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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
Keeping a Libya Settlement on Track
Keeping a Libya Settlement on Track
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

Keeping a Libya Settlement on Track

Keeping Libya’s fragile peace process on track requires redoubled efforts by external stakeholders eager to see the conflict end. In this excerpt from our Watch List 2021 for European policymakers, Crisis Group urges the EU and its member states to support the UN-led economic dialogue and the creation of a Ceasefire Monitoring Mechanism.

Ten years after Muammar Qadhafi’s regime fell, the Libyan civil war that ensued remains far from resolved. If there is reason for hope, it is that the year-long assault on the capital Tripoli by Field Marshal Khalifa Haftar’s forces ended with their withdrawal in June 2020. Haftar’s retreat prompted a realignment of factors that points to the possibility of a peaceful settlement. In September, the field marshal and his allies lifted a nine-month oil export blockade, providing temporary relief to the country’s oil-dependent economy. In October, officers of the two main military coalitions signed a ceasefire agreement. Then, in November, politicians from the two rival sides started a dialogue under UN auspices. Foreign backers of Libya’s warring factions, while still working to cement their influence in the country, have toned down their bellicose rhetoric.

Yet there is also much reason for concern. Implementation of the ceasefire terms is lagging, with each side accusing the other of continuing to receive foreign military support. In such a volatile environment, any mishap – such as one side moving weapons around, and the other side interpreting the activity as mobilisation for an assault – could spark renewed fighting. Another reason to worry is that the UN-backed political talks, which comprise 75 representatives from a broad array of political and tribal groups and which the EU is helping finance, have thus far produced no consensus behind a new interim unity government. The various factions agreed on a voting mechanism to appoint top officials, but while paying lip service to a transparent vote they remain dangerously divided on who they want to see lead the country. All, furthermore, have the means to spoil the process. On the economic front, although hydrocarbon exports resumed, a dispute over management of oil revenues has led to a temporary freeze of hydrocarbon income, impeding economic recovery. 

Keeping the peace process on track will be an uphill battle requiring redoubled efforts by those external stakeholders eager to see Libya’s conflict come to an end. Events are increasingly driven by those outside actors who are providing military assistance to one Libyan side or the other, in particular Turkey, the Tripoli-based government’s main backer, and Russia, the Haftar-led coalition’s chief ally. Rival Arab countries that for years helped turn Libya into a proxy battleground are still pursuing their agendas as well, but for now by non-military means. The easing of the Gulf crisis might, over time, have a positive knock-on effect in Libya. Europe, as a party concerned to make peace, can still do a great deal to advance that goal, notwithstanding its diminished leverage.

The EU and its member states should intensify their efforts along the following lines: 

  • Support the creation of a Libya Ceasefire Monitoring Mechanism, which Libyan military officers from both sides negotiated and which the UN secretary-general called on Security Council members to adopt; deploy to the UN Support Mission to Libya (UNSMIL) monitors from European states accepted by Libyan parties.
     
  • Extend the mandate of the EU’s maritime operation EUNAVFOR MED IRINI so that it can help uphold the ceasefire monitoring. Despite being unable, for legal and logistical reasons, to block the transfer of weapons to Libya, the operation’s vessels and satellites are helpful in monitoring the flow of arms to the country in violation of the UN embargo and in deterring some transfers. The operation can support the Ceasefire Monitoring Mechanism’s work by providing UN monitors with information about suspected violations and military movements. 
     
  • Support efforts to reach consensus among Libyan parties on the need to hold parliamentary elections, if delegates to the political dialogue do not reach agreement on an interim government. Europe should also provide funds and technical support to the institutions that will have to ensure elections are credible and inclusive, including of women. 
     
  • Support the UN-led Libyan economic dialogue and continue to engage with the UN, the U.S. and EU member states to find a lasting settlement to the economic and banking disputes, especially regarding the allocation of oil revenues, that continue to hinder economic recovery.

Steadying a Shaky Ceasefire

On 23 October, the Libyan National Army – led by Haftar and supported by Egypt, the United Arab Emirates and Russia – and the Turkey-backed Government of National Accord (GNA), led by Prime Minister Fayez al-Serraj, signed a ceasefire formally ending a battle that had been raging on the outskirts of Tripoli and elsewhere since April 2019. The fighting had killed some 3,000 people and displaced hundreds of thousands. Turkey’s direct military intervention to aid Serraj in early 2020 reversed what had been Haftar’s advantage and forced the withdrawal of Haftar’s forces to central Libya along a new front line. 

The ceasefire was an important step toward political talks but remains fragile, as efforts to fully implement several of its provisions are sputtering. Haftar and Serraj committed to withdrawing their troops from front lines, expelling foreign fighters and ending all foreign military training. Yet both sides have backtracked on the original agreement. Their forces remain deployed on the front lines; foreign military cargo planes continue to land at their respective air bases, suggesting that outside backers are still resupplying their allies; Turkish officers are training GNA forces in plain sight; and Russian private military contractors remain part of Haftar’s forces. 

To bolster the ceasefire and press the parties to honour their commitments, the UN is backing a Ceasefire Monitoring Mechanism to be established in central Libya, where the GNA and Haftar’s coalition continue to position their troops. Libya’s rival factions requested the mechanism, and UN officials are discussing what it will entail. Libyan officers from both sides appear to have greenlighted deployment of a small group of unarmed international civilians “under UNSMIL’s aegis”, in the relevant UN report’s words, to work alongside monitoring teams established by both sides. 

The EU should push the UN and Libyan military negotiators to negotiate an updated version of the October ceasefire agreement that reflects a more detailed consensus on controversial points

The EU should support this effort. It should push the UN and Libyan military negotiators to negotiate an updated version of the October ceasefire agreement that reflects a more detailed consensus on controversial points, such as the departure of foreign fighters and the repositioning of armed groups, that the original agreement referred to only in vague terms, and press for full UN Security Council backing of that new agreement. It should also support a scalable monitoring mechanism that the UN secretary-general presented to Council members in December 2020. European governments should consider providing monitors from those EU member states to which the Libyan parties signal they would not object, to be deployed within UNSMIL’s framework – the only one accepted by both parties. The EU can provide additional support to ceasefire monitoring by expanding the mandate of its maritime Operation IRINI to report any troop movement that may threaten the ceasefire and inform the UN monitors accordingly, in addition to reporting on detected violations of the UN arms embargo.

Toward Reunified Governance

The EU and member states could also assist in resolving Libya’s governance crisis. To do so, they will need to make tough, perhaps counterintuitive, decisions. European and other states face a conundrum: should they keep supporting the faltering UN-led dialogue aimed at naming an interim unity government, which would prepare the ground for elections at the end of 2021? Or, should there be no progress in the coming weeks, should they instead endorse calls to hold elections without waiting any longer for Libyans to form an interim government?

The chances of agreement on an interim government appear quite slim. And the threat of EU targeted sanctions, which some European officials appear to be considering, is unlikely to increase the odds. Since November, the 75 delegates, who comprise representatives of Libya’s two rival assemblies as well as several UN-selected independents, have been meeting in person and online. They agreed in general terms on the need for a new three-man Presidency Council to replace the one headed by Serraj and a separate prime minister. They also approved a voting mechanism to select these top officials. But despite this apparent progress, Libya’s numerous competing factions remain profoundly divided on who they want to see leading the country. Any one camp could easily trigger controversies or spoil the vote to prevent an outcome it perceives as unfavourable. 

With regard to elections, the delegates of the UN-backed political dialogue have succeeded in setting a date for elections but failed so far to decide on anything else. If Libya’s rival legislatures fail to draft a legal framework for elections by late February – little suggests they will be able to – then the 75 delegates are supposed to take over. But delegates remain divided on what they consider to be the best electoral roadmap, whether elections should be only parliamentary or also presidential, and whether a referendum on a draft constitution is also required. 

In these circumstances, Europe’s best course of action is 1) to encourage Libyans to hold only parliamentary elections in December 2021, even if the UN-backed dialogue fails to reach agreement on an interim unity government; and 2) to urge the 75 delegates to agree on a legal framework for elections as soon as possible, should Libya’s rival legislatures fail to produce one by late February. The EU and European capitals should communicate unequivocal support for this course of action and urge other powers, particularly Egypt and Turkey, to accept the elections’ outcome. It is obviously risky to hold elections in a highly polarised country – one camp controls the west and another the east – where weapons are abundant and corruption is ubiquitous. But absent a negotiated solution to reunify the country’s governing institutions, attempting to forge consensus on a new vote for a single parliament appears to be the best – albeit inevitably risky – way out of the untenable status quo of rival legislative institutions and governments.

Settling a Financial Feud

Europe should also keep supporting UN efforts to settle the squabble over the country’s financial institutions and continue to back the economic dialogue, alongside the political and military ones, as a pillar of the UN-led peace process. Over the years, the financial feud has manifested itself in different ways, ranging from division of Libya’s Central Bank into two rival branches to a national banking crisis to oil sector blockades. 

Europe should keep supporting UN efforts to settle the squabble over the country’s financial institutions and continue to back the economic dialogue.

The most recent iteration is a controversial arrangement proposed by the Tripoli-based National Oil Corporation and accepted by the Haftar camp to temporarily freeze oil export revenues, which constitute almost the totality of government income, until a new unity government is formed and the Central Bank of Libya unified. This arrangement, which enjoys U.S. and UN backing, was put in place in September as part of a deal aimed at ending Haftar’s nine-month oil sector blockade. Pursuant to the deal, the Tripoli government and National Oil Corporation modified how oil revenues were to be managed, ordering export receipts to be kept “temporarily” in a National Oil Corporation account from which they cannot be spent rather than being transferred automatically to the Central Bank, as used to be the case. This set-up was supposed to last only 120 days – the period that negotiators thought necessary to reach agreement on a new government that could revert to standard allocation procedures. 

Without such a government, the country will need alternative arrangements for oil revenue allocations. Freezing revenues is untenable in the medium to long term. The EU and its member states should make their collective voice heard on the matter, calling on all Libyan parties to reach a new agreement – one that strikes a balance between, on one hand, providing Haftar and his foreign backers guarantees that oil sales revenues will not fund their Tripoli rivals’ military build-up and, on the other, using oil revenues now to cover public expenditures throughout Libya.