The rival authorities still fighting to control a rapidly shrinking pool of national wealth in Libya may well be instrumental in causing a sharp decline in economic conditions there. The national oil infrastructure, from oil fields and pipelines through to export terminals – not to mention the board rooms of national financial institutions – has taken an extensive battering.
To make matters worse, official corruption is seen as rife and propelling rampant spending while at the same time revenues are in free-fall. This is down to a combination of falling exports and energy prices that are affecting oil producers around the globe.
Libya is faced with a financial and societal collapse that is only exacerbated by political turmoil, the actions of militia groups, and the rapid spread of radical groups, including Islamic State (IS). The struggle for the two political groups competing for international legitimacy is to successfully maintain daily living conditions in their areas and pay the government salaries of their respective militia groups. Should either fail, they will see mutiny, mob rule and a total collapse of their support. While the creation of a unity government would seem to be an ideal goal, the realities of the situation require urgent focus on economic governance in the current UN-led talks by all the political and military actors involved.
Libya has seen nothing but disruption to its oil and gas facilities over the last five years since the Qadhafi regime fell. For the most part this has come from militias seeking rents from the central government. While they started off as small, isolated incidents resolved by government concessions, they soon escalated as political, economic and military fragmentation began to take their toll. All attempts at integrating the militias into the national security structures of both main factions have failed, leaving defences for the petrochemical infrastructure dangerously vulnerable to IS militants.
One of the biggest contributing factors to the longevity of the disputes has been the legacy of the old regime’s centralised political and economic governance of the oil and gas resources in the country. The corruption endemic in the original patterns of patronage underpinned the whole model, and as a result of that legacy a huge number of corrupt practices have become ingrained in the whole energy sector. The impact of the federalist movement – which some see as secessionist – has exploited the confusion to create its own sale channels, leveraging its control of some of the most important crude-oil export terminals. While this provides them with revenue, it does nothing to maintain the stability of the country.
All this has led to the current situation where there are now two rival parliaments, governments and militaries. One is based in Tripoli, the other in Tobruk in the east of the country. The rivals both receive backing from different regional players, and each is locked in a battle to control key national institutions. The two most important: the Central Bank, and the National Oil Company, are controlled by Tripoli. The internationally recognised parliament in Tobruk and the government based in al-Bayda are trying to set up alternative institutions as a matter of urgency.
The two sides are also fighting for control of the Libyan Investment Authority – which controls the country’s sovereign wealth fund in international courts – but most regional and international actors with stakes in the country are continuing to back the traditional structures in hope of a unity government finally being formed. The longer the conflicts continue, the more unstable the traditional institutions risk becoming as alternative structures are put in place. The ongoing financial erosion of the country – which used to be based mostly on oil and gas – will therefore continue to worsen due to widespread corruption and mismanagement. Remedial action is urgently required, especially with the volatility of international oil prices, damage already cause by fighting to the national infrastructure and blockades imposed by the international community.
Shortages of fuel and basic goods are already happening, in part because of poor economic management in places, and it is feared that a wider economic crisis could cause a massive devaluation of the dinar and bring unprecedented hardship to the country which would only destabilise it even further. The militias would undoubtedly become even more predatory, and an increase in refugee flows and smuggling in the parallel economy.
UN-led negotiations are under way, aimed at forming a Government of National Accord (GNA), but what is clear is that several steps are urgently required:
- Underlining the international agreement that there can only be one Central Bank, National Oil Company and Libyan Investment Authority, and that the GNA should appoint their senior managers.
- Agree that oil sales or related contracts outside official channels will not be tolerated at any time.
- Brokering local cease-fires however appropriate so that blockaded oil fields, pipelines and export facilities can all be reopened to increase revenues.
- Prioritise economic governance within the UN-led talks so that agreement can be reached on short-term economic policy and the interim management of the key institutions. These will need to include representatives of both authorities and will need the support of international financial institutions.
- Addressing the issue of the armed groups guarding the oil fields as a matter of urgency. These groups have considerable arsenals and are largely independent of either government’s control. Including these armed groups in negotiations should also help improve the petrochemical infrastructure against attacks by IS affiliates.
Even though the UN-led talks are moving slowly, this should not dissuade everyone involved from engaging with them and encouraging these interim steps. Even with all the chaos, Libya has managed to maintain a degree of economic governance and even increase oil exports. This demonstrates that interim economic arrangements are feasible. It also opens the possibility of delivering political gains from the added confidence that comes from seeing the benefits of cooperation.
Strong support from external regional players will be needed to push the process forward. It will need those players to stop shifting from a policy of supporting political solutions to supporting one side or another and back again. This will promote the stability of the national financial institutions and reward the perseverance of negotiators. The greatest challenge is going to be convincing both sides that they are fighting over a rapidly depleting prize and cooperation is going to be the only way to take a share in a bigger pot that they will only control together.