The Libyan National Oil Corporation (NOC) ended on January 2 a fire that raged for days among tanks in Libya’s largest oil export terminal of Es-Sider, but the militia violence fed by the implosion of governance that caused it continues. Indeed, the levels of suffering, civilian casualties, refugees, and those internally displaced have increased steadily. The talks between Libya’s rival warring governments slated for today have been postponed. Meanwhile, extremist elements are taking greater advantage of the ongoing maelstrom.
The NOC managed to put the fire out, but three days of normal Libyan oil exports were destroyed. Of course, with Libyan crude exports already down to less than 400,000 barrels per day (only 1/3 of normal output), the fire’s impact on global markets was minimal.
Libya’s low exports since mid-2013 pose serious fiscal challenges for the country. The internationally recognized, relatively moderate House of Representatives (HOR), elected in June 2014, headed by Prime Minister Abdullah al-Thinni, and driven to take refuge in the small eastern city of Tobruk, is in fiscal crisis. The Libyan Central Bank, so far neutral between rival governments, has drawn down Libya’s currency reserves to cover spending. With two hostile governments, there is also no budget for the allotment of funds in 2015.
One might think government spending and a budget would be the least of Libya’s concerns. But beneath the government standoff and rule of local or extremist armed elements around the country, much of the Qadhafi-era’s largely socialist economy remains. If the Central Bank fails to pay government employees, those of the National Oil Corporation, personnel keeping most ports functioning, workers struggling to maintain the electric grid, civil police, and others life would grind to a halt. Goods would stop flowing, businesses would lose customers, and people would not be able to obtain goods and services at the most basic level. Fraud-ridden and often dysfunctional, presently there is an economy just the same.
Tripoli’s Power
Credit: NASA image by Jeff Schmaltz
The Es-Sider inferno was triggered by a rocket fired by Islamic Dawn (LD), the robust Islamist militia comprised of fighters from Libya’s third largest city of Misrata, near Tripoli. LD is the muscle behind the rival Tripoli government.
Since last August when it propped up the Islamist portion of the former parliament, the General National Council (GNC) as a “government,” LD has been gaining ground. Its ability to push nearly 400 miles eastward, to menace Libya’s twin oil ports of Es-Sider and Ras Lanuf plus their supporting oil fields to the south illustrates LD’s rising power at the expense of the HOR and its loyalist allies.
Likewise, 500 miles to the west, LD has been driving toward Libya’s other major oil and gas terminal of Mellitah, near the Tunisian border. Thinni has been struggling to halt this other LD drive using local tribal militias and air strikes. A NOC statement from late December, fearing the loss of Mellitah, said Libyan hydrocarbon production would fall below the levels needed to even meet Libyan domestic demand.
Bloody Benghazi
A severe impediment for the HOR and its loyalist allies is the more extremist militia grouping continuing to dominate much of Libya’s eastern second largest city of Benghazi. Led by the formidable al-Qaeda associated Ansar al-Sharia in Libya (ASL), a militant alliance— despite see-saw fighting—has managed to hold various Libyan military units and former General Khalifa Haftar’s polyglot secular forces allied with the HOR in check.
The commitment of so many HOR military assets to the military meat-grinder in Benghazi to prevent ASL from moving eastward toward Tobruk has weakened its efforts elsewhere. Eleven more died and 63 were wounded in Benghazi on Dec. 22. In fact, most killed in clashes across Libya die in Benghazi. Eastern Libyan jihadists car bombed the HOR’s Tobruk hotel on Dec. 30 wounding 3 deputies.
Human Toll
The UN Support Mission in Libya and the UN’s High Commission for Human Rights announced on Dec. 23 that nearly 700 hundred Libyan civilians have died as collateral casualties of Libyan violence since August; many times that have been wounded. Combatant casualties would likely push fatalities over 1,000. This death toll is lower than those emerging from Syria and Iraq from the regime-rebel civil war in the former and Islamic State-related violence in both. Still, the UN warned commanders of Libyan armed groups they could be charged by the International Criminal Court (ICC) with criminal atrocities.
The refugee situation is far worse. By September, 1.8 million Libyan refugees had sought shelter in Tunisia. Added to those elsewhere, as in Egypt, refugees comprise approximately 1/3 of Libya’s entire population. Those in Tunisia have overwhelmed available humanitarian assistance, particularly now during the cold, rainy Mediterranean winter. Almost 400,000 Libyans are reportedly internally displaced.
No End in Sight
So far, diplomatic efforts seeking some sort of accommodation between Tripoli and Tobruk have been futile. Talks led by UN Envoy for Libya Bernadino Leon came to naught back in September. Leon tried to organize another round for Dec. 9, but this foundered due to more fighting triggered by a failed HOR effort to retake Tripoli. Leon reported to the UN Security Council on Dec. 23 that the two sides had agreed to meet today.
That initiative also collapsed. HOR airstrikes over the weekend against targets in Misrata (the home of the GNC’s “Libya Dawn” militia) came as a surprise. Two reportedly were wounded. An HOR military spokesman said the strikes were retaliation for renewed LD attacks against Es-Sider and Ras Lanuf where fighting has resumed. Yesterday a loyalist warplane struck a Greek tanker near the eastern port of Derna, killing two crewmen; a Libyan military spokesman claimed it was carrying militants.
Meanwhile, General David Rodriguez, head of US Africa Command, revealed on December 3 that “nascent” Islamic State (ISIS, ISIL or IS) training camps had been established in eastern Libya containing a “couple of hundred” militants. Fourteen Libyan soldiers were executed on Feb. 3 in southern Libya by a group calling itself the Islamic State of Libya. Even the more moderate Islamist GNC and LD, already hostile to ASL, condemned the killings. With Libya’s disarray and the grip of ASL and associated extremists over much of Benghazi plus areas nearby like militant-held portions of Derna, IS’s appearance at some point was inevitable.
Sudanese Foreign Minister Ali Ahmed Kharti in December chaired a meeting of his counterparts from Libya’s neighbors to express concern about the Libyan crisis’ regional impact. Weighing heavily on participants was the near conquest of Mali in 2013 by extremists, many staging out of and receiving munitions from Libya’s lawless southwest. There also has been arms smuggling from eastern Libyan militants to Egypt’s Sinai-based Ansar Bayt al-Maqdis jihadists, many of whom affiliated themselves with IS in Fall 2014.
Increasingly concerned about Libyan jihadist spillover, French President François Hollande urged the international community today to address Libya’s crisis. In a two-hour interview with France Inter radio, Hollande ruled out unilateral French intervention in Libya itself, but is establishing a base in northern Niger 60 miles from the Libyan border to help contain the menace. Last year, another French base was set up near the Malian border with Libya.
The longer Libya’s chaos remains on the global back burner, the nastier its impact will be in Libya and beyond. Crises left to fester sometimes find their own way to the front burner.
]]>By Richard Javad Heydarian
A key foreign policy consequence of President Barak Obama’s reelection is the growing possibility of face-to-face talks between the United States. and Iran. Both the US Secretary of State Hillary Clinton and Iran’s Foreign Minister Ali Akbar Salehi have expressed, albeit conditionally, their respective governments’ openness [...]]]>
By Richard Javad Heydarian
A key foreign policy consequence of President Barak Obama’s reelection is the growing possibility of face-to-face talks between the United States. and Iran. Both the US Secretary of State Hillary Clinton and Iran’s Foreign Minister Ali Akbar Salehi have expressed, albeit conditionally, their respective governments’ openness to engage in comprehensive bilateral talks — for the first time in almost three decades — to primarily resolve the ongoing nuclear standoff.
Beyond the issue of urgently resolving the Iranian nuclear question, purportedly to prevent an Israeli pre-emptive strike and an Iranian nuclear bomb, the Obama administration’s growing interest in directly engaging Iran may have something to do with timing, opportunity, and leverage.
There is a feeling in Washington that the recent transatlantic sanctions may have created enough pressure — and damage to Iran’s economy — to potentially extract major unilateral concessions from the Iranian regime. Namely, a “stop-shut-ship scenario”, whereby Iran would curb its enrichment capacity, open up all aspects of its nuclear program, shut down its heavily-fortified nuclear facilities, and ship out its stockpile of above 3-5 percent enriched uranium in exchange for some nominal — yet to be clarified — incentives from the West.
Since the imposition of Western sanctions against Iran, beginning in late-2011 and intensifying by mid-2012, the Iranian economy has begun whimpering on an unprecedented scale. Iran’s oil output is at its lowest in more than two decades, while oil exports have been halved; the inflation rate has surpassed the 25 percent barrier, while the budget-deficit is reaching its highest level in the last decade; and, the Iranian currency (rial) has lost about 80 percent of its value in less than a year. The sanctions against Iran’s ports, shipping industry, financial sectors, and central bank, Bank-e-Markazi, have also made it increasingly difficult to conduct even the most benign kind of international transactions, from the import of medicines, to food, diapers and medical equipments.
However, there are some recent indications that Iran’s economy is not exactly in a desperate shape, or at least not as frail and fragile as the Obama administrations hopes it to be.
According to the Paris-based International Energy Agency’s (IEA) most recent report, Iran’s oil exports have rebounded sharply – by around 30 percent – after seven months of steady decline, thanks to new contracts with giant Asian customers, China and South Korea. With oil exports constituting more than three-quarters of export earnings, Tehran is now in a relatively better position to defend its falling currency. In fact, the rial has indeed experienced some recovery in recent weeks, appreciating from the record-low of 37,000 rials against 1 dollar in early October to around 27,000 rials against 1 dollar today. Of course, the most recent financial and hydrocarbon sanctions by the European Union will further complicate the process by which Iran intends to translate its rising exports into a stronger local currency.
Another surprising development is in the tourism sector, which has also experienced an unexpected spike. “Although most sectors of Iran’s economy are struggling and oil revenue has steeply declined, foreign purchasing power is at an all-time high in Iran due to a plunge in the value of the Iranian currency, the rial,” reported Jason Rezaian of the Washington Post.
The Iranian government has circumvented transatlantic sanctions by an ingenious mixture of manifold countermeasures. It has negotiated sovereign insurance deals with major customers such as China, India, Japan, and South Korea, while considering barter deals (sweetened by heavy discounts and flexible payment arrangements) to woo major customers and continue large-scale oil trade. Iran has also expanded its tanker storage capacity by purchasing/building new oil-transporting vessels, smuggled oil through neighboring countries like Iraq, and stealthily transported oil — with off-the-radar and/or or ‘foreign flagged’ ships — from its ports to major destinations in East Asia. This explains Iran’s ability to increase oil exports by almost 30 percent in November, compared to previous months.
Moreover, the government has instituted some draconian measures to stave-off the impact of sanctions. It has further slashed imports, postponed its subsidy cuts, reduced money supply, raised interest rates, and jailed so-called ‘currency manipulators’. It has also encouraged domestic manufacturing. Aside from the government’s recent ban on imports of around 77 luxury products, atop reductions in 52 other non-essential goods, the fall of the Iranian currency — especially in the black market – has also eroded the competitiveness of imported capital goods, which have hammered local producers in recent years.
It’s important to note that the Iranian government has considerable foreign exchange reserves, estimated at between $80-100 billion, giving it significant ability to sustain imports for an extended period and defend its currency amid growing international restrictions. With a multi-tiered foreign exchange system, the government has an ability to cushion the most vulnerable sectors — incidentally, the backbone of the regime – against major disruptions in the import of basic commodities. After all, Iran’s structurally high inflation more the product of a loose monetary policy and major subsidy cuts that begun in 2010.
In some ways, it is Iran’s relative resilience — and ability to avoid a total collapse — that may explain its willingness to explore direct talks with Washington. Tehran feels that it has enough wiggle room to avoid total unilateral concessions and negotiate a more mutually-favorable, face-saving outcome — perhaps, before it’s tool late.
- Richard Javad Heydarian is a Philippine-based foreign affairs analyst, specializing on international security and economics. He can be reached at jrheydarian@gmail.com
]]>Virginia Tech economist Djavad Salehi-Isfahani’s recent explanation of the rial situation in Iran generated a lot of attention, and much in the way of non-expert criticism, likely because it sways considerably from the prevailing narrative on Iran’s economy: it’s about to collapse. But Salehi-Isfahani is sticking to his guns. [...]]]>
Virginia Tech economist Djavad Salehi-Isfahani’s recent explanation of the rial situation in Iran generated a lot of attention, and much in the way of non-expert criticism, likely because it sways considerably from the prevailing narrative on Iran’s economy: it’s about to collapse. But Salehi-Isfahani is sticking to his guns. He elaborates on his reasoning and the effect of sanctions on his personal website:
]]>Admittedly, the situation in Tehran is both confusing and shrouded in secrecy– for understandable reasons –and I do not claim to fully understand what is going on between oil exports, frozen and unfrozen Central Bank of Iran (CBI) accounts abroad, and rupees and yuans. But some reporters I talked to in the last few days did not know that Iran had a multiple exchange rate system, or that currency crises in oil exporting countries are different from those in which private sector earns the bulk of the foreign exchange. So, it seemed there was reason to say something.
With its diminished oil revenues the government can still shield large sections of the economy from the adverse impact of large devaluations in the the parallel market. The import classification system put into place last December was precisely for that. I do not know how much of the CBI forex goes to basic goods, how much to the Exchange Center, and how much, if any, to the parallel market. My guess is that, for obvious reasons, this market is not near the top of the list CBI priorities for cash infusion. I am not sure if any central bank faced with the same difficulties would use its foreign currency to calm a currency market gripped by fears stemming from tightening sanctions, even war. Any politician who decides otherwise would have to answer to voters (or people in the streets) when the country runs out of foreign exchange for essential imports.
In my view, given the sanctions and the emergency conditions that the country faces, the rise in the value of the rial in the parallel market is not at all surprising It should be no more a source of shock or surprise to see high ticket prices outside sports or entertainment events, especially when the quality of the event is uncertain beforehand. There are people who believe that scalpers should not be allowed to buy and sell concert tickets, and there are those who believe that such trades at the curb even at very high prices have their place. I happen to belong to the latter group. However, I fear that with the hoopla over the “rial’s collapse,” the government may run out of patience with the free market and send it underground. That would be unfortunate.
Some readers of my Lobelog post thought that it painted an overly optimistic picture of the situation. I had said that the currency crisis did not amount to economic collapse. It is also true that, as a matter of habit, I did not discuss conspiracy theories (which I rarely believe), such as those that would blame the government for creating this mess on purpose in order to make more rials, or those that blame a few ringleaders for corrupting the system. (But, as they say, just because you are paranoid it does not mean that they are not out to get you!)
Sanctions are not a game. They are designed to inflict pain on the people of the country they are imposed on, and as we have seen they are doing just that in Iran, and not all social strata feel the pain at the same rate. Iran’s government is in a position to decide who gets hurt more and who get off with less pain. For example, it has decided that keeping chicken production going is more important than paying the tuition of thousands of students abroad. That is a choice that many would disagree with, but to say that it makes sense from the point of view of Iran’s government is not to minimize the gravity of the situation or the level of pain on those who lose more than others. If the economy has not collapsed, economic growth has and with it the hopes of young people for finding a job and setting up new families.
The new U.S. sanctions against Iran that kick in today — along with an E.U. oil embargo set to take effect Sunday — are expected to put significant pressure on an already faltering Iranian economy. The new U.S. sanctions, signed into law by President Obama, will penalize any foreign [...]]]>
The new U.S. sanctions against Iran that kick in today — along with an E.U. oil embargo set to take effect Sunday — are expected to put significant pressure on an already faltering Iranian economy. The new U.S. sanctions, signed into law by President Obama, will penalize any foreign financial institution that works a deal through Iran’s Central Bank that deals with Iran’s petroleum sector, whether purchasing Iranian oil exports or selling petroleum industry-related products to Iran.
As the sanctions came into effect, Secretary of State Hillary Clinton said in a statement that she was granting exemptions to China and Singapore — bringing the total number of countries exempted up to 20. The Obama administration granted the waivers because they have, by the State Department’s designation, “significantly reduced their volume of crude oil purchases from Iran.” China got the exemption after reporting that its year-to-year Iranian oil imports between January and May were down by a quarter when comparing 2011 and 2012. Clinton went on:
Their cumulative actions are a clear demonstration to Iran’s government thatIran’s continued violation of its international nuclear obligations carries an enormous economic cost.
When the European Union oil embargo goes into effect July 1, Iran’s leaders will understand even more fully the urgency of the choice they face and the unity of the international community.
In a background briefing for reporters, a senior administration official added that the exemptions went to “major importers of Iranian oil.” The official said:
In pursuing the sanctions regime we’ve had the strong support of a broad coalition of countries all over the world who’ve stood united in sending the signal to Iran that its got to limit its nuclear program and address international concerns.
The official added: “It’s noteworthy that these are all the significant purchasers of Iranian oil. This is a diverse group of countries, some are U.S. allies and some are in the non-aligned movement.”
The reductions in exports — an Iranian official admitted Wednesday that export figures were down 20 to 30 percent — is likely to continue to depress an already hurting Iranian economy. “Iran’s currency, the Rial, has lost about 40 percent of its value since November 2011, and employment figures are increasing,” said the official. “Things will only go from bad to worse until Iran gets serious about addressing intelational concerns about its nuclear program.”
A potential Iranian nuclear weapon is widely considered a threat to both the security of the U.S. and its allies in the region, as well as the nuclear non-proliferation regime. U.S., U.N. and Israeliintelligence estimates give the West time to pursue a dual-track approach of pressure and diplomacy to resolve the crisis. Questions about the efficacy and potential consequences of a strike have led U.S. officials to declare that diplomacy is the “best and most permanent way” to resolve the crisis.
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