Briefing n.6 4/2021 – Libya is still an unknown factor in its long post-Gaddafi
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What follows is not always progress, Alessandro Manzoni warned. And in Libya, when Gaddafi failed – who managed to unite the Country against himself – the never dormant cultural and ethnic differences re-emerged. And after his disappearance, no one has a monopoly on the use of force anymore, so no one has the necessary authority to govern. In a country of 6 million inhabitants, more than 20 million weapons are in circulation, and not all of them are light.
Since the time of the Roman Empire, Libya has been a transit territory for goods and people on the route that leads from sub-Saharan Africa to Europe. During Gaddafi’s 42 years of power, the most dangerous trafficking was militarily controlled by his regime. With the fall of the raìs, the balance was broken: Libya, and especially Fezzan, has become a crossroads for trafficking in human beings, arms and drugs, which attracts criminal actors even from afar.
And the war has certainly not helped the economy. In 2010, Libya had a GDP of around $ 75 billion, one of the highest in the region, in 2018 it dropped to $ 25 billion. In the same year, per capita income, which was $ 13,000 in 2012, fell to $ 4,500. The state deficit also worsened with the collapse of revenues caused by the decrease in hydrocarbon production and the fall in the price of oil. In 2020, according to the Libyan Court of Auditors, revenues amounted to about $ 6.1 billion and expenses increased with the result that while Libyan foreign exchange reserves were about $ 108 billion in 2013, in 2020 they fell to $ 30 billion. Today the Libyan priority is the maximisation of revenues.
Unfortunately, political disagreements have not spared the Country’s three main economic and financial entities: the Central Bank which finances the government recognised by the international community; the National Oil Company (NOC), which produces and sells crude oil; the Libyan Investment Authority (LIA), the Libyan sovereign fund.
The Libyan Central Bank enjoys a certain degree of authority and credibility both internally and internationally. Today it is confronted with some internal economic challenges: the fight against inflation, the attempt to stop the bleeding of public funds and the black exchange market. The Bank is trying to bring the Libyan banking system back to the center of the economy of a country where today 70% of trading takes place outside the banking circuits.
The NOC manages the production of crude oil and gas, which constitute 98% of exports and approximately 90% of state revenues. In short, the Libyan economy is oil and gas. It is estimated that Libya can count on proved reserves of around 48 billion barrels, equal to 3.55% of global reserves (in ninth place in the world ranking).
The NOC faces three challenges. The first: the international price of the barrel. OPEC, of which Libya is a member, seeks consensus on production quotas, imposing a ceiling on price controls. The global economic crisis has complicated things: in 2020, world consumption fell by 30%, an unprecedented decline. The second concerns the increase in production, which requires investments in infrastructure by oil multinationals, which remain or go to Libya only if minimum security measures are guaranteed. The third is the settlement of disputes between the NOC and certain entities that are beyond its control.
Among the three protagonists of the Libyan economic-financial scene, the most damaged by the Country’s political and legal situation is the LIA, the sovereign fund set up by Gaddafi to invest in foreign companies for the long term.
The LIA currently has investments that it considers long-term for a total value of approximately $ 70 billion. It holds stakes in 550 companies, including sensitive ones (Pierson Group, Bp, Pfizer, Bayer, AT&T, Vivendi, Unicredit, Eni, Finmeccanica, Siemens, Telefonica, Tamoil, Lafico). To prevent this huge amount of money from being wasted or used illegally, the UN has frozen holdings and funds.
Libya’s economic problems must be solved as soon as possible for the good of the Libyan people, neighbouring states and international security, threatened by the transformation of Libya into a failed state. Not so remote hypothesis in a Mediterranean chessboard marked by geopolitical instability and well summarised by the expression “VUCA” (Volatility, Uncertainty, Complexity, Ambiguity), which photographs the dense interweaving between the initiatives of local actors fighting for the control of the territory and the actions of regional and international powers – Gulf countries, Russia and Turkey in the first place – which project their interests into the Country.
Russia and Turkey want to play a direct role in Libya
In Libya, Turkey and Russia have come out of the closet by intervening in aid of former President Serraj’s Government of National Accord (GNA) and Haftar’s Libyan National Army (LNA), respectively. The intervention of foreign powers in the opposition between Tripolitania and Cyrenaica is not new in itself and follows the geopolitical rift within the Arab world. Qatar supports Tripoli and the Muslim Brotherhood faction active in the west of the Country, while the UAE, Saudi Arabia, and Egypt support Haftar, with the main objective of containing Islamic extremism in the region.
The novelty is that Russia and Turkey now want to play a direct role in Libya. For different reasons, they need to strengthen internal consensus and aim to get out of the international isolation they find themselves. To achieve this, they try to carve out a leading role in the Middle East and North Africa. Struck by severe international sanctions, Putin must promote the idea of a great Russia. Embraced by the loss of Istanbul in the recent administrative elections and by the troubles of the Turkish lira, Erdogan instead leverages the idea of the restoration of the Ottoman Empire, intervening openly in the old colony.
Relations between Russia, Turkey and Libya go back a long way. Then, the USSR was an ally of Gaddafi and one of the leading suppliers of the immense and useless arsenal accumulated by the rais. Haftar, already in the seventies, often flew to Russia. Russian mercenaries now fight alongside the LNA, and according to some sources, Putin has also sent regular Russian military units to the Country.
As for Turkey, Libya was part of the Ottoman Empire from 1551 to 1864, and an active and numerous Turkish community is still present in the powerful city-state of Misurata. The aid sent by Ankara is formally a response to the official request for assistance (of 20 December 2019), according to art. 51 of the UN Charter, addressed by Serraj to the USA, Great Britain, Algeria, Italy and Turkey. Only the latter responded to the invitation. In justifying the intervention in his parliament, Erdogan pointed the finger at the states that intervened in Libyan land: Egypt and the Arab Emirates in the first place but also Israel, Russia, Saudi Arabia and France (omitting, however, the ally Qatar). At the same time, he harshly condemned the EU Irina mission to enforce compliance with the arms embargo decreed by the UN, because it aimed at controlling sea routes (used by Turkey to supply weapons to the GNA) and not those by land and air, used by Haftar supporters instead.
The confrontation is not only geopolitical or military. The economic stakes are high. In September 2019, Russia cancelled a $ 4.6 billion Libyan debt contracted at the time of the USSR while signing a contract of more than $ 3 billion for military supplies and an agreement for the participation of RDZ, the Russian railways, in the construction and operation of a railway line in the east of the Country between Sirte and Benghazi. Turkey would also have its advantage since in the 42 years of Gaddafi’s power, he practically had a monopoly on civilian construction in the Country, worth about $ 20 billion in 2011.
Russia and Turkey have (partially) converging interests in Syria. They are partners in the construction of the TurkStream, an important gas pipeline that, when fully operational, will transport about 32 billion cubic meters of gas, 14 destined for the Turkish domestic market and the rest to Europe.
However, the Turkish-Libyan agreement delimiting its Exclusive Economic Zones (EEZs) has profoundly changed the maritime scenarios of the Mediterranean, cut in two by a line drawn from north to south. This while the international community, the US and the EU first, harshly criticised the agreement, criticising the parties for not considering the rights of other frontlist states such as Greece, Cyprus, Israel and Egypt. The eastern area of the Mediterranean has immense gas reserves and the potential to become one of our century’s most crucial production sources. The exploitation of the Levant basin, which includes fields in the waters of Cyprus, Israel, Lebanon and Egypt, could constitute a game changer in world energy relations by downsizing the role of Russia and Qatar and allowing Israel to launch its own energy diplomacy towards the ‘Egypt, Jordan and Europe itself. Hence the birth in 2019 of the East Mediterranean Gas Forum (EMGF) by Egypt, Israel, Cyprus, Greece, Italy, Jordan and the Palestinian Authority.
This initiative vehemently opposes Ankara because it jeopardises its centrality as a “gas hub”, since the European strategy of liberation from Russian gas (so-called southern corridor) provides for the transit of gas through Turkey coming from the Caucasus.
What does it mean for the Italian national interest
These internal dynamics in Libya and international appetites risk endangering the central role that Italy has always had with the Country. Unlike other actors, however, we do not have the luxury of choosing the coordinates of our foreign policy in the region à la carte. Libya is a priority and is destined to remain – for geographical, historical, cultural, economic and national security reasons. Therefore, it is no coincidence that our Prime Minister has chosen to go to Libya for his first mission abroad. Draghi can do a lot towards the three entities that make up the pillar of the Libyan economy: make the Libyan Central Bank more efficient, also by working to overcome the tensions that concern it (until recently there were two entities in Cyrenaica and Tripolitania ) by strengthening international relations with the central banks of other countries. It can create the conditions, with the National Oil Company, to distribute the proceeds from the sale of oil and gas that is perceived as fair and overcomes the ancestral suspicion of favouring only one party. Finally, he can think of a mechanism so that the sanctioning regime, of a conservative nature, which froze all the assets of the Libyan sovereign fund, the LIA, is revised to allow the Libyan government to use liquidity and investments even with the control of the international community.
* Leonardo Bellodi, is Senior Advisor to the Libyan Investment Authority and Secretary-General of the Marco Polo Council.
** The article is hosted in the monthly “Briefing” column, a periodic note by the Eurispes Observatory on International Themes.
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