Foreign Policy Argument: Libya’s Oil Corruption Is Bad for Business

Note: This op-ed was originally published in Foreign Policy and was authored by Justyna Gudzowska, executive director of The Sentry.

 

International oil companies are lining up to reenter Libya’s oil sector. Libya is currently rolling out its first bid round for new oil exploration and development in nearly two decades, and there appear to be many takers from around the globe, including U.S. companies.

At first glance, this might appear to be a promising development for the Libyan people. The country desperately needs reconstruction, political stability, and investment. But new oil deals are unlikely to provide these benefits. Libya suffers from an entrenched system of predatory graft through which the country’s oil riches have been siphoned off by a corrupt elite. The result is to drive up fuel prices for everyday Libyans and leave them struggling.

To avoid perpetuating this corrupt network, policymakers and executives in Britain, Europe, and the United States should proceed with caution. While new commercial opportunities may deliver short-term gains for Libya, they will offer little long-term benefits so long as leaders in Tripoli and Benghazi continue to line their pockets while excluding the Libyan people from the country’s vast natural wealth. Only an effective, transparent, and accountable Libyan state can be the partner international companies require.

A major new investigation by the Sentry, where I am the executive director, has revealed a massive expansion of gasoline and diesel smuggling from 2022 to 2024 via Libya’s fuel subsidy program. According to our research, this cost the Libyan state almost $20 billion in three years.

In 2021, Libya’s National Oil Corp. (NOC) began to directly swap Libyan crude oil for refined fuel from abroad. Previously, the proceeds from all sales of crude went to Libya’s central bank, which would in turn provide funds to the NOC to purchase fuel in line with budgetary allocations. But unlike allocations from the central bank, swaps did not register on the public balance sheet. This meant the NOC was able to increase its fuel imports without any increase in reported state spending. The result was that, in just three years, Libya’s fuel imports more than doubled, reaching about 41 million liters per day by late 2024.

Why did imports skyrocket? The Libyan authorities suggest that the increases were needed due to shifts in the gas supply chain and the growing need for fuel to power Libya’s electricity grid. But the amounts imported are far above what Libya’s legitimate economy could reasonably consume. The reality is that more than half of this fuel is smuggled back out of the country, by sea or by land.

Saddam Haftar, the ambitious son of Khalifa Haftar—who rules much of eastern Libya as head of the Libyan Arab Armed Forces (LAAF)—was the primary force behind this escalation. Saddam has used his role as heir apparent in the LAAF to consolidate control over both maritime smuggling operations and crucial overland routes into sub-Saharan Africa. As a result, he was instrumental in bringing smuggling to unprecedented levels. Benghazi’s old harbor serves as Libya’s principal channel for reexports, using doctored papers and “dark” vessels to move millions of liters per voyage. LAAF officer and Saddam subordinate Ali al-Mashay acts as the main gatekeeper.

While Libya remains politically divided, everyone got a cut of the illicit profits. The recent surge may have been orchestrated by Haftar’s family, but they were operating in tacit conjunction with figures linked to the Tripoli-based government of Abdul Hamid Dbeibeh. Culpability also extends to northwestern Libya, where local warlords such as Zawiya’s Mohamed Koshlaf and Misrata’s Omar Bughdada (who is aligned with Prime Minister Dbeibeh) move fuel by sea and by land. Large volumes head south, where Haftar’s forces take over.

Many of the international backers of Libya’s civil war are involved as well. This multibillion-dollar heist was orchestrated with quiet assistance from Russia, Turkey, and the United Arab Emirates. As a result, Libyan citizens must often cough up 40 times the official subsidized price for fuel while many of their leaders illicitly sell the fuel to foreign networks in Libya and neighboring countries.

The Haftar coalition, for example, diverts subsidized diesel, gasoline, and jet fuel to Russian military personnel entrenched at several air bases in Libya, who in turn ship the fuel to other Russian missions in sub-Saharan Africa. The Haftar coalition has also been a strategic fuel supplier to the Rapid Support Forces (RSF) throughout the ongoing civil war in Sudan, enabling the paramilitary group’s atrocities in Darfur. Neither the fall of El Fasher in late October nor the horrific massacres of civilians that followed have changed that arrangement: The Haftar family continues to provide fuel to the RSF.

By 2024, almost $7 billion in subsidized fuel—about 15 percent of total public spending—was stolen annually. This is billions of dollars in public wealth that should fund hospitals, schools, and other essential infrastructure. The scheme has deprived the central bank of the hard currency needed for essential imports such as food and medicine, driving consumer price inflation and the Libyan dinar’s depreciation. In an ironic twist, citizens of one of the world’s richest oil nations are often forced to wait in long lines at petrol stations and pay inflated black market prices for fuel. Early this year, the NOC said it was ending crude-for-fuel swaps. Even so, fuel import volumes remain unjustifiably high, and large-scale smuggling persists.

International oil companies and Western policymakers are clearly hoping that there are profitable deals to be made in Libya’s oil sector. They are not wrong about the fundamentals: Libya’s geology, both onshore and offshore, remains rich with untapped reserves, and the NOC is, by and large, staffed by a cadre of skilled hydrocarbons professionals. But foreign companies would be wise to consider how sustainable their new projects are likely to be. As the Libyan state is hollowed out by vested interests, the risk of social unrest and renewed conflict rises. A new round of war, particularly one that rearranges the country’s political leadership, could quickly put any new deals at risk.

So, what can the United States and like-minded states actually do about this? Quite a lot. Libya’s oil sector is wedded to the U.S. dollar. This provides a means of applying direct pressure and dictating the terms on which international companies can reenter Libya’s market.

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Read the full essay in Foreign Policy.