By Jonathan Fenton-Harvey
With Libya having slipped further down the priority list of Western powers, its fragile “cold peace” nearly collapsed in August amid a dispute over the Central Bank of Libya, or CBL, which almost ground the country’s financial system to a halt. Though narrowly averted, the crisis reveals how Libya’s fragile political landscape remains vulnerable due to internal power struggles and a lack of cohesive governance structures, problems that only a unified international effort toward stabilizing the country can address.
The crisis erupted when interim Prime Minister Abdul Hamid Dbeibah, who heads the internationally recognized Tripoli-based Government of National Unity, or GNU, sought to oust the Central Bank governor, Sadiq al-Kabir. Dbeibah was frustrated that al-Kabir—who exercised significant power over the country’s finances, with around $80 billion worth of foreign reserves at his fingertips—had restricted Dbeibah’s access to funds that are vital to Dbeibah’s authority, including for the financing of militias loyal to the GNU. That led to GNU-aligned militias threatening al-Kabir with violence, forcing him to flee Libya for his life. It also risked unleashing economic shockwaves for ordinary Libyans, as the country’s banking system was almost frozen out of international financial networks.
Meanwhile, as the threat to his ally in the CBL began to materialize, Gen. Khalifa Haftar—who commands the eastern-based Libyan National Army, or LNA, and is aligned with a rival government in Tobruk known as the House of Representatives, or HoR—retaliated by shutting down key oil fields in eastern Libya on Aug. 26 to pressure the GNU to back down on al-Kabir’s removal. Prior to that, on Aug. 7, Khalifa’s son, Saddam Haftar, led LNA forces in a bold westward advance toward the Ghadames region near the Algerian border, reportedly to capture the strategically located airport there. While Haftar’s forces faced pressure from local independent militias, leading to a delicate standoff, the advance effectively violated the United Nations-brokered cease-fire that ended the country’s civil war in October 2020. The rising tensions came at an already volatile moment, following unprecedented clashes between rival militias in Tripoli in early August.
However, international stakeholders were able to breathe a sigh of relief, at least temporarily, on Sept. 26, when the U.N. Support Mission in Libya, known as UNSMIL, managed to strike a deal between the HoR and the High Council of State, or HCS—the Tripoli-based advisory body that serves as a mediator between the rival governments—to end the CBL standoff. The agreement will see Naji Issa, a former deputy chief of the CBL’s statistics department, appointed as the new governor, with a Board of Directors to be appointed in the coming weeks. It also calls for the restoration of the High Financial Oversight Committee, an independent watchdog body that was initially established in July 2023 but undermined by al-Kabir.
In a reassuring sign, Dbeibah, the militias loyal to him and the Tripoli-based Presidential Council—which also backs him—all supported dialogue to resolve the CBL leadership crisis. Markets also expressed their optimism over the agreement, with black market trading of the Libyan dinar appreciating by 11 percent against the U.S. dollar, while Brent crude oil prices fell by around 5 percent, in part due to hopes that the deal would bring an end to Haftar’s blockade on eastern oil fields. The return of the High Financial Oversight Committee may also help restore some legitimacy to the bank’s operations, which should further enhance confidence in the country’s economy. However, while restructuring the bank’s leadership may restore some balance, without further changes to limit the bank’s power, the deal also reflects a return to a familiar status quo.
In the meantime, with an eye to improving Libyans’ livelihoods, Issa will be tasked with stabilizing the country’s economy, including narrowing the gap between the black market and official exchange rates, reducing the public deficit and controlling inflation. However, concerns remain over whether the CBL will be tempted to tap into the country’s foreign reserves as a short-term fix for Libya’s economic problems,which could leave Libya more vulnerable in the long term.
Libya finds itself in a Catch-22. To achieve stability, the country requires unified laws and institutions. But to attain this unity, it must first establish stability.
Crucially, the CBL will also need to shed the reputation of serving the country’s elites, one that most major institutions in Libya have earned. While the bank is crucial to stabilizing Libya’s economy, many Libyans perceive it as operating more like a political entity than an impartial financial institution, particularly under al-Kabir’s leadership. To truly deliver for the Libyan people, more transparency and accountability on how the CBL spends the country’s oil revenues would be needed.
The agreement’s sustainability will also hinge on the responses of Libya’s various rival factions, especially if further disagreements over the release of funds emerge once the initial euphoria over resolving the dispute fades. Dbeibah’s efforts to consolidate power over the bank in Tripoli, as part of a broader strategy to maximize his influence across Libya, continue to represent an obstacle to the country’s political and economic unity. And the HoR’s endorsement of the deal notwithstanding, Haftar still maintains significant control over Libya’s oil fields, the ongoing partial blockade of which has resulted in an 81 percent drop in daily oil production. Despite reports that all major oil fields would soon reopen, the possibility that Haftar might reimpose the blockades in the future—a tactic he has frequently used—means the risk of further economic instability is likely to persist.
In addition to the challenges posed by the rival governments, Libya’s state institutions have also been an obstacle on its journey toward postwar stability. While Haftar’s blockade has severely limited the National Oil Corporation’s ability to power the national electricity grid, for instance, the corporation’s internal corruption and lack of transparency have further hindered its capacities.
Moreover, the HCS has faced internal divisions following a contentious election for the body’s presidency in August that resulted in a stalemate between Khalid al-Mishri and Mohamed Takala. Al-Mishri is from Libya’s political Islamist faction, the Justice and Construction Party, while Takala is a more nonpartisan figure. But both have ties to Dbeibah, which raises questions about the council’s necessary impartiality. Ultimately, without effective decision-making processes and impartial advisory bodies, Libya’s unity will remain an elusive goal.
That sums up the Catch-22 in which Libya finds itself. To achieve stability, the country requires unified laws and institutions. But to attain this unity, it must first establish stability. That underscores the need for the international community, particularly Western powers, to reinforce UNSMIL’s efforts toward establishing rule of law and conducting the elections that were due in December 2021. However, preoccupied with other global issues such as the war in Ukraine and tensions in the Middle East, Western nations have increasingly deprioritized Libya, tacitly accepting the fragmented status quo as long as there is no return to war.
This lack of engagement has left regional powers, particularly Turkey and Egypt, to fill the void. Both countries have become key players in Libya, with Turkey having intervened militarily in 2020 to support the Government of National Accord, which preceded the current GNU. Egypt, on the other hand, is aligned with the eastern government and previously supported Haftar during the civil war. The meeting on Sept. 4 between Turkish President Recep Tayyip Erdogan and Egyptian President Abdel Fattah al-Sisi during the latter’s first presidential visit to Turkey since taking power in 2014 raised hopes that the two countries could put aside their past differences and work toward stabilizing Libya. With waning Western attention, cooperation between Ankara and Cairo may be the most pragmatic option to nudge Libya toward a political solution, in a process that may need to include neutral regional countries like Algeria.
Failing that, while France and Italy remain divided over their political agendas and oil deals in Libya, other European countries with interests in the country—such as Spain, Norway, Austria and Germany—could play a role in supporting UNSMIL’s objectives, along with the U.K., which serves as the penholder for Libya at the U.N. Security Council. Policymakers in Europe may see this as increasingly critical, given that Russia has expanded its mercenary presence alongside Haftar’s forces in the east, at the risk of further exacerbating the country’s divisions.
For now, Libya may have avoided a turn for the worst, but in large part by once again recycling elites within the same opaque and often unaccountable institutions. Instead, unified international efforts will be essential to support UNSMIL’s initiatives and pressure Libya’s elites across both rival governments and all major state institutions to engage in a stabilization process. Until such steps occur, Libya will likely find itself trapped in a cycle of political and economic uncertainty.
© 2024, World Politics Review LLC. All rights reserved.