A renewed struggle this summer over Libya’s main oil export zone cut sales in half, squeezing hard currency supplies amid outcry about mismanagement of hydrocarbon revenues.
To build trust, Libyan and international actors should review public spending and move toward unifying divided financial institutions.
II. The Oil Crescent Crisis
A. Jedran’s Short-lived Takeover
On 14 June 2018, a coalition of fighters under Ibrahim Jedran, a controversial former Petroleum Facilities Guard commander who controlled the oil crescent in 2012-2016, launched an offensive from a base near Bani Walid in western Libya.
His fighters proceeded overnight through a lightly populated stretch of coast east of Sirte to seize the strategic Sidra and Ras Lanuf oil export terminals and adjoining towns. Libyan National Army fighters, including members of the Haftar-aligned guard, based there since they routed Jedran’s forces in September 2016, were driven back 200km toward Brega.
Jedran claimed that his offensive aimed to restore his guard as the legitimate authority in the oil crescent and allow his followers from the Magharaba tribe (one of the largest in the area) to return to the homes they had fled two years prior. He labelled the Libyan National Army (LNA) “an oppressive entity that claims to be building an army but is just another face of terrorism”.
He may have employed this rhetoric to rally anti-Haftar factions in western Libya to his cause, but none came to his aid. Haftar’s supporters were not the only ones to swiftly condemn the takeover: so did his rivals in western Libya, including the Presidency Council. The Tripoli NOC went so far as to declare force majeure (a legal clause in oil sales that frees the seller of liability in circumstances beyond its control) on crude oil loading at the Sidra and Ras Lanuf terminals, suspending exports.
Nonetheless, Jedran did have support from groups in the west other than his own loyalists and tribesmen. Former members of the Benghazi Defence Brigades, a coalition of west-based anti-Haftar fighters driven from Benghazi by the LNA in 2015-2017 that had allied with Jedran in previous failed attempts to recapture the oil crescent, joined him.
These Benghazi exiles are motivated primarily by the desire to weaken the LNA and return to their city. Foreign mercenaries – allegedly Chadians – also took part in the attack, and Jedran may have received financial and material support from other anti-Haftar factions, including allies in Misrata and individuals with ties to Qadhafi-era officials.
The High State Council in Tripoli, an advisory body established under the 2015 agreement that is a hotbed of anti-Haftar sentiment, did not condemn Jedran, seeing him as more legitimate than the LNA.
Apparently some Council members tacitly supported the offensive because they hoped it would prompt the international community to declare the oil-rich area a “demilitarised zone”, something they have lobbied for over the past year.
Jedran’s success was short-lived. By 21 June, Haftar sent reinforcements, including critical air support, forcing Jedran and his fighters to retreat westward. Overall, the initial attack and the subsequent counteroffensive caused at least 30 deaths, primarily among LNA fighters.
It also destroyed two of the five operational crude oil storage tanks in Ras Lanuf and slightly damaged two others. Nevertheless, exports resumed immediately.
B. The Libyan National Army’s Declaration
A few days after retaking the oil crescent, the Libyan National Army announced it would no longer work through the internationally recognised Tripoli-based NOC, and put its own Benghazi-based company in charge of the facilities’ management.
Two days later, representatives of the Benghazi NOC held a ceremony at the Sidra oil terminal to mark their takeover of the eastern terminals; they also prevented vessels that had been contracted by the Tripoli NOC to load crude oil from docking.
The Libyan National Army’s declaration came on the heels of its accusation that stakeholders in Tripoli, whom it did not name, had used oil revenues to fund military operations against it while the LNA itself had no access to foreign currency to pay for the treatment abroad of its injured fighters.
In a 25 June televised speech, Haftar’s spokesperson lamented that the LNA had “never received a single penny” for what it had done to protect the terminals during the two years it controlled them, while losing 180 of its fighters in Jedran’s five attacks since 2016:
From where do these armed groups get their money? From where do they get their weapons? … We realised that the source [of these funds] is the oil we are protecting. We secure [the ports]; we are injured; we kill and are killed in order to allow vessels to depart and money to enter. But the money goes to militias and these militias attack us again.
It is difficult to establish the truth of allegations that western militias or politicians provided funding to Jedran. Anti-Haftar activists claim the LNA fabricated them to justify its actions in the oil crescent. The Tripoli-based Central Bank categorically denied accusations that it had provided funds to Jedran.
On 2 July, the Tripoli NOC declared force majeure on two more export terminals, Marsa al-Hariga (Tobruk) and Zuwetina, both in eastern Libya.
This action meant that operations at all export terminals under LNA control, with the exception of Marsa al-Brega, came to a standstill. Total crude oil sales dropped from 1.1 million barrels per day in early June to just over 500,000 barrels per day, processed solely from the Zawiya export terminal in western Libya and offshore. According to the Tripoli NOC, the closures cost the country $67 million per day in lost revenue.
Prior to these events, Haftar had given no sign of supporting the Benghazi NOC. After his forces took control of the oil crescent in 2016, they worked with the Tripoli NOC; relations with its chairman, Mustafa Sanallah, were reportedly good.
Sanallah, a fierce Jedran critic, praised the LNA when it seized the oil crescent in 2016 and insisted on working with it despite the worries of Tripoli government officials about legitimising Haftar.
Because of smooth cooperation between the NOC and Haftar’s forces, crude oil exports rose from 300,000 barrels per day in September 2016 to over 1.1 million barrels per day in early 2018, allowing much-needed foreign currency to flow into the Central Bank in Tripoli.
Reports have circulated that Haftar requested payment from the NOC and Central Bank to cover the LNA’s operations, but the latter never publicly challenged the arrangement during 2016-2018, receiving its funds from the east-based Central Bank.
This bank, which is recognised only by the east-based government and House of Representatives, contracted loans from local commercial banks and issued bonds to raise funds to pay the east-based government’s expenses, including for its security forces, having no access to foreign currency through the Tripoli bank.
Given that Haftar does not recognise the Government of National Accord, it may be counterintuitive that he allowed oil revenues to accrue to Tripoli during this period.
Yet his position earned him much popular support. Some Western governments deemed it proof of Haftar’s statesmanship and patriotism; it reinforced his message that his loyalists are the country’s legitimate army while all other fighting forces are militias. But Haftar endangered his international standing with his declaration empowering the Benghazi NOC: within two days, the UN secretary-general, the U.S., the EU and several of its member states, including the UK, France, Germany and Italy, issued statements recalling UN Security Council resolutions reaffirming that the Tripoli NOC is the only legitimate NOC.
Haftar’s calculations were not entirely clear. It is possible that some of his advisers and government officials in the east led him to believe that the eastern NOC would be able to sell oil independently.
Some observers note that the LNA leadership was surprised by the unanimous condemnation, including from foreign allies such as Egypt and the United Arab Emirates (UAE).
Pressure due to alleged accrued debts could have been another factor. But it is also possible that Haftar intended to use his move as a bargaining chip to secure greater influence in Tripoli-based institutions, especially the Central Bank.
For years, the LNA and the Tobruk-based House of Representatives have sought the removal of the Tripoli-based Central Bank governor, Saddik ElKebir, demanding it most recently on 4 July; they view him as a pawn of the Muslim Brotherhood, which they despise, and blame him for the mishandling of public funds that contributed to the economic crisis.
Haftar’s supporters in the east, many of whom had urged him for months to block the flow of revenue to the Tripoli-based government, hailed his declaration. The eastern government and House of Representatives members, including its president, Aghela Saleh also backed the statement. One supporter called it a “bold and courageous move”.
Much of the public in the east believes that this region, Cyrenaica (known locally as Barqa), is the victim of historical injustice at the hands of central authorities, for instance getting a lesser share of oil revenues than its western counterpart, Tripolitania, despite producing over 80 per cent of the country’s oil. Easterners also accuse Tripoli of mismanaging public funds and failing to solve the country’s economic crisis.
Yet not everyone in the east considered Haftar’s move wise. Some senior LNA commanders and eastern government officials in charge of public finances saw it as rash, given the financial hardship that a stoppage in oil sales would likely provoke.
Between 2014 and 2017 the eastern Central Bank had been paying the salaries of most of the east-based government employees, but in early January 2018 the Tripoli government agreed to pay public servants’ salaries throughout Libya (with the exception of security personnel, eastern government ministers and members of the House of Representatives).
They also worried about possible backlash from attempting to sell oil independently, both at home, where it could be seen as an attempt at profiteering from shared national wealth (much as Jedran was widely perceived to have done), and abroad.
Condemnation from Tripoli came quickly. The Presidency Council, headed by Faiez Serraj, said Haftar’s forces had no authority to transfer control of the oil terminals.
Mustafa Sanallah, the NOC chairman, likewise stated that the LNA “has no legal authority to determine control of oil exports from Libya”, and that by doing so it has “decided to put itself above the law”. He also drew comparisons between Haftar’s actions and those of “the criminal Ibrahim Jedran”.
Not everyone in western Libya opposed Haftar’s move, however. Some, who like their eastern counterparts resent Tripoli’s alleged mismanagement and misuse of public funds, hoped it would “shake things up”.
Fathi al-Majbari, the Tripoli-based government’s deputy prime minister who is from the east and since late 2017 has become the principal conduit between the Presidency Council and Haftar, voiced support for Haftar’s decision, only to be physically attacked by an armed group in Tripoli, and thereby forced to flee to Tunis.
In mid-July he resigned from the Presidency Council to protest Serraj’s failure to condemn the attack. A Misratan faction that has engaged in back-channel conversations with the LNA for the past year and is critical of Serraj suggested that the oil crescent crisis could provide an opening for a political reconfiguration.
Realistically, the LNA’s announcement would not have led to independent oil sales, at least in the short to medium term. The Benghazi NOC, which consists of just a handful of employees (compared to the 65,000 employees of the recognised NOC and its subsidiaries), lacks the human resources to manage the entire oil industry and has a poor track record.
More importantly, because it lacks international recognition, no international oil company or reputable commodity trader would be willing to deal with it.
In this situation, Haftar’s choice was 1) to continue blockading the ports and risk mounting international pressure (not even his closest allies, Egypt and the UAE, supported his move); or 2) rescind the decision to hand over the ports to the unrecognised NOC while still advancing his ambition to secure access to, or at least influence over, management of Libya’s hydrocarbon wealth.
On 11 July, Haftar chose to backtrack, abruptly ending the standoff. Several simultaneous factors, encouraged by discreet UN mediation efforts, contributed to his decision.
The first was the 10 July public request by Serraj to the UN Security Council to appoint a committee that would oversee an international “review” of the Tripoli Central Bank and its rival in al-Beyda under the oversight of the UN and international financial institutions.
Haftar had previously requested the formation of an investigative committee to look into the Central Bank’s disbursements of funds; his supporters were therefore able to interpret Serraj’s request as a direct result of their pressure.
Both sides have complained of a lack of transparency and clarity concerning financial transactions over the past four years, and both have made accusations of mismanagement.
Both Central Bank governors appear to agree on the need for a review of Central Bank spending (in part because they both expect the findings to implicate their opponent), but they continue to differ on how this audit could take place; details need to be fleshed out.
The Security Council tasked the UN Support Mission to Libya (UNSMIL) with presenting a proposal for structuring this review. The second factor was a public speech by Sanallah, the NOC chairman, in which he attempted to make amends with the LNA by praising it for its role in allowing oil production to increase between 2016 and 2018.
Growing disagreements between Haftar and the head of the Benghazi NOC, Faraj Said al-Hasi, may have been a third prompt for him to resume collaboration with the Tripoli NOC.
International pressure spearheaded by the U.S. also had an effect. It took the form of the threat of sanctions and an explicit message from the Trump administration requesting Libyan stakeholders to end their feud and resume production.
The U.S. called on Haftar’s main regional allies, Egypt and the United Arab Emirates, as well as Italian security officials, to convey this request explicitly – not so much out of concern for the possible economic repercussions for Libya or the risk of renewed fighting over the terminals, but to boost global oil production ahead of the U.S.’s reimposition of sanctions on Iran’s oil exports.
On 11 July, the internationally recognised NOC lifted the force majeure announcement for all eastern ports, and exports resumed.
Continues in Part 3