By Tim Eaton

As Libya’s war economy persists, prospects for the restoration of functioning central governance become more distant.

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  • Libya suffers from interlinked political, security and economic crises that are weakening state institutions, damaging its economy and facilitating the continued existence of non-state armed groups. As rival authorities continue to compete for power, the resulting fragmentation and dysfunction have provided a fertile environment for the development of a pervasive war economy dependent on violence.

  • This war economy is dynamic and constantly in flux. Relative to earlier problems, there were signs of progress on several fronts in 2017: a reduction in human smuggling, a tripling in oil revenues, and increased local action against fuel smuggling. Yet the dynamics that have supported the war economy’s rise remain.

  • Libya’s war economy is highly damaging for the future of the state for three reasons:

    • First, it provides an enabling environment for networks of armed groups, criminal networks, corrupt businessmen and political elites to sustain their activities through illicit sales and predatory practices. Their operations are closely linked to the dispensation of violence, and are thus a spur for further conflict.

    • Second, the war economy perpetuates negative incentives for those who profit from the state’s dysfunction. Only effective governance, supported by a durable political settlement, can tackle the foundations of Libya’s war economy. But neither a return to functioning central governance nor the development of a security sector that is fit for purpose is in the interests of war economy profiteers, who are therefore motivated to act as powerful spoilers of reform.

    • Third, the political contestation and resource predation practised by those engaged in the war economy are having a disastrous impact on Libya’s formal economy, undermining what remains of its institutions. As the war economy persists, therefore, the prospects for the restoration of functioning central governance become more distant. This threatens to create a vicious cycle that accelerates further state collapse.

  • Due to the limited capacity for coercion available to any actor or entity connected with the state, a strategy of co-opting networks of war economy profiteers has almost exclusively prevailed. This has failed. Drawing on the lessons from these attempts, a more successful policy must pursue targeted measures to combat the enabling structures of Libya’s war economy where possible, and to co-opt war economy profiteers only where necessary.

  • In this, state authorities can do more to utilize what power they have to name and shame war economy profiteers in order to weaken the local legitimacy critical to profiteers’ survival. The state must present credible alternative livelihood opportunities to those engaged in, or benefiting from, the war economy. Progress will depend in part on the creation of positive incentives to abandon such activity. Where profiteers cannot be incentivized to move towards more legitimate economic activities, greater and more effective efforts must be made to reduce the profit margins of illicit schemes.

  • The international community can do more to support Libyan efforts in countering the war economy. Cooperation over the targeting of criminal groups’ overseas assets, support for increased transparency over the dispensation of state funds, and measures to reduce the viability of illicit activities can all help to strengthen the position of state authorities.


Libya suffers from interlinked political, security and economic crises that are weakening state institutions, damaging its economy and facilitating the continued growth of non-state armed groups. Political authority is contested and highly fragmented, particularly since 2014.

The Government of National Accord (GNA) – formed following the implementation of the Libyan Political Agreement, also known as the Skhirat Agreement, in December 2015 – has the backing of the UN and the majority of the international community.

But the GNA has been unable to function as the unity government it was envisaged to be. Under the leadership of Prime Minister Fayez al-Serraj, the nine-member Presidency Council that spearheads the GNA has been able to deliver little for Libyans, and has been criticized for its reliance upon Tripolitanian militias to safeguard its presence in the capital. It has limited influence in Tripoli, let alone beyond.

The House of Representatives (HoR), elected in 2014 and based in the east of the country, has not recognized the GNA. Nominally the national legislative body under the terms of the Libyan Political Agreement, the HoR in practice has long been reduced to a rump parliament.

Its mandate has expired, although its members have voted to renew its term. Military influence is equally fragmented, with Field Marshal Khalifa Haftar holding a dominant position in eastern Libya but lacking the capacity to control the whole of the country.

The appointment of a new UN Special Representative to Libya, Ghassan Salamé, in June 2017 reinvigorated international attempts to reconcile rival actors. Yet at the time of writing, little progress had been made.

In such a context, the extent to which Libya fulfils the criteria of a state is a matter for debate.

Gaddafi’s Jamahuriya (‘stateless state’) utilized income from Libya’s natural resources to forge a system of patronage and dependence that did not build modern state institutions but rather sought to embed pre-existing social formations within state structures.

These social formations now compete to shape the state following the collapse of the former regime’s monopoly on violence, which had hitherto been used to stabilize the system. This can be seen in a return to effective statelessness, or what could be termed a new, less durable Jamahuriya.

The resulting fragmentation and dysfunction of post-revolutionary Libya have provided a fertile environment for the development of a pervasive war economy.

For the purposes of this paper, the term ‘war economy’ encompasses economic activities dependent – directly or indirectly – on the dispensation or perpetuation of violence.

Within Libya’s war economy, individuals, groups and communities continue to vie for control of smuggling routes, oil and gas infrastructure, state entities, border posts, transportation infrastructure, and key import and export nodes.

The logic of these competitive rivalries is predominantly local. Few groups, if any, have a realistic prospect of controlling the whole of the country. So instead, the country’s various actors have focused on enhancing their local position to the greatest extent possible prior to the formation of any post-settlement order.

The form and modalities of Libya’s war economy vary across the country. In the south and west, the absence of dominant security actors or state enforcement in Libya’s hybrid security sector has allowed the development of illicit markets and a vibrant smuggling sector.

In Tripoli, where local militias have been subsumed into the capital’s security architecture, the war economy translates into groups and individuals seeking to maximize opportunities for graft and predation of state revenues.

In the east, where security is, broadly, under the control of Haftar’s self-styled Libyan National Army (LNA), a form of military rule has been established. Civilian municipal leaders have been replaced with military governors.

Human smuggling and fuel smuggling are recorded on less significant levels in the east, which is both further from human-traffickers’ target destinations in Europe and closer to Egypt (where the presence of fuel subsidies renders cross-border smuggling of Libyan oil less profitable).

Nonetheless, smuggling across the Egyptian border is a long-standing practice. It ranges in scope and scale from the carrying of small quantities of goods on foot, to smuggling by sea, to the transport of goods through the desert by pick-up truck. The latter desert routes form the principal conduit for the movement of drugs, cigarettes, arms and migrants across the Libya–Egypt border.

In the east, furthermore, the political dispute with Tripoli-based authorities has translated into competition for control of state revenues and the attempted creation of parallel institutions. The blurred line between state and non-state armed groups further complicates the situation.

Groups that are technically affiliated to – and often in competition with – state entities more often than not operate autonomously; in many cases, they profit from the war economy in spite of their nominally official mandate.

Yet the war economy is more than a symptom of Libya’s governance crisis. The system of incentives within the war economy has become a cause of its persistence, frustrating the reassertion of state authority at a local and national level.

This dynamic is self-reinforcing: the inability of the state to provide resources, services and security strengthens the arguments of locally based individuals and groups who claim that they are filling this need (and who often have affiliations with the state).

At the same time, the existence of these groups undermines the ability of the state to fulfil its obligations. Paradoxically, the increasing sophistication of illicit trade and the market stability of sorts provided by armed groups are binding Libya together, yet simultaneously splitting the country apart by undercutting efforts to build a system of joint and inclusive governance.

Libya’s war economy is dynamic and constantly in flux. In 2017 there were signs of progress on a number of fronts towards a more functional economy: boat crossings of the Mediterranean fell more than 30 per cent compared with 2016; the Brega Fuel Crisis Committee increased its efforts to tackle fuel smuggling; and oil revenues tripled.

Such developments could suggest that Libya’s war economy reached its zenith in 2016. Yet the dynamics that have supported the war economy’s rise remain. There is still the danger that economic predation continues to such an extent that Libya’s finances and institutions are eroded further, with no actor in the war economy incentivized (or likely) to bring damaging activities to a halt.

Increased oil production allowed Libya to halve its balance-of-payments deficit in 2017, but the deficit still stands at over $10 billion. Between 2013 and 2016, Libya’s foreign exchange reserves fell from $109 billion to around $70 billion, according to the World Bank.

These reserves are believed to have fallen further since then. The possibility remains that the state will be unable to sustain its bloated liabilities.

The modalities of the war economy

This paper documents three modalities of Libya’s developing war economy: the direct sale of commodities/goods through smuggling; the generation of rents and use of extortion; and predation on state resources.

While external patronage undoubtedly forms a fourth modality, this paper focuses on local dynamics, which have been under-explored in policy analysis despite significant developments since 2014.

Together, these three modalities are presented as a frame for activities within Libya’s war economy. It should be noted, of course, that the modalities do not exist in isolation from one another, and many activities in the war economy will contain elements of more than one modality.

The paper consists of four principal chapters, in addition to this introduction. Chapters 2, 3 and 4 describe each of the modalities of the war economy in turn, and provide examples of their incidence and impact. Chapter 5 discusses the challenges of tackling the war economy, and outlines some of the options available to policymakers for doing so.

to be continued in part 2


Tim Eaton is a research fellow within the Middle East and North Africa Programme at Chatham House, where he has been based since 2014. Before joining Chatham House, he was senior projects manager, Middle East at BBC Media Action, the BBC’s international development charity. He worked across the Middle East on projects in Libya, Iraq and Egypt.


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