Libya’s central bank standoff risks turning into a wider crisis By Reuters

By Angus McDowall

(Reuters) – The fight for control of the Central Bank of Libya (CBL) has already triggered a shutdown in oil production and threatens the worst crisis in years for the major energy exporter, long torn between rival factions in the east and west.

The conflict was sparked when western factions moved this month to oust veteran governor Sadiq al-Kabir and replace him with a rival council, prompting eastern factions to shut down all oil production.

The situation is so muddled that while Kabir retains control of the central bank’s website, a rival council appointed by the presidency council issues statements on the bank’s (NASDAQ: ) verified Facebook page.

Kabir, who traveled abroad as the crisis unfolded, was quoted by the Financial Times on Friday as saying “militias are threatening and terrorizing bank staff and sometimes abducting their children and relatives”.

The central bank has been paralyzed by the border situation, leaving it unable to conduct transactions for more than a week, threatening basic economic functions, and neither side appears able to back down, making the violence more probable day by day.

Any move to resolve matters peacefully will be complicated by a landscape fragmented into rival governing institutions with tenuous claims to legitimacy, operating with few agreed rules and supported by a shifting constellation of armed factions.

Worse, the crisis comes at a time when international diplomacy to resolve Libya’s core political conflict has stalled, with the post of UN envoy vacant and no sign yet that foreign powers have succeeded in reining in the rival factions.

“The balance of the last two years is gone. Actors are now trying to build new leverage. So the crisis will get much worse,” said Jalel Harchaoui of the Royal United Services Institute.

STRUGGLE FOR POWER

Kabir has been Libya’s central banker since the 2011 NATO-backed uprising that plunged the country into chaos, becoming a major player among warlords and politicians who have endlessly jockeyed for power.

As the state collapsed between rival factions, CBL and the National Oil Corporation (NOC), the state power producer, were banned, ensuring the continuation of some government functions.

Libyan law, backed by international agreements, stipulated that oil could only be sold by the NOC, with proceeds channeled to the CBL, where it was used to fund state salaries and government bodies across the country.

This principle began to erode in 2022 when Prime Minister Abdulhamid al-Dbeibah installed a new head of the NOC in apparent alignment with the eastern factions, leading to weaker control over the oil sector.

However, Dbeibah and Kabir have clashed over spending and other issues, and the CBL governor has been seen getting close to Khalifa Haftar, the military commander who controls eastern Libya.

By replacing Kabir, the head of the Presidency Council, Mohammed al-Menfi, supported by Dbeibah, directly put control of Libya’s vast financial resources at stake, and neither side can back down easily.

“My general view is that this is a political issue rather than a bureaucratic one. But it is extremely serious. Without consensus, the country’s most powerful remaining institution could effectively be eliminated,” Tim said. Eaton (NYSE:) of Chatham House.

Kabir’s announced dismissal also appeared to contravene the 2015 Libyan Political Agreement, the basis for the international community’s relations with Libyan factions for nearly a decade.

Gaining international acceptance for a bank governor is crucial. Libyan oil revenues accruing to the NOC are paid in dollars into its account at the Libyan Foreign Bank in New York before passing to the Tripoli government’s account at CBL.

BLOCKADE

So far, the new board announced by Menfi seems unable to control the functions of CBL. At a press conference on Wednesday, Kabir asked him to hand over codes that would allow him to make transfers.

It asked Libyan banks to pay state salaries from their own reserves, promising to repay them when it gained full control of the transactions. Kabir responded with a statement on the CBL website telling banks to ignore instructions from people “impersonating” board members.

If the fight for control drags on, all state salaries, bank transfers and letters of credit for imports will become impossible, freezing Libya’s economy and international trade.

At two banks in eastern Libya, employees said clearing operations to western banks had stopped, along with processing foreign remittances. Payments of state salaries have ceased.

Meanwhile, the oil blockade in the east will gradually starve the CBL of new funds, as well as reduce the condensate available for power plants, meaning that long blackouts could soon return.

It all adds up to a bleak outlook for Libyans and raises the risk that armed factions could once again resort to fighting, some four years after a ceasefire ended the last major fighting in the war.