By Jalel Harchaoui
Earlier this year, the armed coalition led by eastern-Libyan-based commander Khalifa Haftar took most of his country’s southwest, an oil-rich desert expanse three times as large as Syria called the Fezzan.
This military operation has fueled speculation as to whether the aging general and former dissident is now considering a similar offensive into Tripoli, the capital on the Mediterranean coast.
The United Arab Emirates, a leader among Libya meddlers
More consequential and more determined than every other foreign state interfering in Libya is the United Arab Emirates. The Gulf federation has been propping up Khalifa Haftar militarily since late summer of 2014, a few months after Egypt and Saudi Arabia had helped him and his domestic allies launch Operation Dignity against revolutionaries, moderate proponents of political Islam and jihadi Salafists alike.
“The Emiratis want the Muslim Brotherhood gone from Libya,” a former Western policymaker familiar with both countries told me in January, alluding to an ideological war Crown Prince Mohammed bin Zayed initiated in his own country on the eve of 2011’s Arab Uprisings and then expanded abroad.
“The Emiratis cannot bear seeing oil money go into the hands of actors who sympathize with political Islam,” the official added, choosing to highlight the money aspect rather than the military one.
To illustrate the Emirati rationale, international officials often cite a June 2018 incident whereby Abu Dhabi encouraged Haftar as he sought to export Libya’s oil outside of U.N.-approved channel. “And France certainly didn’t mind him trying,” adds another Western diplomat privy to the Libyan file.
Amid Haftar’s oil blockade last summer, the field marshal expressed his desire to see a change of leadership at the Central Bank, not at the National Oil Company.
In that instance and several previous others, Washington thwarted eastern-Libyan actors in their attempt to force Kabir out of the bank or weaken his control over the financial system based in Tripoli.
The United States acted as a bulwark against change partly out of prudence. The conflict-torn country was dislocated enough as it was, the thinking went in Washington. Any abrupt overhaul at one of the Libyan economy’s most vital linchpins was feared as yet an additional source of anarchy.
More generally, the U.S. government long championed an inclusive government in Tripoli; i.e., it tolerated within the machinery of the Libyan state a diverse array of political currents, including the Muslim Brotherhood and its allies — a philosophy the United Arab Emirates has deemed unacceptable.
Soon after becoming president, Donald Trump made clear his unwillingness to continue U.S. engagement in Libya. Nevertheless, both the Pentagon and the State Department maintained remnants of the Obama administration’s Libya policy, including support for the officially recognized authorities in Tripoli.
After the mid-term elections in 2018, however, an already-aloof Washington appeared more inclined to “farm Libya out” to the numerous states betting on an ascendant Haftar. The opinion of the United States is of paramount relevance to Libya’s finances because of their dollar-based and highly centralized nature. It is, in effect, difficult for Libyans to replace their central banker unless and until Washington approves of it.
A clear example of this reality was on display four years ago. In the autumn of 2014, the eastern-Libya government, which at the time was internationally recognized, sacked Kabir. Yet, the United States carried on dealing with him and his signature remained the only authorized signature capable of releasing hard-currency funds.
An American businessman familiar with the Obama administration’s attitude towards Libya’s economy circa 2015 confided to me: “Kabir would be invited to Washington as a mere subordinate of the official governor but, once here, he was talked to as the real boss.”
Washington’s unwavering support for Kabir has frustrated Libya’s eastern faction. Aref Ali Nayed, an electoral hopeful, former ambassador to the Emirates, and vocal critic of the Muslim Brotherhood, described the Central Bank of Libya chief as “an Islamist-facilitating governor.”
The characterization is simplistic and anachronistic, but it captures the long-standing determination of the eastern-Libyan camp to take hold of the national purse strings.
One Governor, Several Periods
Sadiq al-Kabir did begin his tenure at the helm of Central Bank of Libya as a revolutionary close to the Muslim Brotherhood.
In the autumn of 2011, influential Brotherhood figure Abdurrazag Mukhtar Abdulgader played a pivotal role making sure the then-chairman of the National Transitional Council Mustafa Abdel Jalil put forward no candidacy other than Kabir’s to the central-banking job.
During the first few post-Qaddafi years, the above mentioned officials, and others, used the financial system of Libya as a means of supporting Islamist-leaning causes.
The Central Bank of Libya deposited $2 billion with its Egyptian counterpart during Muslim Brother Mohammed Morsi’s embattled presidency, and gave money to the Syrian National Council, an anti-Assad structure in which the Muslim Brothers were the strongest component.
Libya’s public funds were also used to purchase weapons directly delivered in southern Turkey for the purpose of being handed to anti-Assad rebels next door.
In Libya itself, a large number of militias, including Islamist militias of varying degrees of extremism, were formed thanks to the willingness of state authorities, including the Central Bank of Libya, to pay gunmen civil-servant salaries.
Among the groups benefiting from those salaries, some formed the Shura Council in June 2014 to fight the Libyan National Army in Benghazi, and others attacked the country’s oil terminals in December 2014.
That era is over, however. As of today, it would be inaccurate to depict the Central Bank of Libya as an Islamist haven or imply the dynamic hasn’t changed at all since the immediate wake of the Arab Uprisings.
After Libya’s newly-elected parliament, and the executive associated with it, chose in 2014 to be based in Cyrenaica, the eastern part of the country, the Central Bank of Libya did not discontinue the payment of state salaries and subsidies for the province.
A few months later, Kabir enforced austerity measures that helped reduce overall public expenditures greatly. He also weakened several revolutionary and Islamist militias by slashing the funds allocated to them.
After the U.N.-backed Government of National Accord arrived in Tripoli in March 2016, a specific set of armed groups there have grown stronger by — among other things — penetrating the process whereby the Central Bank of Libya distributes hard currency.
Despite their fraudulent schemes, said militia leaders have received relatively little criticism from the international community because they have provided local security and combated the Islamic State.
Those actors aren’t connected to the Muslim Brotherhood. In fact, the most powerful armed groups in the capital today are committed enemies of political Islam and, as such, have been in dialog with the United Arab Emirates, Saudi Arabia and France for the last three years at least.
One of these super-militias is Radaa (or “Deterrence”), known for its Saudi-inspired Salafist ideology and fierce opposition to the Muslim Brotherhood.
While other Tripoli militias dominate their own swath of the black market for dinars and dollars, Radaa’s own currency-trading operation is somewhat different.
Members of Radaa have sway over how the country’s main official issuer of hard currency is run. Also, a Radaa commando provides daily personal security for governor Kabir. In addition, Meytiga, the capital’s sole operational airport, is in part controlled by the same militia.
According to informal market operators interviewed last year, Radaa use sits advantages to convert large sums for Haftar-aligned actors based in eastern Libya. Sizeable transactions of this kind require the complicity of managers within the official banking system.
Taken in sum, the above dynamics paint a far more complex picture of the Central Bank of Libya than the oft-peddled image of an institution beholden to the Muslim Brotherhood or complacent with jihadism.
To be sure, several Brotherhood-linked figures still hold senior positions in the Central Bank of Libya, including on its board of directors. Moreover, Kabir refused to allocate additional salary money to help Haftar grow his self-styled army.
Interviews conducted in 2016 with International Monetary Fund and World Bank officials familiar with Libya’s state budget confirmed that Kabir opposed any increase in the wage bill.
Yet the central banker has also been a pragmatist and an opportunist vis-à-vis Haftar’s camp. He never forcefully impeded the Libyan National Army when it resorted to unorthodox, often illicit, schemes to fund itself.
These include the eastern executive’s issuing of 32 billion dinars’ worth of debt over the last four-and-a-half years, and its importation of 10 billion dinars in the form of Russian-manufactured banknotes over the last three years.
In responding to these ventures, Kabir walked a careful line between protesting their illegality rhetorically and allowing them on a de-facto basis.
In light of this nuance, eastern Libya’s current demonization of Kabir must be seen as no more than a calculated attempt by eastern politicians to achieve supremacy over state coffers, a scenario that is now a distinct possibility.
The grounds well of psychological and political momentum wrought by Haftar’s campaign combined with the passivity of Washington, one of Kabir’s longtime backers, have thrust the Central Bank of Libya onto new terrain.
A replacement of the governor, or even the mere restructuring of the bank’s cadres — with Kabir staying — on terms more favorable to the anti-Islamist camp backed by the United Arab Emirates, would have far-reaching ramifications for the Tripoli area.
Haftar’s inner circle would become able to curb the rent-capturing activities of its adversaries. It also would be tempted to cultivate more clients based on political and tribal criteria, a practice already manifest in the east.
Domination of public finances would furthermore boost Haftar’s controversial attempt at militarizing the reconstruction of Libya inspired by the Egyptian army’s outsized role in the economy. These trends combined not only fail to curtail corruption but also run the chance of stoking conflict since they are bound to create new sets of losers.
As Washington offloads Libya to European and Gulf powers, its ability to influence the conflict-torn country may diminish irreversibly. Lack of leverage is a policy challenge that faces the European Union and its member states, too.
The E.U., out of eagerness to see a strongman “hold” Libya, may let Haftar and his faction control the state coffers without checks or balances. Once that hegemony falls in place, what diplomatic tool will remain to help promote transparency, accountability and the rule of law in Libya?
Jalel Harchaoui joined the Conflict Research Unit of the Clingendael Institute in February 2019 as Research Fellow. His work focuses on Libya, covering aspects such as the country’s security landscape and political economy. Jalel holds a master’s degree in Geopolitics from Paris 8 University. His doctoral research has focused on the international dimension of the Libyan conflict. A frequent commentator on Libya in the international press, He has published widely, including in Foreign Affairs, Lawfare, Politique Étrangère, Middle East Eye, and Small Arms Survey.
WAR on the ROCKS