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Libyan rebels advance, but troubles await

Qadhafi cannot hang on much longer. But what comes after for Libya and the country’s oil sector? Derek Brower reports

UPDATE 15/07/2011: THE NET is closing on Muammar Qadhafi’s regime. Notwithstanding small setbacks in the Nafusa Mountains, rebel troops are advancing on Tripoli. Nato has widened its attacks, targeting strategic towns across the country. Air support is helping rebels claim new territory. On 15 July, a host of Western powers, including the US and UK recognised the Transitional National Council (TNC), the rebels’ Benghazi-based leadership, as Libya’s legitimate government.

This may soon force Qadhafi out. Although the Transitional National Council (TNC), the rebels’ Benghazi-based government, denies a negotiated settlement is being sought, political will outside Libya is building behind peace talks. Qadhafi’s inner circle is thought to have explored such options. And Western governments continue to offer the leader a way out. But it’s just as likely that he’ll go down fighting.

The squeeze on the regime’s fuel supplies is succeeding. “Things are desperate now in Tripoli,” said a senior figure in Libya’s oil industry. Locals report queues of up to a week for fuel.

Until about a month ago, the Zawiyah refinery, west of Tripoli; cross-border truck supplies from Tunisia and Algeria; and seaborne imports were keeping fuel flowing to regime-controlled areas and forces. But all those supply routes have now been closed, or look shaky.

Cutting the flow of fuel

Western pressure on Tunisia has given its government political cover to clamp down on smugglers. The flow has largely been staunched, now some are selling fuel to the rebels, instead. To buy support from Tunisia for the anti-Qadhafi alliance, Qatar, a source said, has promised to help rebuild the country’s tourist sector.

After Petroleum Economist reported the involvement of Alubaf Bank of Tunis’s involvement in fuel trades to Libya, a TNC delegation visited Tunisia to persuade it to stop. They succeeded, said a source.

Since mid-June, when rebels cemented shut a valve on the oil pipeline between fields in the southwest and Zawiyah, the refinery has been winding down. A western intelligence source said aerial surveillance showed some heat coming off the plant, but it is close to dry.

Nato’s interdiction of tankers carrying fuel to the regime has brought that trade to a standstill. The Cartagena, a tanker that was supposed to discharge 37,500 tonnes of gasoline in Tripoli, is now anchored offshore Algeria. But, said a Western diplomat, the government there had agreed not to allow it to unload.

Meanwhile, fuel has been crossing from Algeria in the southwest, before heading to Gharyan, south of Tripoli. But visits to Algeria from senior EU and US diplomats seem to be persuading the government to distance itself from Qadhafi. Algeria’s co-operation would isolate the regime still further – and may end the stream of fuel across the desert.

The rebels are also playing their part in the battle for fuel. Fighting is now centred around Nafusa Mountain villages close to the heavily fortified garrison town of Gharyan. If it falls, Tripoli will be exposed and the rebels will control all overland fuel routes to the capital.

Fuel shortages are making the regime desperate. An oil industry source told Petroleum Economist that Omran Abukraa, the new chairman of National Oil Company (NOC), had summoned the bosses of its pre-war foreign partners to a meeting. Only Eni turned up, sending a mid-level executive. The Italian firm was told to end force majeure and start pumping oil. With no possibility of export, NOC had hoped some domestic crude output could be used for fuel supplies. Now it is threatening to replace Eni with Chinese and Russian investors.

Although the TNC and the rebels continue to strengthen their grip, and may soon resume oil export, they face their own problems. The most pressing is cash. Despite the promises of international support from Qatar, Kuwait and Turkey, the pledged dollars haven’t been forthcoming.

There is some money in the transitional financial mechanism (TFM), a fund designed to underpin the rebellion, but not much. It was used to pay oil-trader Vitol for a cargo of fuel shipped to the rebels earlier this month, the TFM’s first transaction. That will reassure the trader, which had been relying on Qatar’s promises to pay for the cargoes.

But there is no sign, yet, that Qadhafi-regime funds will be released to the TNC. A Western diplomat said UK lawyers had told the government that opening Qadhafi’s UK accounts to the TNC would invite a legal challenge from the regime – and a judge would promptly issue an injunction. Nor can the funds be used as collateral against which the TNC can borrow; the rebels have no legal title to the cash. Only generosity from Western taxpayers is likely to overcome the TNC’s financial straits – and they aren’t in a generous mood.

One solution is to restart oil production. A senior source told Petroleum Economist that damages to the Sarir and Misla oilfields, in rebel territory, had been fixed and production was imminent. Output of 180,000 barrels a day could yield the TNC almost $2 million a day in export revenue. But security remains paramount. The TNC needs to create an installation-protection force to secure the fields.

Nato’s targeting of Brega could also help. Liberating that city would give the rebels Libya’s oil-exporting hub and a destination for other fields south of Brega now in their hands. But Qadhafi knows this, which is why it remains the most heavily defended of the towns still under his control. Breaking down the defences may take time.

And the longer the conflict lasts, the more restive the population in the east will grow – especially as the cashless TNC has committed to paying their salaries. There is friction in Benghazi and elsewhere in rebel territory. Tobruk is in the grip of criminal drug gangs. And within Benghazi, said a security expert, some 40 different militias have cropped up. “Do [Mahmoud] Jibril and [Ali] Tarhouni have their own militias ready to defend them?” he asked, referring to the TNC’s chairman and finance minister. Establishing authority in the east could be tricky if, post-Qadhafi, such forces push in opposing directions.

The TNC has tried to deal with this problem, but the outlook is worrying. The appointment of Jalal el-Digheily as defence minister has helped establish a command chain for the army. But disarming two warring armies, mercenaries and militias across the country will be difficult.

Lack of post-war planning

So will reconstruction. Damage to infrastructure has been severe. But the Western powers behind the Nato campaign have done little to prepare for the war’s aftermath – and even less to plan Libya’s resurrection as an oil producer. A road map prepared by the UK government (and cast aside by the TNC) made almost no mention of oil, one diplomat close to it told Petroleum Economist. Although the UK has seconded diplomats to begin planning the post-war oil industry, few other governments have. “The US just isn’t interested,” said the diplomat.

Yet such planning is vital. Qadhafi’s highly centralised state could implode after the departure of the man who defined it. NOC and its many talented middle managers will be crucial to getting the oil business and, therefore, the economy, running again – but, asked Richard Dalton, a former UK ambassador to Libya, how will a country so accustomed to corruption in the past avoid it in future? Global Witness, a non-governmental organisation, reckons rules for contracts, investment and revenue should be drawn up now, to pre-empt bad practices emerging during the post-war chaos.

In the near term, the need will be more basic. Securing stability and rebuilding infrastructure may demand peacekeepers on the ground. The African Union or the Arab League are the West’s preferred suppliers of such troops. But neither may be willing, or have the ability to do it. Western peacekeepers would fall within the remit of the UN Security Council, said Dalton, but probably not within what is politically acceptable. And planning for such deployment must happen now – but isn’t.

It adds up to a troubling, depressing outlook for Libya and its economy. Qadhafi may soon be gone, but significant Libyan oil production, like Libyan stability, may be years away.

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