Libya Central Bank Showdown Risks Spiraling into Wider Crisis, Reports Reuters

By Angus McDowall

A struggle for control of the Central Bank of Libya (CBL) has triggered a blockade of oil production, threatening to plunge the country into its worst crisis in years. Libya, a major energy exporter, is divided between rival factions in the east and west.

This standoff began when western factions attempted to remove long-standing governor Sadiq al-Kabir, aiming to replace him with a competing board. In response, eastern factions shut down oil production entirely.

The situation is incredibly complex; while Kabir maintains control of the central bank’s official website, the rival board appointed by the presidency council is disseminating updates on the bank’s verified social media accounts. Kabir, who was abroad as the crisis escalated, noted in a recent interview that "militias are threatening and terrifying bank staff and are sometimes abducting their children and relatives."

As the conflict continues, the central bank has been rendered unable to process transactions for more than a week, jeopardizing essential economic functions. Both factions are entrenched in their positions, raising the likelihood of violence.

Any potential resolution will be made more difficult by the fragmented political landscape, which consists of competing governing bodies with unclear legitimacy and a shifting network of armed groups. Moreover, international diplomatic efforts to address Libya’s political deadlock have all but stalled, with the role of U.N. envoy currently vacant and no indication that external powers can curb the rival factions.

"The equilibrium of the last two years has vanished. Actors are now striving to gain new leverage. Therefore, the crisis is poised to escalate," remarked Jalel Harchaoui of the Royal United Services Institute.

Power Struggle

Kabir has led Libya’s central bank since the 2011 NATO-backed uprising that turned the country into a battleground for various factions. Despite the chaos, the CBL and the National Oil Corporation (NOC) have been largely insulated from conflict, allowing some governmental operations to persist.

Under Libyan law and supported by international agreements, oil sales were to be conducted exclusively by the NOC, with revenues directed into the CBL to finance state salaries and government operations across the nation.

This arrangement began to fracture in 2022 when Prime Minister Abdulhamid al-Dbeibah appointed a new head for the NOC to appease eastern factions, allowing for looser regulations over the oil sector. Tensions arose between Dbeibah and Kabir over financial matters, with Kabir perceived as leaning toward Khalifa Haftar, the military commander in control of eastern Libya.

The move by Presidency Council head Mohammed al-Menfi, backed by Dbeibah, to remove Kabir has significant implications for Libya’s financial resources, resulting in a standoff that neither side can easily resolve.

Tim Eaton from Chatham House expressed concern that this issue is fundamentally political rather than bureaucratic, and that the absence of consensus could undermine the country’s most robust institution.

The proposed dismissal of Kabir could also contradict the 2015 Libyan Political Agreement, which has underpinned international engagement with Libyan factions for nearly a decade. International support for a bank governor is crucial, as oil revenues collected by the NOC are transferred in U.S. dollars to its account at an overseas bank before reaching the Libyan government’s account at the CBL.

Blockade

Currently, the newly appointed board is struggling to assert control over the CBL’s functions. In a recent press conference, they appealed to Kabir to relinquish codes necessary for processing financial transactions. They have urged banks in Libya to use their reserves to pay state salaries, promising reimbursement once they gain full control.

Kabir countered by advising banks to disregard instructions from those "impersonating" board members. If this power struggle continues, critical economic activities such as salary payments, interbank transfers, and letters of credit for imports could be severely disrupted, paralyzing the economy and hampering Libya’s international trade.

At two banks in eastern Libya, employees reported a halt to clearing operations with western banks, along with interruptions in processing foreign money transfers. Salary payments from the state had ceased.

Meanwhile, the oil blockade in the east is gradually depleting the CBL’s financial resources and diminishing condensate available for power generation, potentially leading to widespread electricity outages.

This grim reality paints a dire picture for the Libyan populace and escalates the risk that armed factions might return to conflict, nearly four years after a ceasefire ended the last major conflagration.