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An attempt to replace the central bank governor led to a shutdown of eastern Libyan oil fields.
Libyan Central Bank Dispute Shuts Down Oil Production
Global oil prices jumped more than 7 percent Monday amid increased rivalry between competing governments in Libya—which has Africa’s biggest crude oil reserves.
The country is split between a Turkey-backed and U.N-recognized government based in the capital, Tripoli, and a rival eastern administration led by warlord Khalifa Haftar, who heads the self-proclaimed Libyan National Army supported by Russia, Egypt, Saudi Arabia, and the United Arab Emirates.
Libya’s eastern government stopped all oil production and exports on Monday as it vied against its Tripoli-based rival for control of the central bank and crude oil revenues. Nearly all of the country’s oil fields are in eastern Libya.
The Tripoli-based government wants to replace Haftar ally and central bank governor Sadiq al-Kabir due to accusations that Kabir mishandled oil revenues. Last week, it appointed Mohamed al-Shukri as governor of the bank. Kabir—the governor since late 2011—refused to step down. Meanwhile, Shukri turned down the job offer, rejecting “any bloodshed between Libyans on his behalf.”
On Monday, a Tripoli government delegation attempted to take over the bank’s office. Osama Hammad, the prime minister of the rival eastern-based government, declared a “force majeure” on all oil fields, citing the “forceful” takeover of the central bank.
Under a U.N. Security Council resolution, the central bank is the only depository for Libyan state oil revenues. About 95 percent of Libya’s state budget is dependent on those revenues and whoever controls the institutions that oversee them controls the economy, according to security analysts.
The row has mobilized militias loyal to each side, which have feuded since the 2011 NATO-backed uprising that overthrew longtime dictator Muammar al-Qaddafi.
Behind the scenes, the bank is part of a bigger Russian geopolitical chess game, explains Jason Pack, founder of Libya-Analysis. Maintaining an oil blockade would not change the outcome of how the central bank functions but allows Russia to pursue its national interests in Libya. “This oil blockade has nothing to do with the underlying CBL issues,” Pack told Foreign Policy. It is “an entirely manufactured crisis to achieve larger Russian structural aims … It’s very beneficial for the Russians to do anything to keep the oil off and to harm the Biden administration in the lead up to the elections.”
In June 2020, Haftar’s troops—supplied with Russian weapons and mercenaries—came close to taking Tripoli, but Turkish drones and troops were able to repel them. Turkey sees Libya as a strategic gateway into Africa, where it is vying for lucrative trade control. At the same time, Russia’s support for the eastern government ensures it a shadow control of Libyan oil.
Two months into the Russia-Ukraine war—as the world struggled to replace Russian oil and gas—a Libyan oil blockade was announced over demands that Tripoli-based Dbeibah quit in favor of Fathi Bashagha, the rival prime minister appointed by the eastern government. Dbeibah was accused of misusing state funds with help from the central bank. That blockade ended in July 2022 without either side achieving its goal.
“They were happy to have the oil not on global markets because it would make Russian crude more expensive and it would harm Western European consumers,” said Pack.
U.N. attempts to get the nation to hold elections—originally planned for December 2021—have failed. In April, the U.N. special envoy for Libya, Senegalese diplomat Abdoulaye Bathily, quit the job after 18 months and said his attempts toward forming a unified government “were met with stubborn resistance, unreasonable expectations and indifference to the interests of the Libyan people.”
“In the absence of renewed political talks leading to a unified government and elections, you see where this is heading—greater financial and security instability, entrenched political and territorial divisions, and greater domestic and regional instability,” Stephanie Khoury, the head of the U.N. mission in Libya, told the U.N. Security Council earlier this month. “Unilateral attempts to unseat the Central Bank Governor are met with countervailing attempts to maintain him. Attempts to unseat the Prime Minister and his Government are met with attempts to maintain him.”
Libya’s share of OPEC production was about 4 percent in 2023; the majority of its production goes to Europe. While this is a relatively small amount, that oil cannot be easily replaced, economists warned, and therefore has a profound impact on global oil prices.
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