Rhiannon Smith
Libya’s economic crisis
On a recent visit to Tripoli, I was struck by the visible changes that have occurred in recent years – the old city and downtown area of the capital have been revamped and gentrified, flashy new cafes and restaurants have popped up all over the city, and roads that were once sand are now paved.
In the East, Benghazi has seen an even more dramatic transformation, with much of the city redeveloped and redesigned since its war-stricken days, and the city of Derna is being completely rebuilt after the devastating dam collapse and flooding in 2023 which literally swept away the city and thousands of its residents. Even the much-neglected southern region has seen some signs of development.
Yet whereas in years past the Libyan middle classes would have flocked to spend their money in these upscale establishments, these days many Libyans are being forced to tighten their belts, and many businesses are struggling to stay afloat.
For Libya’s poorer residents, even finding the money to buy basic commodities is becoming a challenge. Adding to the pressure is a chronic lack of the physical dinars needed to pay for goods in what is still a predominantly cash-based society, meaning the sight of long queues in front of banks is a regular sight as Libyans wait to be able to withdraw their salaries or savings from the banks.
There are frequently limits set on withdrawals however, often leaving families unable to access the cash they need (even if it is in their accounts). Lack of trust in the banking sector is a key driver of this issue and despite multiple recent deliveries of cash printed overseas, liquidity shortages remain a problem.
On top of all of this, Libya is experiencing rapid inflation, with the cost of basic commodities shooting up. The Libyan dinar has officially been devalued twice in the last year – most recently it was devalued to LYD 6.37 to 1 USD in January 2026. This has mainly been driven by Libya’s ballooning USD deficit and the growing gap between the official exchange rate and the black market exchange rate, which as of 23 February had risen to over 10 LYD to the dollar.
In the most basic terms, Libya is spending more in foreign currency each month than it receives in oil revenues, up to twice as much according to some estimates. This has been driven in large part by the hugely inflated fuel import bill, most of which is then siphoned off for smuggling.
The irony of a country with the largest proven hydrocarbon reserves in Africa being brought to the edge of economic collapse by fuel imports is not lost on Libyans. To add injury to insult, fuel shortages are common and Libyans are often forced to join fuel queues for hours or days at a time just to fill up their cars.
Foreign currency is not readily available from the Central Bank of Libya (CBL) or commercial banks (although new foreign currency bureaux are being introduced to address this), meaning most Libyans requiring dollars or Euros must buy them on the black market. In Tripoli, this generally means visiting the traders in the dusty side streets of the old city, though there is additional caution these days as the ministry of interior tries to crack down on the black market traders.
The gap between the official exchange rate and the black-market exchange rate remains a key driver of corruption and economic instability in Libya, allowing those who can access the lower official rate (Libya’s political elite, well-placed armed groups, and major traders) to make significant financial gains. For normal Libyans, this means that the prices of basic commodities have risen significantly, with many especially feeling the pinch in the run up to the holy month of Ramadan (when purchases tend to increase).
Development and reconstruction boom
Despite the worsening living conditions, Libya’s message to the world is that it is open for business, with money to spend. In many ways, this is true.
In 2025, Libya’s oil production stabilised at around 1.3 million barrels per day (bpd), the highest average for a decade, and Libya’s National Oil Corporation (NOC) has just announced the results of its first exploration bidding round for investors in 17 years, securing new exploration contracts with several oil majors. In particular, there has been renewed US investment in the Libyan oil sector.
A raft of reconstruction and development contracts have also been signed, especially in the East, where the Libya Development and Reconstruction Fund – led by Belqassem Haftar, one of Khalifa Haftar’s sons – has been granted a 69 billion LYD development budget over three years. This has coincided with Khalifa Haftar coming in from the cold as far as Western actors are concerned, with a steady stream of diplomats, business delegations and international companies regularly beating a trail to Haftar’s door.
However, while the money being spent comes directly from the Libyan state’s coffers, it is not the Libyan state, and certainly not the Libyan people, which is benefitting. Rather, this spending is a reflection of the success of Libya’s ruling elite at diverting Libya’s wealth into their own pockets, using the country’s oil wealth to enrich themselves, buy support from local and international actors alike, and secure their power bases.
Elite capture of the oil sector
While corruption and extractive economic practices are nothing new in Libya – they were a cornerstone of Qadhafi’s 42-year rule – the institutionalisation and expansion of corrupt practices have intensified in recent years. Both the Dabaiba clan in the western region and the Haftar family in the eastern region (among others) have used their positions of power to enrich themselves and their patronage networks, anchoring their rule through parasitical roots that are hollowing out Libya’s institutions and sucking their riches dry.
Take Libya’s oil sector, the engine driving the Libyan economy and generating the vast majority of the country’s revenue. On paper, Libya has experienced 18 months of stable oil production, avoiding the politically-motivated blockades of oil fields and ports which have so frequently disrupted oil production since 2011. Yet a key reason for this stability is the behind-the-scenes deals which have been struck between the Dabaibas and the Haftars, facilitating and accelerating the elite capture of the sector.
The headquarters of Libya’s main financial institutions, namely the Central Bank of Libya (CBL) and the National Oil Corporation (NOC), are located in Tripoli, which is under the control of the GNU, led by Dabaiba. The NOC produces and sells Libya’s oil, the CBL receives the revenues from the oil, and the funds are then nominally disbursed based on the instructions of the government or other funding arrangements.
This is complicated by the existence of two governments and the lack of an agreed budget. In addition, most of Libya’s oil fields are located in areas under LNA control, meaning it is within Haftar’s power to halt production through blockades at fields and ports, usually framed as the LNA taking action in support of the demands of local communities and tribes.
This has occurred several times in the last decade. In return for not pulling this lever, the Haftar family has been allowed to expand its control over the NOC and the wider oil ecosystem through the appointment of supporters to key positions, securing contracts for companies from which they benefit, and the drastic expansion of fuel smuggling networks at an institutional level, cashing in on the gulf between the dirt-cheap price of Libya’s subsidised fuel and market prices.
Yet the NOC has not received any operational or development funding from the state for over two years and its debts to service companies have been stacking up. As a result, although there are ongoing efforts to bring new oil and gas wells online, Libya’s oil production is likely to enter a period of decline without a major injection of investment in the country’s deteriorating hydrocarbon infrastructure and refining capacity. Less oil means less money for the Libyan state and the ruling elite, especially if global oil prices decline.
The NOC has been seeking international investment in an effort to address its financial issues. It concluded Libya’s first exploration tender in 17 years on 11 February, with five new exploration contracts agreed with international oil companies. It has also signed a slew of other new agreements in recent months. However, 17 of the available exploration blocks did not receive valid bids, highlighting the persistent concerns about the political, economic and security risks involved in investing in Libya.
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Rhiannon Smith – Libya-Analysis’s Managing Director.
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