Developments over recent months have further complicated the ongoing crisis in Libya. Despite continued endeavors to contain the crisis, the struggle for power continues to dominate the scene blocking efforts for transition into calm and settlement. Each involved party is working to make as much gains as possible without having a genuine desire for making any concessions. To make gains, the involved parties used several tools to secure their dominance and control. Using oil resources in the struggle stands out as one of the changes in the Libyan crisis. Although using oil as a leverage is nothing new, global developments triggered by the war between Russia and Ukraine added to the implications of the oil crisis in Libya.

Concomitant Implications

Libya’s oil industry received a severe blow that gradually escalated in mid-April 2022 after the country’s major oil fields were shut down and output production and exports were halted. A declaration of force majeure at some oil fields and ports by the National Oil Corporation was a prelude for a series of severe shocks inside and outside Libya. No doubt, this crisis stemmed from a number of factors that can be outlined as follows:

1.   Faltering political transition:

The crisis caused by the closure of Libya’s oil fields in April showed the warring parties’ awareness of the importance of using oil to serve their political agendas. This reflects the extent of complexity of intertwined tracks of the transitional process. Protesters in southern and eastern Libya besieged oil fields and halted oil production and exports. They demanded a transfer of power from Abdel Hamid Dbeibeh’s Government of National Unity (GNU) to Fathi Bashagha's Government of National Stability (GNS) who was appointed by the House of Representatives. The crisis hitting Libya’s oil industry can be attributed to the faltering political track and power transition which led to the oil industry being used as leverage to impose restrictions on tracks followed by Dbeibeh’s government.

2.   Preventing Dbeibeh’s government from using oil revenues:

Libya’s oil crisis broke out when the National Oil Corporation transferred US$6 billion to the Central Bank of Libya. The move was against a decision made by the House of Representatives in March to withhold oil revenues in the Libyan Foreign Bank and not at the apex bank. The decision was aimed at depriving the outgoing government of funds and putting an end to the Dbeibeh parallel government’s expenditure policy and preventing it from using oil revenues to bolster its position.

3.   Cutting off funding for militias:

Sources reported that the siege laid on oil facilities and the later shutdown of some fields was driven by the protestors’ desire to cut off funding for militias operating in western Libya. Dbeibeh wanted to use part of the revenues to reinforce these militias to help him fend off any attempts to remove his government from the scene. This was evidenced by the outgoing GNU government’s transfer of 132 million Libyan dinars to the powerful Stability Support Apparatus and another 100 million dinars to the so-called Joint Operations Force. The armed groups’ success in forcing Fathi Bashagha and members of his new cabinet out of the capital Tripoli on May 17. Apparently, preventing Bashagha’s government from operating from the capital has reinforced Dbeibeh’s position regardless of popular rejection of his holding on power.

Various Consequences

The oil crisis and the subsequent declaration of a force majeure at a number of Libya’s oil fields and export ports has caused consequences both inside and outside Libya.

1.   Severe economic bleeding:

Oil is Libya’s key asset and the main driver of its economy. With oil exports accounting for more than 90 percent of the country’s total export revenue, the ups and downs of Libya’s economy are closely driven by the situation in the country’s oil industry. The crisis which broke out after oil fields were shut down immediately impacted the economy when output production plummeted more than 50 percent causing a daily loss of more than US$60 million. The production capacity fell to 600,000 barrels per day from about 1.3 million barrels per day. The decline led to restrictions on oil exports bringing them to the lowest level since October 2020 amid an unprecedented global surge in oil prices because of the war between Russia and Ukraine. The situation offers a promising opportunity for Libya to maximize gains and make more profits to improve the living conditions across the country.

2.   Intensified US involvement in Libya’s oil crisis:

The United States voiced concerns over the shutdown of Libya’s oil fields and became directly involved in the development. The US made efforts to bring about a convergence of views between warring parties to help overcome the crisis. This position is in line with efforts the US has been making since the war between Russia and Ukraine broke out to force OPEC members to increase production to bring down oil prices and secure alternatives to Russian oil, with Libya standing out because it holds Africa's largest proved crude oil reserves.

On the other hand, other views have it that the US intensified efforts to address the crisis are driven by fears that Moscow may take advantage of its ties with the eastern-based government to play spoiler in any settlements, destabilize the country and perpetuate the crisis to ratchet up pressure on global oil markets and undermine Washington’s plans to impose sanctions on Russia’s oil exports.

3.   Libyan parties attempting to make political gains:

The outgoing GNU government led by Abdel Hamid Dbeibeh sought to secure a political win by announcing the creation of a special commission to draw up plans for developing the country’s oil industry and increase production to 1.4 barrels per day. But Dbeibeh’s endeavors to capitalize on the crisis might well be blocked by obstacles. For one, a majority of the oil fields are in eastern and southern Libya regions which demand the Dbeibeh government step down and hand power to the new government. This can play into the hands of Fathi Bashagha as the international community is working towards a solution to the crisis of the parallel government. The international efforts are driven by fears of a repeat of the oil fields shutdown caused by protests against Dbeibeh’s holding to power.

Moreover, the Bashagha government and the House of Representatives too are working to take advantage of the oil field shutdown crisis to make political gains. They highlighted their role in resolving the crisis and earning the trust of the international powers. Bashagha, on May 11, announced the reopening of the affected oil fields and export ports more than three weeks after the shutdown. Additionally, the so-called “Oil Crescent Bloc” agreed to the reopening of the oil facilities in response to instructions from Aguila Saleh, speaker of Libyan parliament, who, on May 14, in a statement, confirmed the freezing of oil revenues in the Foreign Bank of Libya until “the establishment of guarantees and a mechanism for all Libyans to benefit from this income, in a manner that achieves justice and equality for all.”

Two Potential Trajectories for the Crisis

The crisis over Libya’s oil revenues and its impact both at home and abroad gave rise to proposed approaches towards a solution. One of these is to discuss ways of distributing oil revenues. Amid the latest crisis, Aguilla Saleh, the head of the Libyan parliament, on May 8, held talks with the US Ambassador to Libya Richard Norland about reopening the oil facilities only if a mechanism is put in place to divide oil revenues in a fair manner between Libya’s three regions. Accordingly, two potential trajectories of the crisis may take shape.

1.   Agreement on fair distribution of oil revenues:

Such agreement would stem from the presumed success in reaching an agreement on a mechanism for the fair distribution of revenues to benefit all. The trajectory is based on several considerations with the first being the United States’ desire to back it and preempt a repeat of a similar act. Secondly, there are hopes that positive developments at the talks held in Cairo to discuss a draft constitution, a move in the right direction towards completing the building of the institutions of the state. This would eventually lead to confidence-building and finding more common ground that would positively reflect on all Libya’s issues, most importantly the distribution of oil revenues.

However, this view is facing challenges, including the naming of the body to be tasked with overseeing the process of distribution: would it be a Libyan body or one of the rivaling institutions? Would the process be overseen by influential regional and international powers? Moreover, it is hard to convince the government led by Dbeibeh to adopt this approach because it believes that taking control of the oil revenues helps its attempt to stay in power and reinforce its political presence. This would make it unable to commit itself to any agreements that might be reached.

2- Freezing the conflict:

In this approach, discussing a mechanism for oil revenue distribution can lead to calming the conflict in the short term and a temporary or tentative solution to the crisis that would certainly erupt once again. Based on history in Libya, the closure and use of oil fields in the crisis can happen again amid the rift between the country’s institutions and the ongoing conflict between Libyan parties. The utilization of closure of oil facilities, which happened for the first time in early January 2020 and lasted for 8 months, is proof that this goal cannot be achieved, especially because the fair distribution of oil revenu was proposed at that time only to put an end to the siege laid on the facilities. This means that any talk about a mechanism can be no more than an attempt to temporarily overcome the current crisis and prevent further escalation without a comprehensive solution that guarantees sustainable production and fair distribution of revenues.

The conclusion then would be that the crisis in Libya is a highly complicated one. The search for a safe exit does hinge upon efforts to address pending issues in a comprehensive way to find a permanent solution. Fair distribution of oil revenues cannot be discussed without resolving political disagreement and neutralizing foreign interference. Furthermore, using or rather weaponizing oil will not be the final chapter in the Libyan crisis, as long as there is a crisis of lack of trust and agreement between Libyan parties.