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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
Restoring UN Leadership of Libya’s Peace Process
Restoring UN Leadership of Libya’s Peace Process
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

The UN Secretary-General's Special Representative for Libya and Head of UNSMIL Ghassan Salame speaks during a joint press conference with Italian Foreign Minister Angelino Alfano following their meeting in Rome, Italy, on 8 August 2017. Riccardo de Luca/ANADOLU AGENCY

Restoring UN Leadership of Libya’s Peace Process

Efforts to reunify Libya after six years of internal strife have drifted. Global and regional powers should seize the opportunity of a high-level UN meeting on Libya and a new UN special envoy to speak with one voice and act to build an effective and inclusive peace process.

On 20 September, the Secretary-General of the United Nations, António Guterres, will chair a high-level meeting on Libya on the side-lines of the General Assembly. After a long period of drift in international diplomacy, this marks an opportunity to bring greater clarity of purpose to the UN’s mission in Libya. In the meeting’s aftermath, UN member states should speak in a united voice about the urgency of healing the country’s institutional divides, addressing pressing economic and security challenges and empowering the Secretary-General’s new Special Representative, Ghassan Salamé, to find the best way to relaunch an effective and inclusive political process.

Initial indications are that Salamé, who is expected to present his plan for negotiations, will seek to work within the framework of the Libyan Political Agreement (LPA) signed in Skhirat, Morocco, in December 2015 even as he seeks to quickly renegotiate some if its elements. There is widespread international consensus that the LPA, despite its flaws, is the only viable framework at the moment; its collapse would leave an institutional and legal vacuum. The UN is expected to initiate its renegotiation by seeking to get two key institutions whose role is endorsed by the agreement, the House of Representatives (the parliament elected in June 2014 and operating from the eastern city of Tobruk), and the State Council (an advisory body created by the LPA and whose members largely are drawn from a previous parliament) to fulfil their intended functions under the agreement – something neither has done since they were created. The goal also is to get them to agree to new arrangements for the composition and mission of both the Presidency Council, the body created by the LPA and supposed to act in a head-of-state capacity for a transition period, and the Government of National Accord, the executive body supposed to run state affairs. This would be a welcome development. As Crisis Group has previously argued, the formation of a new government and the separation of its duties from that of the Presidency Council offer a plausible way out of the current deadlock in the implementation of the LPA. Such an outcome also requires the backing of a wider array of actors who make up Libya’s fragmented political and military landscape.

To make progress on any new roadmap, [...] UN envoy Salamé will need to receive the full-throated support of the states that have been most involved in Libyan diplomacy.

To make progress on any new roadmap, however, UN envoy Salamé will need to receive the full-throated support of the states that have been most involved in Libyan diplomacy: France, Russia, the UK and the U.S. among permanent members of the Security Council; Libya’s neighbours, including Algeria, Egypt, Tunisia and Italy; regional powers further afield such as Qatar and Turkey; and regional institutions such as the European Union (EU), the League of Arab States and the African Union. The diplomatic vacuum of the last year resulted in too many competing initiatives that have created confusion among Libyan factions, or were exploited by them. Greater international convergence is needed to restore the primacy of the UN as the show-runner of the Libyan peace process. Consultation with Salamé also is essential to avoid undermining him. This includes consulting him on interventions aimed at countering people-smugglers in the Mediterranean or jihadist groups that, if unilaterally implemented, could damage his agenda. A political settlement is ultimately the best way to address the myriad of consequences stemming from the Libya’s current instability.

Avoiding Arbitrary Deadlines

At a minimum, external actors should set common expectations for the coming period of renewed negotiations. The idea of 17 December 2017 (the two-year anniversary of the signing of the Skhirat Agreement) serving as an arbitrary deadline for the expiration of the institutional framework created by the LPA should firmly be put to rest. It would place undue pressure on efforts to restart meaningful peace negotiations, which will take time to get off the ground. The LPA, as Crisis Group argued in 2015, was rushed. The international community should not repeat that mistake.

The question of whether, and when, to hold elections is more complicated. Several Libyan and outside actors have called for new elections as soon as possible. So too did a 28 July communiqué issued after France hosted a meeting of the head of the Presidency Council, Faiez Serraj, and the head of the Libyan National Army, Field Marshall Khalifa Haftar. In theory, calls for new elections are sound. The institutional arrangements created by the LPA always were meant to be transitional, and Libyans should enjoy a chance to democratically appoint their leaders and the current status quo is nearing collapse. In practice, however, legal and political obstacles are likely to obstruct holding them soon.

The areas of disagreement among the various camps are fundamental and include the basic contours of a new regime.

Without some sort of preliminary agreement that has relatively broad buy-in, elections are likely to set back efforts to reach a settlement. The areas of disagreement among the various camps are fundamental and include the basic contours of a new regime: should Libya be a monarchy or republic; should it be a federation or centralised; should elections be parliamentary, presidential, or both; what electoral law should apply; as well as who, and particularly whether Qadhafi-era officials, can run. If today’s belligerents cannot agree on whether elections should be held and what they should be for, what hope is there that they can produce a viable solution?

The better course is to agree on a transitional arrangement before elections. Those who advocate holding them quickly hope they can create a new legitimacy through the ballot box. Yet, the current Libyan conflict in part is due to the adoption of this logic to push for the June 2014 elections, which immediately were contested (through legal and military means) by the losing camp and interpreted as a carte blanche by the winning camp. To avoid reproducing the same dynamics, the peace process should focus not on elections as an end-goal, but rather on ensuring their outcome is not seen as a zero-sum game. 

Economics and Security

The UN is rightly focused on resetting the political process, retaking leadership over negotiations to modify the LPA to allow for its implementation. This is its prime mission. But, given the reality that achieving progress likely will take time, there is also a need to advance on two issues of immediate importance: addressing Libya’s economic situation and launching a security track. Given the UN’s limited resources, it cannot do so without the support of key regional and international actors. 

In his 28 August address to the Security Council, Salamé rightly put the spotlight on Libya’s economic situation, arguing that unless “economic challenges are addressed, and soon, the humanitarian crisis in Libya will deepen”. Such challenges include: healing the rift between rival branches of key economic institutions such as the Central Bank of Libya and National Oil Corporation and ensuring they operate effectively; improving the quality of governance, including relations between the Central Bank and the government; resolving the liquidity crisis faced by Libyan banks; and confronting rampant economic predation. Some of this will necessitate outside economic expertise and guidance, whether from states or international financial institutions, and greater collaboration by concerned actors. In the case of fuel-smuggling, for instance, Libya’s neighbours need to coordinate with those who have the capacity to confront land and sea-based smugglers.

Since the beginning of the UN’s efforts in 2015, the peace negotiations’ security track has never taken off.

Since the beginning of the UN’s efforts in 2015, the peace negotiations’ security track has never taken off. The UN’s current security-related mission is focused on making Tripoli safe for both the Presidency Council and the impending return of UN staff. At a minimum, this should be broadened to include establishing a dialogue among security actors in various parts of the country, starting at the local level (for instance, in southern Libya) and ultimately widening this nationwide. This is a necessary complement to a political dialogue, particularly as security issues – including leadership of security institutions – lie at the heart of disagreements over the LPA. Importantly, this also will make possible broadening negotiations beyond the international community’s four main interlocutors: Serraj (a political actor with no military base), Haftar (an important military actor with political ambitions), President of the House of Representatives Agheela Saleh (a political actor with local military backing in the east) and President of the State Council Abdelrahman Swehli (a political actor with some influence among military groups in the west). Broader talks can also bring in a range of political-military actors with national and local-level influence, but no institutional perch.

A related matter is that of the political and military support many international actors have given to various sides of the conflict. In the case of military backing, this happens in flagrant violation of the UN-imposed arms embargo, as revealed by the June 2017 report of the UN Panel of Experts on Libya. While violations exist on all sides, the report highlighted particularly egregious ones in support of Haftar’s faction. Such actions have a track record of making him reluctant to compromise. Egypt, France, Russia and the United Arab Emirates, which have the greatest influence over Haftar and are most active in engaging him, should ensure that he is fully incentivised to collaborate with Mr Salamé’s efforts.

Altogether, this amounts to a tall order for the new special envoy who will need to find the right sequencing for a political process and balance the sometimes-contradictory interests of Libyans and external actors alike. His task is hard enough – and will be made infinitely harder if he does not enjoy the political backing and resources of a more united and effective international community.