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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
Libya: No Political Deal Yet
Libya: No Political Deal Yet
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

President of the Presidency Council of the Government of National Accord of Libya Faiez Mustafa Serraj attends the 28th Ordinary Summit of the Arab League at the Dead Sea, Jordan March 29, 2017. REUTERS/Mohammad Hamed

Libya: No Political Deal Yet

On 2 May 2017, the head of Libya’s internationally recognised government, Faiez al-Serraj, and his major military opponent, General Khalifa Haftar, met for the first time in over a year. Crisis Group’s Libya Senior Analyst Claudia Gazzini says talk of a deal is premature.

What do you think of the reported UAE-brokered deal between Serraj and Haftar? Some describe it as a major breakthrough. Do you agree?

The fact that Serraj and Haftar met is undoubtedly a positive development and could signal the opening of new channels of communication. It has been more than a year since their last meeting in Libya. Since then relations between them have been tense, some would even say frozen. The meeting was significant because currently they represent two key actors: respectively, the head of the internationally recognised government and the commander of a military coalition that considers itself the national army (but is not recognised as such by the Serraj government). There can be little hope for a meaningful dialogue over Libya’s future without them.

But that doesn’t mean that we now have a deal. Some Libyan social media outlets suggested that in the course of the Abu Dhabi meeting Serraj and Haftar had reached an understanding. Some Libyan commentators even hailed the supposed terms of what they referred to as an agreement. This is an excessively hopeful depiction of what happened. As far as I understand, one side (Haftar and/or the hosts in the United Arab Emirates) put the outline of a deal on the table, and there is no agreement yet on moving forward on those terms.

Why was there no agreement?

At first sight, the proposed agreement that circulated on social media would seem acceptable as a broad framework. It talks about the unity of the army, fighting terrorism and government restructuring, and proposes holding presidential and parliamentary elections in 2018. But the devil is in the details. Upon closer analysis, it is a lopsided agreement that does not take into consideration the position and sensitivities of the political and military factions that oppose Haftar. Nor can it win the backing of those who, while recognising Serraj, do not necessarily feel represented by him. This is probably why Serraj did not sign on. It would be better understood as an opening bid in a negotiation.

The main point of contention is the proposed re-composition of the Presidency Council (PC), the UN-backed rump executive headed by Serraj that took office in Tripoli in March 2016. According to the proposed deal, PC membership would be reduced from nine (as configured in the December 2015 Libyan Political Agreement, although three members have already left) to three. The downsizing in itself is not a problem, since most Libyan stakeholders agree that the PC in its current form is dysfunctional and too large. But under the proposed agreement the new PC’s three members would be Serraj, the head of the House of Representatives (HoR), and the armed forces commander. The latter two are Aghela Saleh and Khalifa Haftar, respectively. Because these two are allied, this setup would give the constituencies they represent (and who have refused to recognise the PC’s authority and legitimacy) the upper hand. I doubt that current PC members would voluntarily give up their positions to this triumvirate.

For many Libyans it is essential that the future army be placed under civilian oversight.

The other issue of contention is how the proposal deals with the army. For many Libyans it is essential that the future army be placed under civilian oversight. The draft proposal says that the army will come under the PC’s authority but, as mentioned above, in its new line-up the PC would include the armed forces commander, so it would not be a truly civilian body. This is a very controversial point that will draw opposition from anti-Haftar activists and various armed factions. The very broad wording regarding “fighting terrorism” is similarly controversial, because anti-Haftar factions routinely accuse him and members of his Libyan National Army of labelling as terrorist anybody who opposes them.

Other provisions, such as the call for national reconciliation and exiles’ right to return, are less controversial and could find broad support. But unfortunately, these are not the issues that will solve the political and institutional mess the country is in.

What about the proposed elections? Can there really be elections within a year?

In principle, if there were a broad political agreement between the various political factions and duelling state institutions, and a rapprochement among the militias, elections could take place next year. But we are not there yet. There is no political, institutional or military agreement in place, so practically, how could elections be staged? Who could pass an electoral law in the absence of a functioning parliament able to reach a quorum? Who will organise the ballot boxes? Who will provide security? Will people be able to campaign freely?

There is no political, institutional or military agreement in place, so practically, how could elections be staged?

It is true that, these questions notwithstanding, many believe that the only way to end Libya’s divisions is through new elections. These are mainly people who support the House of Representatives-linked anti-Islamist factions and who believe that, if given a chance to vote, Libyans will show that the vast majority are against the UN-mediated power-sharing agreement and against Islamists. There is no doubt that Haftar and several other Qadhafi-era figures believe they stand a good chance of winning presidential elections if given a chance to run.

But there also are others who oppose early elections. They either claim that a new constitution should be drafted first or think that in the current institutional mayhem it is better to keep the Presidency Council (PC) as Libya’s internationally-recognised decision-making body.

So is this all just smoke and mirrors?

There have been some signals of possible openings for dialogue in recent weeks but nothing concrete has materialised. The main factions seem keen to hold on to whatever power they still retain rather than engaging in new negotiations. We are still far even from having a new framework agreement’s basic terms of reference. This means that the political crisis (with its violent spillovers) will most likely continue without a decisive settlement in 2017. Although various political actors contest the legitimacy of both the PC and the associated Government of National Accord, a lack of consensus among Libyans, neighbouring states and international stakeholders on what should replace it suggests these institutions will remain in place even as their effectiveness deteriorates and opponents consolidate their positions.

Ordinary Libyans seem to suffer more from the economic downturn than from militia fighting or lack of central government.

Ordinary Libyans seem to suffer more from the economic downturn than from militia fighting or lack of central government. Three years of low oil production have depleted foreign-currency reserves, pushed up prices for imports (most basic goods are imported) and caused liquidity shortages. In many ways people have grown accustomed to constant clashes among armed groups and to the existence of three parallel rival governments (aside from the Tripoli-based internationally recognised government of Serraj, there are two other rival governments respectively headed by Abdullah al-Thinni based in the East and by Khalifa Ghwell in Tripoli). They also no longer labour under the illusion that peace is around the corner (although most really hope it is). But what most people find very difficult to cope with is how much poorer they have become in relative terms due to rising prices and cash shortages.

What would be the risks for Serraj in going along with the proposed outline deal?

It is simply impossible for Serraj to accept this agreement as is. I think he has enough political acumen to understand this himself. The risk to him of accepting a deal like this is that he would not be able to return to Tripoli. Most military factions in the capital and in nearby Misrata, including those that nominally support the PC, oppose the terms of the deal as presented and would consider Serraj’s acceptance as nothing short of capitulation.

Is the proposed agreement supported by the international community?

The agreement as outlined appears to enjoy the support of the UAE, as they arranged and hosted the Haftar-Serraj meeting and have backed Haftar both politically and militarily for the past three years. It is no secret that they wish to see individuals tied to the Muslim Brotherhood and other Islamist currents removed from power. On that basis, we can suppose that Egypt, too, is pleased with the proposal, but we have yet to see official comment from Cairo, which has agreed to host a follow-up meeting between the two men. Algeria, on the other hand, which took the lead on a competing initiative earlier this year is unlikely to support what it would consider a partisan deal. Likewise, I suppose that Turkey and Qatar, the traditional backers of political and military factions close to anti-Haftar circles in Tripoli and Misrata, would also not support this. Even some Western countries and the UN, which led the 2015-2016 political negotiations, might consider the proposed deal a non-starter for being one-sided and not deriving from serious negotiations, but none have issued official comments so far.

So what should happen to reach a workable deal? 

What happened in Abu Dhabi assumes that any arrangement between Haftar and Serraj will in and of itself be enough to secure a deal. This is not the case. These two men do not represent Libya. There are numerous other groups with political, military and economic weight; any deal must take on board these constituencies as well. Some other things will also need to happen, most importantly greater international convergence on Libya’s future. The Libyan peace process has been adrift for months, partly because of the uncertainty that followed the November 2016 U.S. presidential elections: the Obama administration had been a champion of the UN-driven process, but its successor in Washington has yet to unveil its Libya policy. This has given an opportunity for regional actors to pursue their own initiatives, often acting at cross-purposes.

For any breakthrough to happen, regional and international actors should agree to at least a basic idea of what they would like to achieve and halt their military support for the various Libyan factions. There is also an urgent need to appoint a new UN special representative to replace the outgoing one, Martin Kobler, whose departure was initially announced in December 2016. This new UN special representative is needed to coordinate and converge the various initiatives now on the table, even while leaving it to Libyans to lead the process and its direction.