The Fuse

What the Heck is Going on in Libya?

July 09, 2018

Guest Post by Matthew M. Reed | @matthewmreed

Matthew Reed is Vice President of Foreign Reports, Inc. and a non-resident fellow at New America and the Payne Institute at the Colorado School of Mines.

It was good while it lasted in Libya. After many years of political turmoil, oil port blockades and wild production swings, output rose to roughly one million barrels a day (b/d) last summer and it stayed there for almost a year. Interruptions became rarer and shorter, lasting just days or weeks, whereas earlier blockades dragged on for years. Libya’s economic outlook improved considerably as production climbed and oil prices rose 50% from a year ago.

This summer, however, everything changed (again). Oil was taken hostage not by bandits or crooks but by a presidential hopeful who had liberated the ports two years ago.

Oil has been taken hostage not by bandits or crooks but by a presidential hopeful who had liberated the ports two years ago.

Libya’s miraculous recovery started in 2016. It was made possible by two people: NOC chief Mustafa Sanalla, whom I’ve described as “the hardest working man in oil,” and eastern strongman Khalifa Haftar, whose forces captured about 75% of the country’s export capacity back in 2016. (Libya has seven export terminals, of which Haftar controls five; until recently those five exported about 650 thousand b/d.)

From 2013 until 2016, most terminals were shut because of a blockade imposed by Ibrahim Jadran and his like-minded oil “guards.” Production languished and fell as low as 200 thousand b/d. Recognized governments in the west, based in Tripoli, failed to remove Jadran or reconcile with him. Meanwhile, rival authorities in the east focused on consolidating power after civil war broke out in 2014. In September 2016, Haftar’s so-called army swept in from the east and ousted Jadran from the terminals. He invited the NOC to restart exports and production climbed gradually through last July when it crossed the million-barrel mark, where it stabilized.

Haftar didn’t have to hand over the terminals to the recognized NOC based in Tripoli. In fact, a rival NOC had been formed in 2014 precisely because eastern authorities did not trust the NOC or the Central Bank in Tripoli. They wanted to export oil and collect the revenue themselves. Their NOC only failed because the international community intervened repeatedly. Previously, when Jadran tried to sell oil in 2013, the UN Security Council unanimously adopted resolutions which authorized foreign powers to stop illicit oil sales. They did so on multiple occasions by seizing cargoes, warning crews, stripping flags, and re-directing ships loaded with Libyan crude.

A rival NOC had been formed in 2014 precisely because eastern authorities did not trust the NOC or the Central Bank in Tripoli. They wanted to export oil and collect the revenue themselves.

Given Haftar’s close ties to authorities in the east—and their endorsement of the rival NOC in Benghazi—it was widely expected that Haftar would hand over oil terminals to the upstart NOC back in 2016. But that didn’t happen. Instead, Haftar gave his blessing to the NOC in Tripoli and the cold shoulder to its rival in Benghazi. Although Haftar was angry about how oil revenues were distributed, he blamed the Central Bank, which handles receipts, rather than the NOC, which strictly focuses on operations. Haftar’s liberation of the terminals was a significant achievement that set him apart from so many feckless politicians. Even if restarting exports didn’t pay off for him personally, it would politically when it came time for elections.

Haftar’s calculations changed dramatically this year when his old foe Jadran returned to the scene. On June 14, after a long absence and countless rumors about his fate, he and his men launched a surprise attack on two of the largest oil terminals: Ras Lanuf and Es-Sider, along the Gulf of Sirte. Clashes set off fires that destroyed two massive storage tanks at Ras Lanuf; Es-Sider was shut as a precaution; and Jadran’s men briefly captured the terminals. Years ago, Haftar promised to liberate the oil terminals from criminals. This time Jadran claimed he was liberating them from the strongman’s tyrannical rule. He said he would deliver them to the original NOC in Tripoli, which was already operating them with Haftar’s blessing.

Haftar’s men recaptured the terminals on June 21 and Jadran hasn’t been heard from since. Four days later, however, Haftar’s spokesman announced that the NOC in Tripoli would not be allowed to return to the terminals. Instead, the unrecognized NOC in the east would be tasked with restarting exports. Because of the UN ban on oil sales by anyone other than the Tripoli NOC, this effectively meant that Haftar was blockading Libyan oil. In the weeks since, production has plummeted, although the exact amount is unclear. Current production estimates range from 300-500 thousand b/d, meaning output is at least down by half.

For Haftar, the June attack was the last straw. It was the third launched against the terminals by Jadran or his allies, some of which Haftar suspects are being paid by the Defense Ministry. If they are paid by the Defense Ministry then the money is coming from the Central Bank. Any money coming from the bank is derived from oil revenues. To paraphrase Haftar’s boosters: oil money is going to oil guards and extremists who attack oil facilities. His solution is to cut off oil revenues.

Haftar is playing hardball right now, but there’s little reason to believe he can export oil.

Haftar is playing hardball right now, but there’s little reason to believe he can export oil. The eastern NOC has a pathetic track record, although it is under new leadership, which may or may not be more competent. Regardless, the international community is ready to stop them. Exports or no exports, Haftar’s blockade affords him tremendous political leverage. His spokesman delivered a list of demands on July 4. At the top of that list was the sacking of the Central Bank governor. Haftar wants him out and hopes that his successor will cut off his enemies’ funding.

A dispute about money is easier to solve than a dispute over authority. If Haftar is satisfied by changes at the Central Bank in Tripoli, he could still abandon the upstart NOC in Benghazi.

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