Libya Central Bank Showdown Risks Escalating into Wider Crisis – Reuters

By Angus McDowall

A power struggle over the Central Bank of Libya (CBL) has led to an oil production blockade, intensifying what could be the most severe crisis for the country in years. The ongoing conflict is primarily between rival factions in the east and west of Libya.

The current standoff began when factions from the west attempted to remove longtime governor Sadiq al-Kabir this month, aiming to install a competing board. In retaliation, eastern factions halted all oil production, exacerbating the already tense situation.

The complexity of this conflict is evident as Kabir retains control over the CBL’s website, while a rival board, appointed by the presidency council, is making announcements from the bank’s official social media page. Kabir, who was out of the country as the turmoil escalated, has alleged that “militias are threatening and terrifying bank staff and are sometimes abducting their children and relatives.”

The central bank’s operations have come to a standstill due to this deadlock, preventing essential transactions for over a week. With neither faction willing to compromise, the likelihood of violence is increasing by the day.

Efforts to achieve a peaceful resolution are further complicated by a fractured political landscape, where various governing bodies lack universal legitimacy and operate under ambiguous rules, supported by a fluid alliance of armed groups. This crisis coincides with a stagnation in international diplomatic efforts to address Libya’s deeper political divisions, with the U.N. envoy position currently unfilled and foreign powers struggling to manage the conflicting factions.

“The equilibrium of the last two years has collapsed, and various stakeholders are seeking to assert new power, setting the stage for an escalating crisis,” commented Jalel Harchaoui from the Royal United Services Institute.

Kabir has been the central bank’s governor since the 2011 NATO-backed uprising that plunged Libya into turmoil, becoming a significant figure amidst the ongoing struggle for power among rival leaders. Despite the nation’s fragmentation, the CBL and the National Oil Corporation (NOC) were largely regarded as exceptions, allowing for the continued functioning of some governmental operations.

Libyan law and international agreements dictate that only the NOC can sell oil, with revenues deposited into the CBL to fund state salaries and institutions nationwide. This principle, however, began to weaken in 2022 when Prime Minister Abdulhamid al-Dbeibah appointed a new head for the NOC, seemingly to appease eastern factions and relax controls within the oil sector.

As tensions mounted between Dbeibah and Kabir over financial matters, the governor was perceived as aligning with Khalifa Haftar, the military commander in eastern Libya. The decision by Presidency Council head Mohammed al-Menfi to seek Kabir’s replacement, with Dbeibah’s backing, has made control over Libya’s significant financial resources a contentious issue.

“This is fundamentally a political challenge, not merely bureaucratic. It poses a severe risk that, without consensus, the strongest remaining institution in the country may effectively become ineffectual,” stated Tim Eaton from Chatham House.

Menfi’s dismissal of Kabir appears to contradict the 2015 Libyan Political Agreement, which has underpinned international engagement with Libyan factions for almost a decade. Gaining international acceptance for a new bank governor is vital, as oil revenues generated by the NOC are transferred in dollars to the Libyan Foreign Bank in New York before being allocated to the Tripoli government’s account with the CBL.

Currently, Menfi’s newly established board seems incapable of managing CBL operations. In a news conference, they urged Kabir to relinquish access codes necessary for financial transfers. Additionally, they requested that Libyan banks pay state salaries from their reserves, promising reimbursement upon gaining full control over transactions. In response, Kabir instructed banks to disregard directives from individuals claiming to represent the new board.

If this power struggle persist, it could lead to a complete halt of state salaries, interbank transfers, and necessary import letters of credit, crippling the economy and halting Libya’s international trade. Employees at two banks in eastern Libya reported a cessation of transactions with banks in the west, along with a freeze on foreign remittances and state salary payments.

Moreover, the oil blockade implemented by eastern factions will gradually deprive the CBL of essential funds, and diminish the condensate available for power generation, increasing the likelihood of prolonged electricity outages. This grim scenario presents a dire outlook for Libyans, raising fears that armed groups may revert to conflict, four years after a ceasefire had put a halt to the last significant warfare.