Uncertainty on the rise

Libya has undergone successive rounds of civil conflict and abortive political transitions over the past decade. The most recent conflict over control of Tripoli, which lasted from April 2019 until mid-2020, saw an escalation in the level of violence and the extent of international involvement in Libya’s grinding civil war. With the self-styled Libyan National Army (LNA), led by General Khalifa Haftar, unable to capture Tripoli, the conflict ground to a stalemate by the summer of 2020.

The ceasefire and resulting peace talks brokered by the UN led to the formation of a Government of National Unity (GNU) in March 2021, with a mandate to hold a general election on 24 December 2021. The formation of the unity government was based on a form of power sharing between Libya’s historical regions of Tripolitania (in the west), Cyrenaica (in the east) and Fezzan (in the south), and inaugurated a feeling of optimism among Libyans, foreign companies, and the international community that the country might finally be turning a corner to a more united, stable, and secure future.

Some of that optimism now looks to have been premature. In recent months, relations between Libya’s patchwork of powerbrokers, institutions, and factions have grown increasingly fractious and the foundations of the fragile political transition now seem under threat. With agreement on the country’s constitution still pending, the UN-formed Libyan Political Dialogue Forum (LPDF) has been unable to agree on a legal basis for the December elections. This has prompted the two key institutional actors – the Tobruk-based House of Representatives (HoR) and the Tripoli-based High Council of State (HCS) – to unilaterally issue their own electoral laws. At the same time, each side has accused the other of acting as a spoiler in the political process. Among other things, this has led to a failure to pass the 2021 national budget and prompted the HoR on 21 September to issue a vote of no confidence in the GNU. In reaction, the GNU mobilised demonstrations in Tripoli against the HoR the following Friday.

Contentious elections

While the international community and most Libyan politicians remain publicly committed to holding the elections on time, there is still a possibility that political disagreements and security challenges may force the authorities to postpone the polls. With less than three months until the planned elections, the political landscape looks fractured and there is uncertainty over who the candidates will be in Libya’s first-ever presidential elections. The HoR is also yet to issue a legislative electoral law.

In a further act of brinkmanship, General Haftar on 22 September stepped down from his position as general commander of the LNA and appointed his chief of staff, Abdul Razek al-Nadhouri, as successor for three months in a move widely interpreted as signalling his intention to run for president in the putative December elections. The electoral law passed by the HoR stipulates military and civilian officials may stand in the presidential election if they withdraw from their roles three months earlier.

Haftar’s potential candidacy in the presidential election will further increase tensions between Libya’s eastern- and western-based political stakeholders. Between April 2019 and mid-2020, Haftar led a failed offensive to control the capital Tripoli, leaving thousands of Libyans dead. He remains a highly controversial figure in Libya, and his potential candidacy will raise concerns among many western-based armed groups, politicians and communities. This would raise the potential for violence during and after the polls, if they are held on 24 December.

Oil sector governance

Libya’s over-reliance on oil resources has made the sector vulnerable to power struggles and security challenges over the past decade. While production and export levels have been relatively stable over the past year, control of the oil sector continues to be contentious. The relationship between National Oil Corporation (NOC) chairman Mustafa Sanallah and Minister of Oil Mohamed Oun has been uneasy for years. Oun was appointed Minister of Oil in March 2021, a position that had been annulled in 2017 before being reinstated. Tensions escalated on 29 August when Oun suspended Sanallah and put him under investigation for travelling on a business trip out of Libya without the ministry’s permission; the minister was unable to enforce the decision. The strain between the two officials, in addition to budgetary issues caused by the delayed passing of the 2021 state budget, will increase the potential for disruption to oil operations. The lack of clarity over the division of responsibilities between the oil ministry and the NOC will raise uncertainty for investors over who is responsible for the enforcement of contracts, operations and regulations in the sector. While Oun wants to expand the ministry’s powers to oversee oil policies and control oil and gas licences, Sanallah is keen to preserve the NOC’s vast prerogatives, which it held on to for the past four years and allowed the oil industry to survive successive rounds of political divisions and civil conflict.

Persistent security risks

The potential for a breaking of the October 2020 ceasefire between the LNA and western-based armed groups will remain limited in the coming three months. However, the atmosphere is increasingly tense and the outlook beyond December would depend on whether the polls are held on time and who the winners are. Foreign businesses will therefore face a range of political, security and operational risks in Libya over the coming six months.

Security risks to foreign business will remain considerable. Militia activity will remain the most significant source of insecurity in Tripoli, particularly in the city’s suburbs, and the broader north-west due to the indiscriminate nature of inter-militia fighting. Foreign businesses in Tripoli and other north-western cities where the militia landscape is diverse, notably Zawiyah, will face operational disruption and indirect security threats from occasional clashes, including the use of artillery and gunfire, between state-affiliated local armed groups. Inter-militia violence typically results in the closure of roads and infrastructure facilities.

The central government remains fragile and unable to exert control over the various armed groups even those that are nominally affiliated with the state. Attempts by the government to disarm and demobilise fighters in local armed groups or integrate them into a unified security force have floundered and are unlikely to succeed in the coming months.

The likely contentious nature of the upcoming elections, if held on time, will further contribute to the already tense security environment, given the widespread availability of weapons and the potential for armed groups that are unsatisfied with the electoral results to contest them by resorting to violence. The presence of thousands of foreign troops and mercenaries across Libya will further complicate the security landscape as political changes unfold.

Deficient rule of law as a result of political divisions and the fractured nature of the security forces also continues to create a permissive environment for criminal activity targeting oil and gas, power and water supply infrastructure facilities.

Operational hurdles

The limited coordination between state institutions will sustain mismanagement of state revenues and increase the level of accumulated debts. The lack of a unified budget, which is yet to be passed by the HoR, will also limit the ability of state institutions and companies to pay their financial dues on time, potentially leading to deferred payments to foreign companies.

Pressing budgetary shortages linked to the delayed passing of the 2021 budget will also increase the risk of occasional disruption to oil and gas operations across the country. For example, on 27 August the NOC’s eastern-based subsidiary the Arabian Gulf Oil Company warned that it would suspend operations if it did not receive its budgetary allocations from the government. Meanwhile, on 8 September local communities in the south-western Fezzan region demonstrated outside al-Sharara oilfield, demanding the dismissal of Sanallah and warning that they would shut down oil production at south-western fields if their demand was not met.

Completing the host of operational risks to businesses is the threat from COVID-19. Libya only began its vaccination campaign in April 2021. The authorities have eased many of the most stringent restrictions and are relying on Libyans wearing personal protective equipment and social distancing to contain the virus’s spread. Vaccination remains slow and the pandemic will continue to pose operational challenges to businesses.

Despite these challenges, Libya over the past six months has seen an increasing number of foreign embassies, including western ones, reopening in Tripoli after several years of closure. In addition, several air links to neighbouring countries are in the process of being restored, while dozens of economic and reconstruction deals have been concluded between the GNU and foreign governments. Such developments, assuming the country remains relatively stable, will increase Libya’s connectivity and will likely improve the country’s infrastructure over the coming years.

Looking ahead

Political and security developments over the past year offered hope that Libya can move on from the turbulent past decade to a more stable order. In recent months, political tensions increased significantly and are threatening plans to hold general elections in December, while rendering the post-election security conditions uncertain, if polls are held on time. As foreign companies continue to operate in Libya and new ones enter the market, understanding the level of risk to business operations and having extensive scenario planning and risk mitigation measures in place are key to remaining secure, compliant and resilient.

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