How Libya’s unfolding central bank feud could escalate tension

Sadiq Al Kabir, governor of the Central Bank of Libya, was fired last week by Tripoli authorities

Soldiers guard the gate of the central bank headquarters in Tripoli, Libya. AP

Tension has been growing in Libya after the dismissal of the powerful central bank governor Sadiq Al Kabir and other senior officials by the Tripoli-based Presidential Council, a move that could shut down commerce in the north African country, experts say.

The council has named former deputy governor Mohamed Abdul Salam Al Shukri in his place.

For years, the Central Bank of Libya has remained one of the only independent entities in the country, since a Nato-backed uprising that removed long-time dictator Muammar Qaddafi in 2011.

Libya has remained divided between two governments, one in the west, based in Tripoli and another in the east in Benghazi, locked in a power struggle that has brought conflict and hardship to the Libyan people.

Attempts by international mediators to resolve the rift have repeatedly failed as key political actors in the country remain unwilling to reach consensus. Former UN special envoy for Libya Abdoulaye Bathily said before his resignation in April that both sides have been putting their own interests above finding a solution.

The Central Bank has managed to somewhat stabilise the country through balancing distribution of oil revenues between the two rival governments, despite most of the oil fields being controlled by the Benghazi-based government allied with Field Gen Khalifa Haftar.

But Mr Al Kabir, who has been the bank’s governor since 2012, has repeatedly faced criticism from both authorities, who accuse him of mismanaging the country’s oil revenues and public budget.

The spark for his ousting came from his reported rejection of a request for more funds from Tripoli-based Prime Minister Abdulhamid Dbeibah and his allies including the Presidential Council that dismissed him. He told Mr Dbeibah that his government was overspending, namely on officials’ salaries, several sources told The National.

In response to Tripoli's decision to remove Mr Al Kabir, the Benghazi-based eastern government said it was shutting down oil fields and facilities in the country declaring a force majeure, effectively stopping the flow of oil revenue.

Libya's National Oil Company said on Friday the closures had caused a loss of around 63 per cent of total oil production.

Prime Minister of the eastern-based government, Osama Hamad, said on Monday that the decision to close oil production was taken after “repeated attacks on the leaders, employees and administrations of the Central Bank.”

Tarek Megrisi, Libyan analyst and senior policy fellow at the European Council for Foreign Relations, told The National political jostling was behind the governor's dismissal.

"This is a feud and a competition between the Haftar family in the East and the Dbeibah family in the west who are both always looking to undermine each other and get the upper hand," he said.

A rapprochement between the Haftar family and the central bank had been observed, Mr Megrisi added, while relations between Mr Al Kabir and Mr Dbeibah have been drastically deteriorating.

"With their [Haftar family] control over the south - the oil fields specifically - they were strengthening and it seemed they wanted to expand further into Ghadamis [in the west] and border crossings with Tunisia and Algeria," he said.

Earlier in August, Mr Haftar announced that he was sending dozens of troops to the borders with Algeria and Tunisia, specifically the town of Ghadamis, a move that was seen as an attempt to seize control of a vital asset for the western government and a provocation to Mr Dbeibah and his government.

"At the same time, we had the Dbeibahs attempting to regain some power and control by replacing the central bank governor to strengthen their negotiating position with the Haftars," he said.

Central Bank figures from 2023 show Libya remains largely dependent on oil revenues, accounting for 79 per cent of the state’s public budget.

“If oil production stops in the country, everything would come to a halt as we have no other resources and two million public sector employees rely on its revenues to receive their salaries,” Othman Ben Sassi, a political analyst and former member of Libya’s now disbanded post-2011 National Transitional Council.

The ousted central bank governor reportedly left the country through the land border with Tunisia earlier this week. Mr Ben Sassi said that he verified the information with Tunisian customs and the whereabouts of Mr Al Kabir remain unknown so far, bearing in mind the probability that he could be either in Turkey or Malta due to his good relations with both countries.

The National has not been able to independently verify the information. Tunisia’s Ministry of Interior did not immediately respond to a request for comment.

Meanwhile, Mr Al Kabir confirmed his departure, together with other senior bank officials, from Libya in a telephone interview with the Financial Times, stating that he was forced to flee "to protect" his family's lives.

“Militias are threatening and terrifying bank staff and are sometimes abducting their children and relatives to force them to go to work,” he said.

Libya's economy on the line

The central bank’s importance stems from the fact that every single dinar spent by the rival governments must go through it. Only Mr Al Kabir can approve disbursements from the bank, including salaries, as he is the only one who possesses the access code of the bank’s entire system, Mr Ben Sassi said.

“This is the first time that Libya has reached this point, even at the time of the revolution in 2011 the central bank was never shut down,” he said. “This matter is very important and could lead to several repercussions.”

The UN Support Mission in Libya has also expressed “deep concern”, stating that such unilateral decisions could lead to further economic collapse and stir a social crisis among Libyans.

“The mission believes that continuing with unilateral actions will come at a high cost for the Libyan people to resolve the protracted crisis, and risks precipitating the country's financial and economic collapse,” it said.

The EU and its country missions in Libya also issued a statement on Friday, voicing growing concern about the deterioration of the situation in the country and denouncing the intimidation of central bank employees, closure of oil fields, and disruption of banking services.