Using oil and money for leverage will only exacerbate Libyan crisis

The four-year civil war in Libya has transformed into a very broadly defined war as the two rival factions increasingly bring oil and money supplies into the firing line of their battle for power.

Khalifa Haftar, chief of the eastern-based forces, who are backed by the US and Saudi Arabia, is putting pressure on Tripoli-based state oil firm NOC to limit its operations. 

In response, the internationally-recognised government in Tripoli is limiting Haftar’s access to hard currency.

In its latest report, the International Crisis Group warns that the dangerous game of tanks and banks fuels the deadly conflict in the country. 

In April, the Tripoli-based Central Bank of Libya enforced restrictions on the eastern state-owned banks, which cover 30 percent of Libya’s total commercial banking activities.

Right before their offensive on Tripoli, the move aimed to restrain the eastern government’s ability to pay its employees and security forces. 

Also, it aimed to weaken Haftar’s militias, as although his main foreign backers - Egypt, Saudi Arabia and the United Arab Emirates - have provided heavy equipment, they have been reluctant to provide cash.

The report argues that the restrictions on banking “could, in turn, prompt Haftar to cut oil exports from areas he controls and ignite an economic war”. 

“The commercial banks’ growing troubles could cause mass panic, aggravate an existing liquidity crisis and … may no longer be able to process payments or issue letters of credit to import the essential goods on which Libya is highly dependent”, the report emphasises.

On the other hand, the eastern government in return may use the most effective weapon it has: its oil. Forces could decide to shut down much of the country’s oil fields and export terminals, which are mostly controlled by them. 

And this possible scenario, the report argues, “would deepen the de facto split between east and west... all these developments would vastly complicate efforts to reach a political settlement to the Libyan conflict overall”.  

In order to avoid this situation, the crisis group report urges the rival groups in the east and west of Libya to agree to a ceasefire and then set up negotiations between the rivals sections of the Central Bank to regulate how to account for financial transactions in eastern Libya. 

Libya has been mired in chaos since NATO-backed forces deposed and killed former dictator Muammar Gaddafi in 2011, with militias and tribes vying for control of the country's resources.

Since 2014, the vast North African country has been suffering a political crisis that split the country into two governments. 

Backed by the UAE, Egypt, and Saudi Arabia, and with political support from Russia and the US, Haftar aims to capture the legitimacy of governing that the ruling Tripoli-based UN-backed Government of National Accord (GNA) currently enjoys.