Libya oil reserves eyed in Trump administration power play

Iran’s loss may be Libya’s gain. The prospect that U.S. sanctions will drastically curb Tehran’s oil exports is feeding interest in Libya’s oil reserves and has even sparked movement toward economic and political reform in one of the region’s most unstable states.

As Libya endured yet another oil blockade, which pulled nearly 850,000 barrels per day from the world’s markets, Trump administration officials worked behind the scenes over the past month to pressure key militia leaders, government officials and oil executives to cooperate or face dire consequences, multiple sources told The Washington Times.

State Department and White House officials declined to comment on specifics, underscoring the sensitivities required to execute a successful power play in Libya.

The country is plagued by Islamist radical threats and divided between rival governments in its eastern and western halves since the 2011 revolution and death of longtime strongman Moammar Gadhafi.

With the U.N. and European allies, the U.S. has pushed a deal to subject the Central Bank of Libya and the state oil company to a wide-ranging investigation into long-standing reports of corruption and misappropriation of oil revenue by radical Islamist factions and militia groups.

Regional analysts have welcomed the investigation as a glimmer of hope after a long record of failure and uncertainty for U.S. policy.

“The proposed Central Bank audit presents an opportunity to improve transparency and management of a critical economic institution,” said Lydia Jabs of the U.S.-Libya Business Association.

International Crisis Group senior Libya analyst Claudia Gazzini voiced cautious optimism but warned that major questions remain about who will conduct the audit and how its findings are handled.

“The devil will be in the details,” she said by phone from neighboring Tunisia. “But forging a real agreement for a genuine investigation, if properly managed, it could lead to a great opening-up.”

Factional fighting

The factions that control Libya’s west and east — one based in Tripoli and one in Tobruk — have battled for years for control of the largest oil reserves in Africa and 10th largest in the world.

On June 14, four ports in what is known as Libya’s Oil Crescent in the east were seized from Gen. Khalifa Haftar, the strongman who controls the Libyan National Army and much of the eastern half of the country.

Called stubborn and at times self-serving, the 75-year-old Gen. Haftar falls in and out of favor in Washington, where he has become well-known since defecting to the U.S. from Gadhafi’s army in the 1980s. Gen. Haftar returned to fight in the revolution in 2011 and later battled Benghazi’s Islamist militias.

Gen. Haftar’s troops soon recaptured the ports but refused to return them to the state-owned National Oil Corp., a move condemned by France, Italy, Britain and the U.S.

The Libyan standoff, combined with uncertainty over the future of Iran’s energy markets after the U.S. pulled out of the 2015 nuclear deal, helped push U.S. gas prices by July 4 to their highest levels in four years.

The Libya 218 TV channel reported July 10 that President Trump sent a message to Gen. Haftar and the heads of the rival governing factions, Aqilah Saleh and Fayez Al-Sirraj, threatening them with major sanctions — and possible U.S. force — if they did not immediately restore Libyan oil to the world market.

The next day, July 11, Libyan media reported that the National Oil Corp. had control of the four Hafta ports and the blockade was over.

National Oil Corp. Chairman Mustafa Sanallah, whom analysts see as a reformer, said the incident illustrated that “a proper national debate on the fair distribution of oil revenues” was direly needed.

“The real solution is transparency” he said.

Shortly afterward, Ghassan Salame, the U.N. envoy to Libya, then secured support from the U.S. and European allies to launch an anti-corruption investigation that many in Libya see as key to restoring a semblance of efficient government in the chaotic post-Gadhafi era.

“If these matters are not expeditiously addressed, I fear the agreements made to resume the production of oil will not hold, and it will be difficult to advance the political process,” Mr. Salame told the U.N. Security Council last week. “If there has been a silver lining in the events, it is that the various authorities in Libya now accept that they need to take action to protect the country’s wealth.”

Speaking on background for fear of reprisal in Libya, one official of a nongovernmental organization said Libyans were divided about the pressure the U.S. and outside players have applied, which ultimately could lead to greater transparency.

“Wrong reasons, good results,” the source said. “Iran is the White House’s priority, not Libya. [The U.S.] wants to make sure that there’s a healthy supply of Libyan oil on the world market when the new Iran sanctions kick in so U.S. oil prices don’t skyrocket.”

Corruption challenge

Libya’s oil industry drives 95 percent of the country’s exports, and corruption is endemic. Last year, Transparency International ranked Libya 171st out of 180 nations in its annual Corruption Perceptions Index.

Human trafficking is another massive problem. Organized crime syndicates in the major Mediterranean ports use their oil smuggling routes to make Libya the prime departure point for moving economic refugees to Europe, fueling an immigration crisis that has badly divided the European Union.

According to the Office of the U.N. High Commissioner for Refugees, 124,711 people crossed from Libya to Europe from January 2017 to March 2018, and 4,578 refugees were declared dead or missing at sea last year.

Vincent Cochetel, the UNHCR special envoy for the Central Mediterranean, has called for “naming and shaming” traffickers and smugglers and freezing their assets.

In February, the U.S. Treasury’s office of foreign assets control did just that, sanctioning six specific smugglers from Libya, Malta and Egypt in addition to 24 companies and seven vessels.

International investors have taken notice.

Last week, the Texas-based Guidry Group announced plans for a $1 billion redevelopment of a deep-water port near the strategic northeastern city of Susah, where tradition holds that Roman Gen. Marc Antony reportedly built Cleopatra a swimming pool.

Founder Michael Guidry said in a phone interview from Benghazi that he had been to Libya more than a dozen times since 2012, when he began pitching officials to rebuild the Susah port. The former specialist in kidnapping and ransom negotiations and security services said his firm has evolved into developing critical infrastructure for war-torn countries.

Despite the difficulties and dangers, Mr. Guidry said, the Susah port project has attracted serious American investors and the interests of a major global port operator.

“The Libyans told me they had a dream of building a deep-sea port,” he said. “This is it. They have been through so much, they need their dreams to start becoming real.”