What’s next for Libya after the Central Bank takeover and oil blockade?

The Presidential Council’s (PC) decision on 18 August to oust Saddiq al-Kabir as Governor of the Central Bank of Libya (CBL) and the storming of the institution’s premises in Tripoli have inflamed Libya’s multipronged crises. The country is now faced with multiple oil fields’ shutdowns, at risk of “economic collapse” according to the United Nations, and anticipating a possible armed conflict as it remains to be seen how key stakeholders will react to Government of National Unity (GNU) Prime Minister Abdulhamid Dabaiba’s latest political offensive.

A closer look

At the time of writing, Saddiq al-Kabir and senior CBL staff announced they had left Libya fearing for their lives as a result of threats issued by armed groups aligned with the GNU. The ousted CBL Governor told the Financial Times that such militias were “terrifying bank staff and sometimes abducting their children and relatives to force them to go to work.” In fact, pro-Dabaiba militias have raided in recent days the CBL headquarters in Tripoli to enforce the PC’s decision by Mohamed al-Mnefi to change the bank’s management, which came in the form of Decision No. 19/2024 naming Mohamed al-Shukri as acting CBL Governor and Decision No. 20/2024 restructuring the CBL’s Board of Governors.

Abdelfattah Abdel Ghaffar was also appointed as acting deputy Governor of the CBL. Although spearheaded by the PC, the overhaul of the CBL is a tour de force by Dabaiba that has been long in the making and was made necessary by the fact that the GNU was getting less and less financing from the CBL. In fact, the House of Representatives’ (HoR) approval in July of a unified budget worth 179 billion Libyan Dinars (LYD) had formalised a 50/50 distribution of financial resources between the Tripoli-based GNU and eastern-based Government of National Stability (GNS). In other words, Dabaiba felt his control over Libya’s finances was further slipping and applied enough pressure on the malleable PC to get his rival al-Kabir off the Libyan political scene.

Despite security guarantees offered by the Special Deterrence Forces (SDF/Rada) to al-Kabir, as well as the support of other armed groups such as Mahmoud bin Rajab’s Zawiyan militia, the CBL Governor was left defenceless and forced to flee Tripoli. Several CBL staff were abducted, including one who was delivering a letter by al-Kabir seeking help from GNU Interior Minister Emad al-Trabelsi. The CBL’s email services and official domain were also temporarily halted by the PC and General Authority for Communications.

Al-Kabir’s staff issued statements warning that recent events prevented the execution of August salaries, the opening of Letters of Credit (LC), as well as personal transfers. As a result, services were temporarily suspended by the CBL, but the new administration issued a statement on 29 August saying that it gained control of all banking systems and local exchange permits system, thus allowing the upcoming execution of salaries’ payments. Although this remains to be confirmed, this would mean that al-Kabir’s belief that physical control over the CBL does not equate actual control over the financial system, turned out to be wrong.

Background

The current crisis has been long in the making and reflects Libya’s bleak political landscape where most actors are illegitimate. In fact, Sadiq al-Kabir is arguably Libya’s main political dinosaur as he managed to be CBL Governor since 2011 and overstayed his mandate not as a result of political consensus, but rather due to the divisions that have ruled Libyan politics since 2014. For most of his career at the CBL, al-Kabir was at risk of losing his position due to opposition by many key stakeholders, ranging from western to eastern Libya.

Notably, the HoR’s Speaker Agila Saleh was often critical of him for controlling a share of Libyan resources deemed too large, but the 2015 Libyan Political Agreement (LPA) made his ousting impossible as its Article 15 states that only the HoR in conjunction with the High Council of State (HCS) could appoint heads of sovereign institutions, including a new CBL Governor. However, the HoR and HCS have for most of the past decade held opposite views on many issues and have only managed to change sovereign heads mainly in Libya’s justice system.

For instance, the HoR had in 2018 held a vote to replace al-Kabir with Mohamed al-Shukri, but the HCS rejected this. It is this HoR decision No. 03/2018 that the PC sought to base its recent decisions on to replace al-Kabir in 2024. Al-Kabir has been a towering figure of Libyan politics and enjoyed much power, including influence over HoR and HCS members, which explains his longevity in the cutthroat environment of Libyan politics.

The CBL Governor has been apt at switching alliances when convenient and ended in a position where his former enemies are now his allies as seen with the HoR issuing various statements opposing the PC’s decisions. In fact, Saleh has disowned al-Shukri, saying that he neither took a legal oath or assumed his duties, and was therefore “illegitimate.” It is to be noted that al-Shukri, who had been a director of Jumhouria Bank, should be considered as a technocrat with more than 30 years of experience in banking and is being used as a pawn by the PC-GNU instead of acting politically on his own.

More importantly, the HoR rejects the PC’s decisions by upholding the LPA, which does not give authority to the PC to choose sovereign heads, and highlighting HoR Decision No. 07/2024 which cemented al-Kabir’s position as CBL Governor and Marai al-Barassi’s position as his deputy. This decision was recently referred to by the Jalu Primary Court, which issued a ruling deeming the PC’s decisions null and void legally. This ruling was made at the request of GNS Prime Minister Osama Hamad, who is to be counted alongside the HoR, as one of al-Kabir’s current allies.

The feud between Dabaiba and al-Kabir

The fall out between Dabaiba and al-Kabir has been thoroughly examined in previous Libya Desk reports over the last year. It is important to remember that the two had started as allies when the GNU took office in 2021. Despite al-Kabir’s lack of popularity among Libyans, Dabaiba had on several occasions defended the CBL Governor. The latter had an excellent working relationship with him, allowing the GNU to embark on many spending sprees such as marriage grants, which were express policies to improve Libyans’ livelihoods but also meant to boost Dabaiba’s populist appeal.

At that time, al-Kabir remained unwanted in eastern Libya due to his strict alignment with Tripoli. However, the UAE-backed covert deal between Ibrahim Dabaiba and the Libyan National Army (LNA) in the summer of 2022, which replaced Mustafa Sanallah as National Oil Corporation (NOC) Chairman with Ferhat Bengdara, played a big role in changing al-Kabir’s relation with eastern Libya. This deal almost cost him his seat and prompted him to open his own channels with eastern-based actors.

New dynamics emerged last year as financial flows to the east were made easier by al-Kabir and he became ever more powerful, thus casting a shadow on the GNU’s Prime Minister’s own power. With less access to money and his rivals in the east benefitting from new inflows, Dabaiba increasingly felt obliged to get rid of al-Kabir. Already in late 2023, al-Kabir took refuge in Turkey for a few weeks as he felt threatened by militias in Tripoli.

As explained above, the HoR’s unified budget elevated Dabaiba’s sense of urgency to remove al-Kabir from his post. The HCS’ presidency vote earlier this month also made Dabaiba anxious as his rival Khaled al-Mishri is bound to make a return and replace pro-Dabaiba HCS Chairman Mohamed Takala.

Impact of CBL overhaul

The raid over the CBL headquarters and al-Kabir’s departure from Libya are a tour de force by Dabaiba. Despite the mobilisation of armed groups like Rada or expressions of support to al-Kabir from foreign chancelleries like the United States or United Kingdom, the GNU Prime Minister was able to oust his primary rival from Tripoli. For now, he has managed to force his own reality upon others and is yet to be seriously called out for his actions. Instead, key actors such as the United Nations Support Mission in Libya (UNSMIL) have only expressed their deep concern “over the deteriorating situation in Libya resulting from unilateral decisions,” without clearly putting the blame on the GNU and its smoking gun the PC.

So far, the single most important impact of the CBL’s overhaul has been eastern stakeholders’ decision to impose a major oil blockade which has already removed 700,000 barrels per day of oil from production – more than half of Libya’s oil output. In fact, key fields such as al-Sharara, Sarir, Abu Attifel, Amal, and Nafoora have either halted or significantly reduced their output. Oil Crescent export terminals such as es-Sidra, Brega, Zueitina and Ras Lanuf have also halted their operations.

The HoR has clearly stated that this situation would continue as long as al-Kabir is not reinstated, thus showing the depths of the alliance of convenience between the former CBL Governor and eastern Libya. Interestingly, Libyan stakeholders have coated their actions in popular terms, with the HoR saying they support the blockade to “protect Libya’s wealth from misuse and theft” while the PC has claimed the appointment of al-Shukri is meant to implement the will of the Libyan people.

However, what Libya is facing is a clear case of political competition and rivalry that has morphed into a conflict that could soon turn bloody. In fact, all eyes are looking in the LNA’s direction, with its Commander-in-Chief Khalifa Haftar recently underscoring the importance of respecting the CBL and warning against illegal interference in its operations, saying that those would “not be tolerated.”