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.


III. Lingering Issues

The end of the standoff and the reopening of the terminals came as a relief to financial authorities in Tripoli and reduced the risk of another attempt by groups in western Libya to take the oil crescent.

But a number of issues linger: one is the continued deterioration of living conditions and lack of economic reforms. Economic hardship is causing widespread anger, as are limits on access to foreign currency at the official exchange rate.

These troubles are the backdrop to the Libyan National Army’s request that the Tripoli-based Central Bank governor, Saddik ElKebir, be removed from office.

A second unresolved issue is the eastern government’s insistence that Benghazi be the NOC’s official headquarters and that the NOC’s head, Mustafa Sanallah, be replaced.

A third is ongoing attempts by a number of groups in both eastern and western Libya, including Haftar supporters, to form a new government of national unity that they believe could end institutional divides.

A. The Standoff over Financial Management

Concerns in both eastern and western Libya about the management of the country’s wealth have mounted over the past year. A May 2018 report of the Tripoli-based Audit Bureau, the government accountability watchdog, left no doubt that the Tripoli government has mismanaged funds and that some of the capital’s powerful armed groups are using their influence over state institutions to enrich themselves.

Libyans appear increasingly angered by the concentration of power in a few armed groups in Tripoli; in eastern Libya this grievance has become part of a narrative that blames Tripoli for squandering public funds and failing to carry out urgent reforms to stabilise the economy.

On the other hand, the Central Bank based in al-Beyda also has been accused of a lack of transparency and embezzlement, and corruption is reportedly widespread in the east as well.

Such accusations, often voiced in the west, tend to be overlooked in the east.

Although oil exports and government revenues have increased over the past year – in good part because the NOC has been able to export more, and at a higher price, than previously – ordinary people’s living conditions have worsened.

Purchasing power has fallen, due to chronic cash shortages and high inflation, and public services have eroded. Discontent has built up over the realisation that a few prosper while most households struggle to make ends meet. A tribal representative from the oil crescent said:

How can it be that international oil prices have risen, and oil production has gone up to over one million barrels per day, and yet we feel that we are poorer by the day? We don’t have access to cash. Food prices are higher than ever.

In our tribe we used to have a cash fund to support our tribesmen in need, but now that fund has dried up because everybody is in need and nobody has money to contribute to the fund anymore. It is the same with other tribes.

On top of these considerations, there is also anger at the consolidation of a dysfunctional status quo – an important motive for residents of oil-rich eastern areas, in particular, who saw closing the terminals as a tool to force change at both political and economic levels. As an activist from the oil crescent put it:

We see no hope at the end of the road. We were told that there would be a new government, but that did not happen. We were promised unified institutions, but things are more divided than ever. We thought there would be a new Central Bank governor who could resolve the problems, but he was not allowed to take office.

A primary goal of various factions in both eastern and western Libya, both during the standoff and since, is the removal of ElKebir. The Tobruk-based House of Representatives wants him replaced by Mohamed Shukri, whom it appointed as governor but who has been unable to assume his post while authorities in Tripoli dispute the appointment.

Neither the UN nor one of its member states has recognised the appointment. Anti-ElKebir factions in western Libya are divided between those who also support Shukri and those who would prefer a new candidate for the post.

But ElKebir, who has been Central Bank governor since 2012, continues to enjoy support among key stakeholders across the political spectrum who believe that accusations against him of mismanagement and corruption are politically driven and baseless.

Some interlocutors say support for ElKebir might be dictated to a certain degree by self-interest, since they believe promises of letters of credit are known to have influenced the position of key stakeholders, including in the Tobruk House of Representatives and the High State Council, who at one point called for his removal but then backtracked.

Yet ElKebir continues to enjoy considerable support, especially in Tripoli, among those who view him as competent and serving the national interest. There is also an ideological dynamic at work: some see him as linked to the Muslim Brotherhood, while their opponents see him as a bulwark against the encroachment of former regime elements.

In a 4 July statement, the Libyan National Army requested fulfilment of Shukri’s appointment as a precondition for resolving the standoff over the oil crescent.

Key stakeholders in Tripoli are likely to meet this request with intransigence, viewing it as an imposition of someone who will bankroll the LNA.

Some Libyans who oppose Shukri’s appointment are also concerned that a candidate beholden to the House of Representatives may be inclined to increase public expenditures to appease political factions and thereby draw down on foreign currency reserves much faster, which in turn would worsen the monetary crisis.

Some Tripoli Islamists are willing to recognise Shukri as ElKebir’s replacement on condition they be allowed to choose his deputy, a demand Shukri has refused to accept.

Negotiations have failed thus far. A new legal battle began when politicians in Tripoli filed a legal case claiming that the House lacked a legal quorum when it appointed Shukri, thereby hoping to undermine the Tobruk-based House.

A secondary goal that some eastern constituencies champion is the removal of Mustafa Sanallah as NOC chairman and the transfer of NOC headquarters to Benghazi, which they argue is the institution’s legal seat on the basis of a 2013 government decree.

These individuals say Sanallah should be removed because of NOC corruption, citing the Audit Bureau report as evidence. Others say he crossed a red line when he compared the LNA to Ibrahim Jedran.

Sanallah’s dismissal is allegedly also supported by Fathi al-Majbari, a Haftar ally on the Presidency Council (before his resignation in July 2018).

Sanallah is unlikely to be removed, however: he enjoys the support of most international oil companies, has a reputation inside the NOC for competence, and hails from the east where he enjoys support of some people, who are pressing Haftar to back off.

Although there have been tensions between Sanallah and the Presidency Council in the past – ironically over his pragmatic collaboration with Haftar in the oil crescent, as well as the Tripoli government’s delays in providing the NOC with sufficient operational funds – it is difficult to imagine that Serraj, who has the authority to appoint the NOC chairman, would go down that road in the present circumstances.

When the LNA agreed to transfer management of the oil terminals back to the internationally recognised NOC, it dropped both the issue of Sanallah’s removal and the request that the NOC be based in Benghazi. Some eastern Haftar supporters felt that he had “given up on some of Cyrenaica’s requests too quickly”.

B. Potential for a Wider Political Shake-up

For some in both east and west, the crisis over the oil crescent was an opportunity, beyond access to the Central Bank and NOC, to form a new unity government in Tripoli that includes Haftar representatives.

House of Representatives President Aghela Saleh, Presidency Council member Ahmed Maitig and former Libyan Ambassador to the UAE Aref al-Nayed are three of the numerous personalities who appear to be working on this option outside the framework of the 2015 agreement and UN diplomatic efforts.

There also is some support for this idea among Misratan stakeholders, who likewise appear to be attempting to forge an agreement with Haftar.

According to a member of the eastern government, speaking prior to the resolution of the oil terminal standoff, the LNA also supports the formation of a new government:

The creation of a unity government is the real aim of the LNA’s announcement regarding the oil terminals. It is not about wanting to pursue independent oil sales.

It is all about being able to form a new government in which they have a seat. And this makes sense. We cannot go to elections in this state of institutional division.

Some mid-ranking LNA commanders have voiced support for a new unity government that could replace the dysfunctional Government of National Accord, unify the divided institutions and lead the country to new elections.

Haftar made this request explicitly to the UN Special Representative Ghassan Salamé in February 2018; according to a UN official, a new unity government continues to be his objective.

Western diplomats who have met Haftar suggest that rather than forming a unity government, he wants the country to hold presidential elections in which he would present his candidacy.

They further suggest that Haftar’s main foreign ally Egypt, rather than Haftar himself, is the main backer a new unity government, and that some LNA commanders and pro-LNA politicians echo the call for that reason.

The main opposition to the idea of a unity government comes from Serraj. Without his buy-in it is doubtful that a unity government will come about.

In a 18 July meeting with the EU and UN representatives, as well as ambassadors from key member states, he urged the international community not to heed calls for a unity government but instead to continue supporting the Government of National Accord.

Yet Fathi al-Majbari’s resignation from the Presidency Council and rumours of another member’s possible resignation have raised questions about the durability of the current political set-up.

Many Libyans, especially in the east, criticise the international community and the UN for lack of engagement in helping resolve the political and financial crises. They also blame the rival assemblies in Tobruk and Tripoli for failing to negotiate a new unity government.

Their frustration has contributed to deepening animosity and fuelled local calls to shut down the oil terminals in June. “Nobody is doing anything. So we need to do something drastic in order to force change”, an advocate of this approach said.

The virtual absence of the UNSMIL from eastern Libya, despite promises in early March 2018 to open an office in Benghazi, indirectly helped such views to gain traction.

The formation of a new unity government would be welcome and could no doubt solve many institutional problems. But despite a number of Libyan politicians’ optimism that this goal is within reach, the necessary preconditions are not in place.

Key stakeholders’ contradictory aspirations to gain positions in the Presidency Council, or even to become prime minister, coupled with the impossibility of achieving a majority vote within a divided House of Representatives, will likely scuttle these initiatives.

Moreover, most of the militias and politicians in Tripoli have a vested interest in maintaining the status quo, because without a unified government they have a better chance to continue pillaging state resources through direct or indirect means.

Continues in Part 4


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