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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

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.