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Could oil revenue sharing trigger another war in Libya?

July 20, 2023 at 10:00 am

Workers at an oil port in Libya on 24 September 2020 [AFP/Getty Images]

Oil has always been at the heart of the Libyan crisis ever since it erupted in 2011, and it remains to be a decisive factor in any long-term agreement for the troubled country. Revenue from oil is Libya’s main source of income, where almost every citizen gets cash from the government in one way or another.

Heavy government subsidies for almost every commodity have all but dried up since the toppling of the Gaddafi government in 2011, but oil money is still the source of public sector salaries and fuel subsidies benefitting almost all Libyans. According to official figures, fuel subsidies in the first five months of 2022 amounted to some $700 million.

Control over the flow of money and how it is spent makes oil revenue sharing an important factor in the political dynamics in the country, leading on many occasions to the weaponisation of the flow of oil itself by shutting it down. Libya is also a chronically corrupt country where wasteful spending has been the common denominator of successive governments since 2011. It is estimated that over the past two years alone the national treasury has lost some $42 billion, most of which went to militias, warlords, corrupt officials and, above all, misuse of public funds.

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Political gridlock and the lack of any political solution to the country’s crises in the foreseeable future have, recently, pushed the issue of oil money to the fore. General Khalifa Haftar, the dominant power in eastern Libya, has threatened war if a solution is not found and wasteful spending and corruption are not curbed. Speaking before his top commanders in Eastern Libya on 3 July, Haftar stepped up his pressure on the Tripoli-based Government of National Unity to come up with another formula for sharing the oil cash. Accusing the government of corruption and wasteful spending he said that the “looting of public money” is unimaginable while “oversight and the judiciary” are unable to stop it.

Claiming to have received hundreds of messages from people asking for the fair distribution of oil money, he demanded that a high-level committee must be established to allocate funds in a “fair manner” among Libya’s three regions: south, east and west. If such a committee fails to take over the allocation of funds “fairly for all Libyans,” warned Haftar, Libyans will be ready to “demand their legitimate rights.”

He gave the Tripoli government of Abdul Hamid Dbeibeh until the end of August to set up the committee and start working, otherwise the armed forces should be ready to “carry out their duties” at the right time.

Paradoxically, Haftar himself stands accused of corruption. He did not say if he means to go to war if his demands are not met. And nor did he offer any clear way for how oil money should be allocated in the first place.

The Presidential Council sensed the danger and acted rather quickly to set up the committee that Haftar demanded. The 17-member body is supposed to oversee government spending and the allocation of public money. Above all, it has to scrutinise state revenue. It has yet to start work, and it is not clear how legal such an entity is, and how legitimate its powers are because the legislation needed for this is not yet in place.

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What Haftar and his supporters can do if Tripoli fails to satisfy his demands is not clear. However, most oil fields are under his control in eastern Libya and previous experience shows that they can block oil production and exports, as they did in 2020 and 2022 at a cost to Libya of billions of dollars in lost revenue. As recently as last week oil production from one of the major oil fields was halted by tribesmen demanding the release of a former minister from eastern Libya, Faraj Boumatari, being held in Tripoli. Boumatari was duly released and oil started flowing again, but this is another indication of how vulnerable the oil industry is.

However, halting oil production and exports is no solution. The real solution has to do with good governance and budget transparency. Blocking the oil fields means a loss to everyone, and benefits only the smugglers who are active in Libya.

It is unlikely that Haftar will go to war to settle the issue of oil revenue sharing. The August deadline is likely to come and go while some sort of settlement behind the scenes is reached, whereby he gets some share of the pie without solving the actual problem.

Oil remains Libya’s curse and blessing at the same time. It can be divisive, as it has been over the past decade, or a unifying factor in the fractured country. Being the main sources of income, oil and gas should not be used as a tool to settle political disputes. The entire industry should be taken out of any political wrangling, because how the revenue is shared is an administrative matter.

The different political protagonists, including the governments in the east and west of Libya, disagree on how money is spent, not on how it is generated. The country’s National Oil Corporation, responsible for the production, marketing and collecting the cash, should be neutral in any political disputes; how revenue is allocated is a government and administrative matter which requires strong oversight, transparency and accountability.

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Any proposal to institutionalise how oil money is shared now is likely to be unfair, at least temporarily, and has the potential to divide Libya further. Such major issues can only be settled in times of peace within an inclusive dialogue based on the best economic options possible, taking into account population density and developmental needs in the vast country. This in turn requires strong government that can exercise its powers all over Libya, which is not the case at the moment.

General Haftar went to war before over oil and political power when he attempted to take Tripoli in 2019. His destructive attack ended in failure. Given that his opponents in western Libya are stronger today than they were then, is likely to persuade him to favour a political approach instead of a war which he cannot win.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.