By Scott Carpenter
In early July 2018, things were looking bleak for general Khalifa Haftar and his Libyan National Army (LNA). A couple weeks earlier, the LNA had seized control of four key ports in the eastern half of Libya, an area already largely under its control.
It then imposed a blockade on all oil tankers attempting to set sail from those ports, fanning fears of a global supply crunch — Libya exports a little more than 1 million barrels per day — and pushing oil prices higher.
Eager to keep prices low, US president Donald Trump threatened legal action against Haftar. And Haftar’s usual allies — France, Egypt, the UAE — were conspicuously silent this time. The general couldn’t have held out for very long.
So, in a move that took many off guard, Haftar’s LNA handed back control of the four ports to Libya’s internationally recognized National Oil Company (NOC) on 11 July, 2018. Oil output soon rose back to usual levels and revenue was again flowing through Libya’s fragile economy. Global oil markets relaxed.
Now Libya finds itself in the middle of another blockade, once again imposed by Haftar’s LNA. But this time Haftar is likely to hold out longer — perhaps much longer. Fears of an ascendant coronavirus are expected to lop off a sizable share of oil demand, pushing prices lower and giving Haftar cover. Moreover, the LNA now controls an additional 30% of Libya’s oil production capacity thanks to recent military gains in southwest Libya, giving Haftar more leverage.
As always, uncertainty prevails in Libya’s civil war. The blockade, which is now 13 days old and likely to soon push crude output below 100,000 barrels per day, could end as soon as next week, according to Hamish Kinnear of consultancy Verisk Maplecroft. But it also wouldn’t be surprising if it lasted much longer. “There is…potential for the oil blockade to stretch on for months as both sides refuse to back down.”
Libya has been locked in a civil war with no end in sight since 2014, three years after the dictator Muammar el-Qaddafi was killed in a NATO-backed mission that opened a power vacuum. The war pits the LNA, based in the eastern city of Tobruk, against the United Nations-backed Government of National Accord (GNA) in the western city of Tripoli.
Libya has only six million people, but neither side has managed to gain the upper hand — partly because each is backed by powerful foreign countries, which supply either weapons or mercenaries. The LNA is backed by Russia, the UAE, Egypt, and France, while the GNA is backed by Turkey and a number of western governments.
In the middle of this fiercely political contest sits Libya’s National Oil Company (NOC), the steward of Libya’s immensely lucrative oil exports. To stay out of the line of fire, it works hard to portray itself as a neutral player. Its technocratic chairman, Mustafa Sanalla, assiduously advertises the neutrality of the company on its Facebook page and in press releases.
This has not been enough for Haftar. His LNA has long complained that the money NOC makes from its sales of oil — some $2 billion a month — often wind up in the pockets of mercenaries who are fighting on the side of the GNA. Such grievances were at the heart of the last oil blockade in July 2018, when he called for the removal of the head of the central bank, Saddek el-Kaber.
(Once collected, the NOC’s revenues accrue in bank accounts in western financial institutions held by Libya’s central bank, which uses the cash to pay the salaries of civil servants, such as teachers and doctors. But there are widespread concerns about corruption.)
Now, once again, Haftar appears to be seeking greater access to the central bank revenues — likely in response to growing numbers of mercenary fighters deployed on the side of the GNA, including units by Turkey, which recently dispatched military ships to Tripoli.
Access to more central bank funding would give Haftar “more resources for the war effort in north-west Libya,” where the capital of Tripoli is based, according to a recent briefing by Kinnear. “This would not only be in the form of purchasing more military material, but also to use promises of cash to entice wavering or unaligned militia groups based in the west of the country.
The strategy of ‘buying out’ militia groups was a key aspect of the LNA’s successful move into south-western Libya in early 2019 and into Sirte [in central Libya] in early 2020.”
If it is determined to starve the GNA of revenue, the LNA would have to keep up its economic siege against the GNA a long time. As of October 2019, the central bank had foreign exchange reserves of $77 billion, according to Kinnear, citing central bank data — enough to last months.
Analysts believe that, to resolve the stand-off, influential players like the United States may need to play a mediating role, as they have done in the past. In a speech delivered to Chatham House this week, the London-based think tank, the NOC’s Sanallah all but pleaded but for foreign powers to do just that.
So far, however, there have been few indications that foreign powers are poised to play the role of mediator. A ceasefire agreement in Berlin two weeks ago was quickly violated, and, with oil prices under pressure from concerns that the coronavirus is eating into global oil demand, many may be secretly glad that lower Libyan oil supply is helping to somewhat offset a price decline.
One important player missing in action: the United States. Although the US has traditionally opposed aggressive action in Libya, analysts say that its approach toward Libya has recently been more hands-off than usual — an approach that Donald Trump telegraphed shortly after taking office.
“This year has been different,” wrote the analyst Jalel Harchaoui earlier this year, as Haftar was gearing up for a renewed military push into the areas surrounding Libya. “Washington opted for silence as Haftar’s offensive unfolded.”
Another usual critic of pro-Haftar support, Italy has also mostly kept quiet as the scales have tipped in Haftar’s favor. That may be because the flow of migrants from Libya across the Mediterranean to Italian shores has dropped sharply, giving Italy’s populist government less incentive to work closely with Tripoli.
“Before the drop in migrant statistics, the Italians resisted Haftar because they feared his military approach would disrupt the arrangements they had struck with a motley array of local armed groups in the western half of the country,” writes Harchaoui. Nowadays, Rome, although still issuing token calls for caution, fully accepts that the anti-Islamist camp is winning.”
According to Harchaoui, a lack of pushback from the US and others has opened up new a channel of influence for France, Libya’s one major supporter among western governments. France views the LNA as a bulwark against terrorism in the region. It has applauded Haftar for taking out key terrorist targets, disrupted human traffickers in the Murzuq desert, and may have even coordinated with the LNA in February this year to carry out airstrikes south of the Libyan border in Chad.
Haftar’s LNA may well be celebrating the lack of pushback from the US for another reason. The LNA has long been locked out of the revenues of the Libyan central bank because the accounts are based in the US, and the US recognizes only the current governor of the central bank, Sadiq al-Kabir, as having the authority to open them. This was never more apparent than in 2014.
The government of eastern Libya sacked Kabir — and yet the US “carried on dealing with him and his signature remained the only authorized signature capable of releasing hard-currency funds,” writes Harchaoui.
The current oil blockade is now about as long as the July 2018 blockade. But outside Libya, concern is muted. According to Kinnear: “So far there has been no sense of urgency.”
Scott Carpenter covers the energy industry, with a focus on fossil fuels. Before Forbes, he covered oil markets in Africa, the Mediterranean and the Mideast Gulf for commodities publication Argus Media in London.