional declaration, put to a referendum the (contested, especially in the east and by ethnic minorities) CDA draft, or revise the latter before a referendum. At the heart of the debate stands the unresolved question of whether a nationally approved constitution – rather than certain constitutional guidelines – will be needed prior to holding elections.

The draft agreement’s proposed solution for addressing security rifts is problematic as well. It calls on Libyan parties to commit to support the ongoing Cairo talks – an Egypt-led effort to unify the country’s fragmented military apparatus. This dialogue – the only security track in the peace process for the moment – has gathered officers of Haftar’s Libyan National Army and a few high-ranking officers from the west loyal to the internationally recognised government. It excludes many others from across Libya’s fragmented security landscape. France, which has backed Haftar militarily in the east in the past, declared its support for the Cairo dialogue in March.[fn]Statement published on the Facebook page of the Embassy of France to Libya, 26 March 2018, https://www.facebook.com/AMFRLI/.Hide Footnote But both Libyan and international actors have openly questioned whether Egypt is the best-placed facilitator for the security track, given its pro-Haftar bias. It would be better to launch a wider discussion on the best way to establish a viable, more inclusive security track, and bring to the forefront what role the UN can play in aiding Libya’s efforts to restructure its security apparatus.

Finally, the proposed agreement’s provisions on economic issues likewise are inadequate. The last circulated draft provides few details apart from calling for the “immediate” unification of relevant technocratic institutions vital for the functioning of the economy. There is wide agreement in Libya and among external stakeholders that the Central Bank and other state institutions that split when the current conflict began in 2014 need to be reunified, but not on how this should be done and who should be in charge of each. Libyans also readily agree that economic governance needs to be boosted through concrete steps that address endemic matters with a direct impact on people’s lives – cash shortages, soaring living costs, corruption and speculation between the official and black currency markets. French diplomats say they are adjusting the language of the agreement on this point, so as to offer a more concrete solution to Libya’s financial and economic woes.[fn]Crisis Group phone interview, French diplomat, Paris, 27 May 2018.Hide Footnote

Conclusion: Broaden Support and Work out the Principal Details Before Seeking a Binding Agreement

Much work remains to be done for a peacebuilding effort to succeed, especially reaching agreement on how to establish a viable and integrated political, security and economic strategy to which a wide range of Libyan actors and their international backers can subscribe, and how to operationalise it. The French initiative does not offer this prospect, yet it has the ambition of establishing timelines and requesting commitments that would require broader support and more substantive operational depth if they are to be implemented.

If Libyans see the Paris summit as the latest exercise in international pageantry culminating in an unimplementable signed accord, it could backfire by creating unrealistic expectations.

For this reason, France should substantially review the draft text of the agreement and ask its four invited guests to commit to but not sign a more open-ended declaration of principles on the required political, security and economic steps – instead of requesting that they sign an accord – and use the declaration of principles as a platform to start forging consensus in coordination with the UN-led effort. This would entail launching a debate on a political roadmap and focusing on the need for criteria before setting a specific deadline for an important political milestone such as elections. It would also entail openly reviewing both the potential and limits of the Cairo security dialogue and pressing for a realistic and incrementally implementable economic strategy for Libya.

As elsewhere, perception counts for much in a deeply fragmented Libya. Allowing the four main invited guests to sign an agreement could give the impression that other important constituencies not present in Paris are being deliberately left out, which would only serve to position them against its contents. If Libyans see the Paris summit as the latest exercise in international pageantry culminating in an unimplementable signed accord, it could backfire by creating unrealistic expectations that, when dashed, can only harden competing, mutually exclusive narratives and further inflame tensions. A declaration of principles would also have an element of spectacle, but would be less contentious, particularly if the four Libyan leaders invited to Paris pledge support for but do not sign it. It would allow the Paris conference to meet its primary goal of infusing new energy and focus into the Libyan peace process without prejudging outcomes and giving time for securing buy-in for a more concrete agenda.

Brussels, 28 May 2018

Contributor

Senior Analyst, Libya