Libyan oil flows resume, along with a revenues feud

As Libyan oil flows resume so does a feud over revenues
6 min read
09 Dec, 2020
Comment: A resolution to Libya's enduring conflict will require resolving how oil revenues are distributed, writes Guma El-Gamaty.
Oil exports resumed recently after Haftar's eight-month blockade was lifted [Getty]

In Libya, the struggle for control over power and wealth continues in a country where wealth is derived almost exclusively from oil revenues. Controlling this vast natural resource is a prime driver of conflict among Libyan groups, with many competing to secure a share of the benefits.

To complicate things further, some foreign players interfering in the Libyan conflict also have active stakes in Libya's oil and gas industry, or are eyeing future investment opportunities for their companies. Italy's Eni and France's Total have joint ventures with the National Oil Corporation (NOC) in Tripoli, but it is well noted that their governments have been sharply at odds over policy towards Libya.

Repsol of Spain and major American oil companies also have key stakes in Libya's oil sector, with Russia's Gazprom having secured lucrative contracts with the previous Gaddafi regime that are yet to be realised - a factor widely recognised as a cause for Russian interference in the Libyan conflict.

Oil exports resumed recently after an eight-month blockade imposed by Haftar's camp in January 2020 was lifted. As a result, the conflict in Libya is now shifting to control over revenues from oil production, further complicating a resolution to the Libyan divide. While oil has long impacted the overall dynamics of the conflict, the recent feud over control and management of oil revenues may prove a major obstacle to a final political settlement.

According to the Libyan NOC, oil production has recently recovered to nearly 1.25mn b/d as of the end of November 2020, which is around the same level as the country was producing before port and field blockades were imposed earlier this year. Libya has estimated oil reserves of 48 billion barrels, the largest in Africa and ninth largest in the world. Oil and gas exports constitute more than 90 percent of Libya's revenue, and any major disruption means a sharp decline in income. 

The ongoing power struggle over control of oil revenues is indicative of Libya's ongoing authority and legitimacy vacuum

Over the last nine years, several different groups have attempted to use oil facilities as bargaining chips and leverage for financial and political gains. Haftar knew this, and imposed a blockade on oil exports as part of his campaign against the Government of National Accord (GNA) in Tripoli, in order to deprive it of a vital financial resource.

This move was almost certainly backed by his foreign supporters, mainly the UAE and Russia, as a way of adding economic pressure on the authorities in Tripoli, especially since the GNA had begun strengthening its ties with Turkey after signing the two Military and Maritime MoU Agreements in November 2019.

The internationalisation of Libya's conflict has even led foreign forces to blockade oil ports and fields. Since June 2020, mercenaries from the Russian private military company Wagner Group that is closely linked to the Kremlin have moved to secure Libya's largest oil field, El-Sharara and its most important oil-exporting port, Sidra. The Russian advance helped Haftar continue and maintain a blockade of the country's exports and heavy Russian military presence in both Sirte and Aljufra, essentially preventing the GNA from pushing on and retaking the key oil crescent region by force.

Haftar and his foreign backers' tactic has been to "militarise" the country's vast oil reserves and cutting off vital funds to the government in Tripoli that they aim to topple and gain at least partial control of the Central Bank of Libya (CBL). Haftar's backers know very well that without the oil card, he would be stripped of important political leverage that would significantly reduce his relevance, especially after his failed attempt to capture Tripoli.

Read more: Caught in Haftar's nets: Libyan warlord's detention of Italian fishermen sparks diplomatic storm with Rome

While the NOC is the Libyan sovereign institution responsible for the oil sector, from exploration to export, the CBL is solely responsible for distributing funds from the oil revenue, including public salaries, food and fuel subsidies across the entire country. However, some groups in the east claim they have received less than their fair share, accusing the Tripoli central bank of "Favouritism and corruption".

Unfortunately, these grievances have been exploited by Haftar's camp for political gain, helping him impose the oil blockade under a populist narrative, which actually in turn caused grave economic damage and hardship for the entire Libyan population, leading to almost $10 billion in revenue losses during the eight-month blockade period in 2020 alone.

Issues concerning decentralisation and the fair and transparent distribution of wealth are valid, and must also be resolved as part of an overall political solution. Accountability measures must be put in place across all state institutions to tackle and prevent corruption and mismanagement of funds at all levels.

The ongoing power struggle over control of oil revenues between the NOC and CBL is indicative of Libya's ongoing authority and legitimacy vacuum, which has been caused by the 2014 political split between east and west. It's also partly a result of the country's weak state institutions inherited from the Gaddafi era. Ensuring separation of powers in a new political order based on a constitutional democratic framework will help address these weaknesses over the long-term.

Head of the NOC, Mustafa Sanalla, recently said in a video published at the end of November that the money from oil revenues will be safeguarded and kept from the CBL until a "transparent and honest mechanism of distributing the funds to the people has been established". Mr Sanalla also claimed that the move by the NOC, to hold the oil revenue funds in the Libyan Foreign Bank (LFB) and not allow it to pass on to the CBL, is in accordance with the rule of law and protection of the Libyan people's wealth.

Oil revenues should not be a driving factor for local conflict and international interference in Libya

The NOC's recent decision to block revenues has sparked a heated tug-of-war between CBL governor Al-Siddiq Al-Kabir and NOC Chairman Sanalla. The move by Mr Sanalla has apparently been supported by various parties including the GNA and UNSMIL, and is believed to also be supported by the international community, to help address economic concerns and hasten a political solution.

Any economic arrangements to be agreed must be part of a comprehensive and inclusive political solution to the Libyan conflict, whereby clear mechanisms for the management of oil revenues and its distribution are defined within a constitutional framework. Immediate steps should include reunification of the CBL, with commitments to ensuring transparency and accountability after auditing both the CBL in Tripoli, and its parallel bank in the East.

Ultimately, oil revenues should not be a driving factor for local conflict and international interference in Libya, with the Libyan people suffering the most from the social and economic consequences. Libya's huge natural wealth should remain a resource that contributes to the development and prosperity of all Libyans, rather than a source fuelling further conflict and division.

Guma El-Gamaty is a Libyan academic and politician who heads the Taghyeer Party in Libya and a member of the UN-backed Libyan political dialogue process. 


Follow him on Twitter: @Guma_el_gamaty

Have questions or comments? Email us at: editorial-english@alaraby.co.uk

O
pinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab.