Why Oil Can’t Save Libya From Failed-state Status

One snag is that Libya’s oil production, such as it is, is financing both sides of the country’s civil war

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David Rosenberg

Among the world’s failed states, Libya has one thing – and only one thing – going for it, and that is a lot of oil. It not only has the world’s ninth-largest reserves but remarkably has managed to keep pumping through 11 years of civil war, albeit much below pre-war levels.

If Libya could get its political act together and end the fighting, oil could make it a comfortably wealthy country. There are only seven million Libyans sitting on reserves of some 48 billion barrels of oil. That’s not a bonanza ratio like say the United Arab Emirates (98 billion barrels and a native population of 1.19 million) or Kuwait (101.5 billion barrels for a population of 3 million), but in the Gadhafi era, oil provided Libya with a comfortable per capita GDP of more than $20,000 in good years.

If you are a cockeyed optimist, you might even believe that Libya’s warring factions are ready to put down their weapons and give oil a chance to work its wonders.

Two weeks ago, the United Nations brokered a pathway between Libyan factions with the goal of holding elections later this year. If you believe them, the country’s power brokers are all on board, though some have for now been cut out of power by the agreement.

The agreement was made possible after Khalifa Haftar – the military commander who runs one of the country’s two rival governments, the one in eastern Libya – agreed last autumn to end a blockade of oil fields that had lasted for months and had brought the economy to its knees. Production has since reached as much as a respectable 1.2 million barrels a day.

But even if the oil is flowing and the strongmen are negotiating, the odds of a Libyan revival are slim.

The UN-sponsored political process sounds reasonable on paper. A forum of 74 politicians and power brokers representing Libya’s various factions and tribes conducted a democratic vote to name a four-person Presidency Council. The council, in turn, will appoint an interim government to oversee December elections for a permanent government whose writ is supposed to extend over the entire country.

The problem, as a Carnegie Endowment for International Peace report makes clear, is the council is not representative of all the factions. It leaves in power the very same people who are responsible for Libya’s violence, corruption and mismanagement. Indeed, Prime Minister Abdulhamid Dbeibeh, the most powerful of the council’s four members, accumulated his wealth in dubious ways as a public sector manager during the Gadhafi era.

The agreement makes no effort to address critical issues, such as a single army. It’s really a mechanism to “reshuffle access to spoils among this political class, enabling its proponents to cling to official positions, and giving them an incentive to block progress towards elections,” say the Carnegie report’s authors, Emadeddin Badi and Wolfram Lacher.

Strangely enough, the fact that Libya produces oil at all is proof of just how deep the corruption runs. But when you think about it, it’s not strange at all because what the country’s bitterest enemies have in common is an interest in oil profits to fund their militias, pay their supporters’ salaries and make regular deposits in the bank.

Call it insurance policy or a protection racket, but the government’s National Oil Corp. actually funds both Haftar’s government and his militia allies in Benghazi and the official Government of National accord in Tripoli and its militias. In other words, it’s paying the bills for both sides of a civil war.

The only reason Haftar blockaded the oil fields last year was to press home his long-standing grievance that he wasn’t getting his fair share of the spoils. But neither he nor anyone else in Libya (the one exception being the crazies of the Islamic State) actually wants to shut off the oil spigot or do permanent damage to infrastructure.

Oil is a much bigger profit center than the war economy’s other mainstays of smuggling and extortion. But that doesn’t mean they aren’t willing to invest in the oil industry. That’s why Libya’s oil card can’t and won’t be played: A combination of war damage and neglect has left the country’s wells, pipelines, storage tanks and terminals in a sorry state.

The NOC had once talked about expanding output to 2 million barrels a day by 2024. But the fact is it has so little money after paying everyone off that it can’t afford anything but to keep the existing creaky system afloat. Last month, the NOC asked the foreign oil companies operating in Libya to finance fixing its oil installations.

That seems unlikely in the foreseeable future. Libya is an attractive source of oil due to its proximity to Europe and the quality of its crude, and global prices have lately recovered a bit. But the supply and demand situation remains highly unfavorable for producers, who aren’t likely to be keen on investing in increasing output, especially in a place like Libya with such an uncertain future.

It’s much easier to drive a country into chaos than it is to restore order. Lebanon barely succeeded, and these days is heading back into failure. The record of failed states setting themselves right isn’t very good, and Libya isn’t likely to be an exception to the rule.

Libyan oil tank hit by missile on fire in 2014Credit: רויטרס
Libyan rebels celebrate on a stolen armoured personnel carrier tank, 2011Credit: REUTERS

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