ANALYSIS: OPEC picks a side in Libya’s Battle of the Governments

#LibyaCrisis

In a long war, all Libyans will suffer, because a combination of fighting and administrative chaos will see oil infrastructure decay

Saudi Oil Minister Ali al-Naimi speaks to journalists ahead of the meeting in Vienna on Thursday (AFP)
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Friday 13 February 2015 5:30 UTC
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A new front in the struggle between Libya’s rival governments opened this week when tensions rose over who would be invited to attend the annual OPEC summit in Vienna.

As holder of Africa’s largest oil reserves, Libya is a prominent member of the Organisation of Petroleum Exporting Countries (OPEC) and would normally take an important place in the policy-making gathering.

But since the summer, the country has been split between two rival governments - one led by Prime Minister, Abdulla al-Thinni in Tobruk and another, led by a rival Prime Minister, Omar al-Hasi, based in the capitol, Tripoli.

Controversially, both expected to be invited to the conference. 

Some analysts originally suggested that OPEC might try to avoid taking sides and not invite either party. However, OPEC - which began meeting on Thursday - choose to extend the invitation only to the Tobruk administration - following the lead of the United Nations and world powers who have recognised Thinni’s government. 

“If OPEC had gone ahead and recognised Hasi’s government [in Tripoli] that would have been taking a major position,” said John Hamilton, of London-based analyst group, Cross Border Information.

“But they could easily have said it’s too confusing for us, it would be better if you [both governments] stay in the background. 

“They [OPEC] have decided that [inviting Thinni officials] is the best solution [and that they should] just go with the government that the rest of the international community is dealing with.”

In Tripoli, Hasi’s oil minister, Mashallah Zwai told Reuters late on Tuesday, that if he was not invited to the OPEC meet, his cabinet would take legal action against OPEC. 

Analysts doubt that such a court case would succeed, with OPEC likely to cite the issue of UN recognition, but the spat could exasperate the existing rift in Libya. 

Zwai, speaking from the offices of the National Oil Corporation (NOC) which regulates Libya’s oil industry, told a Reuters reporter that his cabinet was the “legitimate government.” 

He said that if his government did not receive a last-minute invitation, he would consider halting Libya’s fees to OPEC and cancelling membership. Despite the threat, no invitation was extended, although it is unclear whether Zwai has the power to cancel membership. 

At the OPEC headquarters in Vienna, Thinni’s three-strong delegation reacted bullishly to the comments. 

Leader of the delegation, Deputy Prime Minister, Abdelrahman al-Taher gathered journalists in the foyer of a plush Vienna hotel on the eve of the conference to announce that fellow delegate al-Malbrook Bou Seif had just been appointed the new chairman of the NOC. 

The dramatic announcement was seen as a signal of determination by Thinni, scotching any speculation that he was open to sharing power - and oil - with his rival government.

Libya had little business to conduct at the conference, which had already indicated that Libya, which has had its output cut by months of fighting, would be exempt from any agreement to lower world production quotas.

The meeting also did not produce any policy shifts, with the 12-member body deciding that it would keep production levels the same – a move which, from Libya’s point of view, in effect does not force either administration into a corner.  

Despite this, Thinni is likely to see the OPEC invitation as hugely symbolic, bolstering his determination that there be no deal with Hasi.

Two warring parliaments 

War has engulfed Libya since the summer, when elections saw sharp losses for established parties, vying for spots in the new House of Representatives. 

Furthermore, of the 188 elected members, more than 30 decided to boycott the parliament, arguing that it had illegally moved its headquarters from Benghazi to Tobruk.

Several dozen members of the former congress - the GNC - have since re-convened in Tripoli, electing Hasi as “prime minister” of a National Salvation Government which refused to recognise Tobruk.

Hasi’s government received a boost in early November when the Supreme Court ruled that the election law, passed by the GNC to create the House of Representatives was invalid, in effect ruling the new Tobruk-based parliament illegal.

Tobruk MPs denounced the ruling, saying the judges, meeting in Tripoli, were under duress from pro-Hasi militias, and refused to step down. The UN, while stating that it continues to “study” the ruling, has yet to accept it - leaving Thinni with the all-important badge of international recognition.

This is important because with recognition comes control of overseas assets, including oil revenues.

Both governments agree that Libya is producing about 700,000 barrels of oil a day, generating income of about $50 million. 

That is where the problems begin. As the internationally recognised state, Thinni’s government is entitled to all oil payments from foreign buyers, or at least, buyers who’s governments recognise Thinni as the legitimate authority.

However, the money is paid into the central bank, who’s headquarters, like that of the NOC, is in Tripoli, controlled by the Hasi government. Hasi insists he is the legitimate prime minister, and thus entitled to decide how the money is spent.

The NOC meanwhile, supervises oil production and sets the price for sale.

Experts say Thinni’s government could, if it wanted, stop sending the money to the Central Bank, depriving the Hasi government of income. But to do that, they say, Thinni would also be depriving Tripoli’s population of the income it needs to survive.

Hasi’s government, meanwhile, insists the income from oil sales should belong to them, because Libya’s supreme court has declared the Tobruk parliament illegal.

For both governments, the stakes are high. Oil and gas receipts form 90 percent of Libya’s foreign earnings, and without that cash, neither government could function.

Both governments are constrained in what they can do. Thinni would find it almost impossible to run the oil industry without the NOC, which is responsible for every aspect of Libya’s oil production and sales. 

Equally, Zwai’s own powers are limited. Although he occupies the physical building of the NOC, he has very little control over oil production, because two thirds of this is in Eastern Libya, under the control of the Thinni government. 

He knows also that although the NOC sets a price for oil sales, the income goes to the central bank, not directly to the NOC. 

For the moment, both sides are in deadlock. Thinni could in theory stop all oil payments to the central bank, but this would also mean his population, most of whom receive salaries, payments or transfers from the state, would go without. Hasi also knows that most of the oil income going into the central bank at the moment goes straight back out again to the population, limiting how much his government could control. 

While oil production remains below the pre-war 1.45-55 mbd figure, both men know that most of Libya’s income goes to keeping ordinary Libyans alive, leaving limited funds for either government.

Both men also know there is also a second problem waiting in the wings, which is the deterioration in the oil production fabric caused by a lack of maintenance. In a long war, all Libyans will suffer, because a combination of fighting and administrative chaos will see oil infrastructure decay.

“Keeping production requires constant maintenance and investment, particularly when you have a system as outdated and worn out as Libya,” said Hamilton. “It’s inevitable that with failing infrastructure, production is going to decline.”

Yet an early resolution of the civil war looks unlikely. Battles continue to rage in East and West Libya, while mediation efforts have made little progress. 

UN Envoy, Bernadino Leon continues to hold talks, in an attempt to convince both sides to form a unity government,  coupled with the promise that the central bank and the NOC will be independent of either existing administration, and tasked only with ensuring Libya’s payments are made.

With the war raging fiercely, neither government is inclined to talk, and negotiations have not even begun to decide how the oil revenues would be sorted out between the sides, in the event of a unity government deal. 

In Vienna, OPEC officials will be hoping that a resolution is reached before it next has to make a decision on whom to invite at its next major conference, in June next year.