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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
What Could Possibly Go Wrong in Libya?
What Could Possibly Go Wrong in Libya?
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 man holds a sign during a protest against candidates for a national unity government proposed by U.N. envoy for Libya Bernardino Leon, in Benghazi, Libya, on 23 October 2015. REUTERS/Esam Omran Al-Fetori

What Could Possibly Go Wrong in Libya?

Representatives of Libya’s rival parliaments gathered in the Moroccan resort town of Skhirat on Thursday 17 December to sign a UN-brokered agreement that supporters believe is one important step towards ending the civil war that has raged for more than a year. A number of Libyan politicians and local officials attending the ceremony cheered and celebrated the event as a possible new beginning. Meanwhile, fighting in Tripoli and a number of other Libyan cities continued.

Under the terms of the signed agreement, Libya will have a new government of national unity headed by Prime Minister Faez Serraj; lawmakers from the rival parliaments who support the UN-backed agreement will remain in office under a new power-sharing framework. This arrangement, envisioned to last one year, is supposed to end the divide between two competing sets of governments, parliaments and military coalitions that have split the country since August 2014. The deal was pushed energetically by Western governments – especially the US, U.K., France, and Italy – seeking a single partner to fight both the Islamic State and people smugglers.

On paper, this is fantastic news. In practice, the uncertain level of support for the agreement in Libya, the fact that the leaderships of both existing parliaments oppose it (and are busily devising their own peace plan), and the fact that the new government will have little control over key parts of the country, have left many Libyans worried that the peace deal might actually make things worse.

Any number of things could go wrong. Here are the top five pitfalls to watch out for:

1. Libya could end up with three governments and four parliaments.

Since July 2014, the country has had two parliaments and two governments: the internationally recognised House of Representatives (HoR) based in the eastern city of Tobruk with its government located in another eastern city called Bayda; and the Islamist-backed General National Congress (GNC) and its own government, both based in Tripoli. Significant elements of these two institutions reject the agreement, and they will be in no hurry to dissolve themselves to make way for the new legislature envisioned in the UN-backed agreement. Moreover, the deal envisages extending the mandate of the HoR and the creation of a new State Council to accommodate GNC members who accept the agreement. You do the math: old HoR, new HoR, old GNC, and new State Council adds up to four, plus the two existing governments and the new “unity” one.

To prevent this scenario, the UN should make every effort to open the doors of the new institutions to more members of the old ones, encourage them to join, and refrain from sanctioning those who support a unity government in principle but insist on changes to the proposed government’s lineup and structure.

2. The new government will not be able to take its seat in the capital.

A government not based in Tripoli will govern in name only. It would not be able to effectively control key state institutions, such as the Central Bank of Libya. The way it looks now, the UN-sponsored government will lack the military support it would need to take Tripoli from the mostly anti-deal militias entrenched there, and a battle over the capital could become protracted. The UN should redouble efforts to devise a Tripoli security plan to protect any government and international diplomatic presence. That will mean working out an arrangement with other Tripoli-based armed groups, including Islamist ones, that would safeguard their core interests.

There is also a risk that the Libyan Supreme Court could declare the new agreement illegitimate. Since there was no vote in the two parliaments endorsing the agreement, opponents of the deal are already filing cases to have the country’s top court declare it (and the government) null and void. This would mean further legal conundrums for already embattled state institutions. Meanwhile, the heads of the two rival Libyan parliaments are trying to establish a unity government of their own. If they succeed, they may enjoy greater local legitimacy than a unity government that is seen to have been imposed by Western powers. Ironically, if the rival legislatures do reach an agreement on their own, the government they pick will have greater chances of taking office in Tripoli than the internationally recognised one. To render the question moot, the leaderships of the two parliaments should both be persuaded to approve the deal, and the unity government be seated firmly in Tripoli.

3. Intra-regional and political divides will deepen.

Misrata, a critical trading hub on the Mediterranean, is the proposed unity government’s most powerful backer and the West’s principal ally in the expected fight against the Islamic State (IS) in nearby Sirte. Western officials are counting on Misrata’s pro-deal militias to help defeat IS in Sirte, a fight that gained urgency after the 13 November Paris attacks. However, Misratan forces control merely the city’s western approach. Retaking Sirte will require forces coming from the east and south too, as well as a plan for who takes charge in the aftermath of battle. Moreover, putting all of one’s eggs in the Misratan basket risks aggravating Libya’s deep geographic and political divides. Many Libyans, especially among the rural Arab tribes in the east, view with contempt the Misratans, active traders and largely descendants from Ottoman Turks, who they fear will try to control the Bedouin hinterland.

Secessionist tendencies are likely to grow in the east. Those who champion greater autonomy for Cyrenaica, Libya’s eastern province, feel underrepresented in the unity government and therefore do not support it. These federalists dominate the old HoR and control key oil infrastructure in the east. Misratans could help assuage their compatriots’ fears by championing a more inclusive unity government. There are two seats left on the Presidency Council that are reserved for easterners, but picking the right people for the job without upsetting the region’s delicate tribal balance will be tricky. Yet failure to include adequate representation from the east will ensure that the centrifugal forces already set in motion will spin outward with increased vigor.

4. The country’s divides will take on a theological dimension.

Influential Islamist preachers are already painting the new government as religiously illegitimate because, they say, it was appointed by non-Muslims (ie, the West). The jump from this to accusing it of being a kafr (apostate) government is all too easy, and this could become an opposition rallying cry that will appeal to many ordinary, conservative Muslim Libyans, not just radicals, particularly in light of Libya’s brutal colonial past. This is why the incoming government’s lineup should not be announced by the UN envoy, as it was in October, but by Libyan negotiators themselves.

5. Libya will slide toward economic collapse.

If the unity government cannot control the Central Bank of Libya – either because it is not based in the capital or is ruled illegitimate by the Supreme Court – it might be tempted to request the international community to seize Libya’s assets abroad to ensure it has access to them. Many Libyans will see this as an unacceptable loss of sovereignty, if not outright theft. Rival factions are also competing for control over the National Oil Company and the Libyan Investment Authority. Together, these three pillar institutions control up to $130 billion of assets and hold the technocratic expertise critical to rebuilding the Libyan state.

Going forward, any UN-supported negotiations should prioritise a separate track on economic issues, in parallel to ongoing political discussions. International actors – including foreign governments, the International Monetary Fund, and oil and gas companies—must help maintain the integrity of Libya’s core financial institutions and block oil sales outside official channels. If the fight over Libya’s energy wealth remains unresolved, the country faces the real possibility of economic collapse.

The UN has made important headway in the past year to bring Libyans of different political stripes together in one tent to sign a deal, create a unity government, and put an end to conflicts that are threatening to break up the country beyond repair. Such an effort requires time and, perhaps most importantly, it must be owned by Libyans themselves if it is to survive. Rushing an agreement was never a good idea, but it is not too late to encourage a broader array of Libyans to join that tent in the coming weeks. Libyans should be seen as leading the peace process for it to succeed, and not have a done deal foisted upon them.