Fight over oil offers opportunity to protect Libya's wealth

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Article Summary
Gen. Khalifa Hifter’s Libyan National Army forces have retaken Libya's strategic oil crescent region and announced that the rogue Benghazi-based National Oil Corporation will now administer it.

Recent clashes over control of Libya’s oil infrastructure could end up having long-lasting implications for the country’s institutions and political transition. Khalifa Hifter, the commander of the self-styled Libyan National Army (LNA), announced on June 25 that control of oil production in ports under his control would no longer be conducted by the internationally recognized National Oil Corporation (NOC). Resolving this dispute could provide an opportunity for the West to broker an agreement that would protect the country’s wealth and resolve the political impasse.

Due to quirks in Libya’s institutional legacy, those who control the oil fields, pipelines and terminals have never controlled the payments that Libya’s oil fetches on the open market. For the last 45 years, the NOC has been essentially the sole generator of Libya’s exports through its production of crude oil via a complex web of partnerships with foreign firms. Nonetheless, the money that foreign oil companies pay as taxes on their oil sales or shipping firms pay to lift NOC crude is always deposited in and later dispersed by the Central Bank of Libya (CBL). Since strongman Moammar Gadhafi’s ouster in 2011 and Libya’s ensuing transformation into a militia paradise, the militias who control the CBL building and the CBL governor’s ride to the airport have more leverage over how Libya’s oil money is spent than those militias that only control oil infrastructure.

Recent events in Libya’s oil crescent present a deep challenge to this unhappy status quo. On June 14, forces under rogue Petroleum Facilities Guard Commander Ibrahim Jadhran took control of the Sidra and Ras Lanuf oil ports from Hifter’s LNA. Over a week later, the ports were back in the hands of the LNA, only this time, according to Hifter, they are to be administered by the internationally sanctioned Benghazi-based National Oil Corporation (the Eastern NOC) rather than the internationally recognized Tripoli-based NOC, which operates under the Government of National Accord (GNA).

Despite throwing down the gauntlet, there have been no attempts by Hifter-aligned forces to smuggle illicit oil out from the seized Ras Lanuf and Sidra ports, but the last 48 hours have begun to see successful attempts to directly block transactions at other ports under Hifter’s control, like Zueitina and Hariga. Therefore, rather than trying to pilfer Libya’s oil directly, Hifter’s move primarily challenges which institutions and individuals should be considered legitimate recipients of Libya’s foreign currency earnings.

Which NOC is deemed to have exported the crude is actually an issue of where the payment flows rather than what personnel produce and load the oil. The real NOC is Libya’s most truly national institution with 65,000 employees. It is run by Libya’s most respected technocrat, Mustafa Sanallah. Conversely, the Eastern NOC’s handful of personnel are seen as crooks in the international community and have been on the verge of being sanctioned by the US government. The Eastern NOC can only produce or load crude by converting real NOC employees and pressuring others at gunpoint. If it exports crude, payments will go into the Eastern NOC’s account or parallel accounts in the Emirates. Due to this shadiness, the possibility of Eastern NOC exports is deeply suspect to most of the Libyan population. Simultaneously, the concept of preventing Libya’s oil money from being unfairly distributed by the Tripoli-based CBL remains popular in many quarters.

Therefore, so long as Hifter doesn’t attempt to smuggle oil, the current blockade remains about opposing the unpopular Tripoli-based CBL, rather than picking a losing battle with the respected Tripoli-based NOC.

Furthermore, if the Eastern NOC attempts to market crude, it would be in breach of multiple UN Security Council resolutions. But where would the critical enforcement of the UN’s writ come from? The US Navy would likely intercept any vessel filled with Eastern NOC crude that reached the high seas, such as happened in 2014, when the Morning Glory escaped into the Mediterranean with pirated crude. It was boarded and returned to port by US Navy Seals.

So why then is Hifter choosing this path of confrontation when he is surely aware that any Eastern NOC efforts to sell crude will be thwarted by the full might of the international community? One analysis is that with the specter of national elections approaching, Hifter seeks to either undermine the electoral process or upstage his rival presidential hopefuls so that he can best them in a winner-take-all vote. Another analysis is that Hifter was never planning to smuggle any oil at all and is merely exerting maximum leverage over his opponents to get them to change who controls Libya’s purse strings: the CBL.

The CBL in Tripoli is semi-sovereign, disbursing funds partially according to the GNA’s budget and partially according to its whim. The Audit Bureau is not able to effectively check its activities. The Letter of Credit process, which awards access to foreign currency at a highly favorable official exchange rate, is notoriously corrupt and opaque. Simultaneously, the CBL has deliberately not held a board meeting in years, preventing itself from undertaking the most crucial step to combat smuggling: devaluing the Libyan dinar. At his core, Hifter is jealous of CBL Governor Sadiq al-Kabir. Hifter may be Libya’s most powerful military commander, but in the absence of any genuinely sovereign government, Kabir is Libya’s most powerful man.

From his appointment one week before Gadhafi’s murder until the present, Kabir has also been Libya’s most unpopular figure. This has only been exacerbated after his five-year term expired in 2015. His detractors accuse Kabir of funding Islamist-aligned militias and playing favorites with who can access Letters of Credit in a way that benefits Western Libya. Conversely, his proponents claim that he has kept the CBL unified and exerted fiscal tightening to protect Libya’s reserves. (It is not the purpose of this article to pass judgment on Kabir’s merits and demerits. By way of full disclosure, I met Kabir and found him to possess great strengths and equally profound weaknesses. The only essential point is that the majority of Libyans want him out.)

Talks between the House of Representatives and the Higher Council of State (HCS) to reach an agreement on a replacement have dragged on. In classically Libyan fashion, both sides dislike the incumbent, but efforts to remove him perennially fail due to the inability to agree on a successor. But there could finally be a light at the end of the tunnel.

In late 2017, the House approved the internationally respected technocrat Mohamed Shukri as their pick for CBL governor. The HCS has yet to approve him but could at any moment. It recently changed its leadership and could seize on the changing dynamics in the oil crescent to allow Shukri to assume the governorship.

As a result, prominent Libyan commentators are stating that a deal could be arranged whereby Hifter would hand control of the oil ports back to the real NOC in exchange for the HCS finally approving Shukri as Kabir’s replacement. Even if this brilliant pawn sacrifice is not the initial intention for Hifter’s rather haphazard, completely illegal and utterly immoral move, it could be a graceful end to the crisis and forestall further violence.

To facilitate this transition, the United States and our allies would be wise to not only backstop the integrity of Libya’s oil production — the institution of the NOC — but to finally assume the protection of Libya’s oil revenues. An international financial commission — requested by Libya’s main stakeholders tasked with protecting Libya’s wealth and overseeing its expenditures — would do the trick. Over the last four years, the idea has been discussed by foreign offices and special envoys the world over. It has been the missing piece in Western commitments to post-Gadhafi Libya. Absent international protections and local buy-in, Libyans will inexorably continue their zero-sum feud for control of the oil money.

Whatever Hifter’s actual motives were for turning the ports over to the rogue Eastern NOC, every crisis also presents an opportunity. The West must now use its diplomatic wiles to provide Hifter, the GNA, HCS and the NOC a face-saving way out of this impasse: have them facilitate Kabir’s replacement by Shukri and simultaneously request an international financial commission to safeguard Libya’s finances.

Certain American, British, Libyan and regional diplomats have long been working behind the scenes for such an outcome. Now fate has provided them with the perfect lever.

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Found in: oil revenue, gna, tripoli, libyan elections, khalifa hifter, libyan militias

Jason Pack is founder of Libya-Analysis®, Emeritus Director of EyeOnISISinLibya.com, the Senior Libya Analyst at CRCM North Africa, and former Executive Director of the U.S.-Libya Business Association.

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