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

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.

A compact, formatted PDF of this commentary can be downloaded here.