April 30, 2019 / 1:05 PM / 2 months ago

Libya's rival governments move to financial war with frontline stuck

TRIPOLI (Reuters) - With the frontlines around Libya’s contested capital Tripoli stalemated, the two rival factions are bringing oil and money supplies into the firing line of their battle for power.

FILE PHOTO: Members of forces loyal to Libyan military commander Khalifa Haftar are seen with military vehicles near Libya's El Sharara oilfield in Obari,Libya, February 11, 2019. REUTERS/Stringer

Khalifa Haftar, chief of the eastern-based forces which are attacking the city, is putting pressure on state oil firm NOC and its operations in his fiefdom, diplomats and analysts say.

In response, the internationally-recognized government in Tripoli is limiting his access to hard currency, the sources said.

The moves mark a new turn in a war which started in early April when Haftar, who is allied to a parallel administration in eastern Libya, mounted a campaign to capture Tripoli.

His Libyan National Army (LNA) fighters have been unable to advance into the city center and costs are piling up as ammunition and other supplies need to be brought in from their home base in Benghazi 1,000 km (600 miles) away.

This has prompted Haftar to use oil as a strategic asset.

The LNA controls areas surrounding most of Libya’s oil infrastructure but it does not benefit directly from oil and gas sales, which go through NOC in Tripoli managing the day-to-day operations.

NOC has tried to stay out of the conflict but it distributes energy revenues to the Tripoli-based central bank, which only works with Tripoli-based Prime Minister Fayez al-Serraj.

In recent days, Haftar has met with two executives working for NOC in the east in his base outside Benghazi.

The first was the chairman of NOC subsidiary AGOCO, which produces a third of Libya’s output. Then Haftar met NOC board member Jadallah al-Awakli.

His office released pictures of the meetings showing the general dressed in military uniform.

Asked by Reuters about his meeting, Awakli said oil operations were benefiting from security provided by the LNA.

“I congratulate the LNA on its victories,” he said.

Another NOC unit in east Libya, Sirte Oil firm, also expressed support for the Tripoli offensive on its website.

The meetings took place days after the LNA sent a warship to Ras Lanuf port — 600 km (400 miles) from the frontlines.

At the same time NOC said soldiers had entered Es Sider port and seized its air strip. It condemned what it called a “militarization” of oil facilities but did not name the LNA, which controls the area.

LNA officials denied this and said oil ports work normally.

Diplomats and analysts saw the move as a sign that Haftar wants to remind Tripoli he can stop oil exports as a way to pressure Serraj into a deal to share oil revenues should he not win on the battlefield.

The LNA last year tried to export oil bypassing NOC via a parallel NOC entity which has some 500 staff on duty.

“NOC is concerned by renewed attempts to divide the corporation,” a spokesman for NOC Tripoli said. “It is particularly alarmed by evidence of staff coercion and is attempting to clarify the circumstances behind recent statements in support of the armed assault on Tripoli.”

GUNS, OIL AND MONEY

Analysts said Haftar is under financial pressure because Tripoli has limited his access to hard currency.

The LNA needs to import gear via merchants as its main foreign backers, Egypt and United Arab Emirates, have provided heavy equipment such as helicopters but have been reluctant to provide cash, Western and Gulf diplomatic sources said.

“Haftar appears to be contingency planning for how he will continue funding his growing operation and what will likely be a prolonged conflict,” said Tarek Megerisi, a European Council

policy fellow.

Diplomats said Haftar is trying gain the upper hand in the Tripoli war before the holy Muslim fasting month of Ramadan next week, when life slows down. The LNA would still need to maintain costly supply lines if a long stalemate occurs.

Haftar could try to force Tripoli into a deal by blocking oil exports, which would end funding for the government, or he could even consider trying to sell oil again, analysts said.

Washington stopped previous such attempts, even dispatching Navy SEALs to storm a tanker which had set off from a port run by a rogue commander in 2014.

“Given he currently enjoys the backing of President (Donald) Trump, Haftar may now feel emboldened to try again and create a reliable revenue stream for himself,” Megerisi said.

Trump told Haftar in a phone call he “recognized” his efforts in securing oil facilities, the White House has said.

Libya’s output has been so far unaffected, remaining at about 1.1 million barrels a day though the conflict has divided even technocrats. An oil manager in Tripoli joined the front as well as engineers in the east.

An armed group on Monday attacked the southern El Sharara oilfield, which pumps 300,000 bpd, exploiting a vacuum as the LNA has moved troops north.

BANK SEIGE

Tripoli has responded to Haftar’s moves with the central bank (CBL) on Monday imposing special checks on four banks, three of them in Benghazi, before they can get hard currency.

It cited “suspicions of corruption” but the east said this was just an excuse.

“CBL...has opened a frontline of war and a siege on banks in Barqa,” said Ramzi al-Agha, head of the liquidity committee at the eastern parallel central bank.

FILE PHOTO: An oil tank is seen inside Ras Lanuf port Oil and Gas Company in Ras Lanuf, Libya July 10, 2018. REUTERS/Esam Omran Al-Fetori

“Barqa” is a term for the east often used by activists demanding secession or at least autonomy from the west.

Jalel Harchaoui, research fellow at the Clingendael Institute in The Hague, said Haftar felt emboldened by a paralysis of U.N Security Council which has been unable to even call for a ceasefire.

“Using the counter-terrorism argument many profound changes could be implemented especially with foreign support,” he said. “A big chunk of at oil exports is at risk owing to political reasons.”

Editing by Angus MacSwan

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