Courtesy of STRATFOR (subscription required), a report on how the recent firing of the NOC Chairman risks politicizing Libya’s oil company:

In firing Libya’s National Oil Corporation (NOC) board of directors, Prime Minister Abdul Hamid Dbeibah is trying to end oil blockades and encourage his eastern-based rival Khalifa Hifter to enter negotiations on a possible political settlement. But while Dbeibah’s gambit may result in a quick resumption of Libyan oil exports, it could also create long-term supply and corporate compliance risks by further enabling Hifter to politicize those exports. Dbeibah, who is the internationally-recognized leader of the country, removed the entire board of NOC, including its powerful chairman Mustafa Sanalla, in a July 7 decree that was not publicly confirmed until the oil ministry published the decree on July 12. Dbeibah appointed Farhat Bengdara as Sanalla’s replacement. On July 13, Sanalla made a statement from NOC’s headquarters criticizing the decision and Dbeibah for making the move against him while he was out of the country performing the hajj. Tensions boiled over the night between July 13-14 as a pro-Dbeibah militia surrounded the building and entered by force to perform a ceremony handing over control to Bengdara.

• Sanalla has essentially run Libya’s oil industry since 2014 when the country first split into two competing governments. Sanalla has sought to keep NOC isolated from Libya’s political crisis, largely relying on international support and U.N. resolutions saying that different Libyan stakeholders should not politicize the country’s oil industry. 
• Dbeibah-appointed Government of National Unity (GNU) Oil Minister Mohamed Oun has sought to wrest control over the country’s oil sector from Sanalla. Oun went so far as “suspending” Sanalla as the NOC’s chairman in August 2021. But such moves (as well as similar ones by the GNU and its predecessor government) have largely failed to erode Sanalla’s influence over Libya’s vital oil industry. There are signs that this latest gambit may have more success, as two of NOC’s subsidiaries that operate oil fields in central and eastern Libya (and are viewed as close to some of Hifter and his allies) reportedly issued a statement on July 14 welcoming the change in leadership.
• Bengdara was previously the governor of the Central Bank of Libya under the country’s late leader Muammar Gaddafi until Bengdara defected during the 2011 Civil War. Bengdara hails from Benghazi, where Hifter’s military is based, and is thought to be a close ally of the eastern-based rebel commander. 

By sidelining Sanalla, Dbeibah is likely hoping to appease Libyans’ anger over their country’s deteriorating economic conditions, which has fueled widespread protests over the past two weeks, as well as offer concessions to Hifter following the emergence of a rival government. Dbeibah has been trying to secure his place in power after the country’s parliament (which is based in the eastern city of Tobruk) appointed a rival prime minister to lead a new Government of National Solidarity (GNS) earlier this year. Since its formation in March, the GNS has so far been unable to govern from the capital of Tripoli. But the rival government may have broader support within Libya than Dbeibah’s GNU, particularly outside of Tripoli. The emergence of the GNS led to a blockade of the country’s vital oil ports that began in June, with demonstrators demanding the resignation of Dbeibah and the GNU. In order to broaden his base of political support and capitalize on his recognition abroad, Dbeibah has reportedly sought the support of Hifter, who controls the Libyan Arab Armed Forces that largely control most of southern and eastern Libya; Hifter is also thought to have strong ties to the protesters at the country’s oil ports. A potential deal with Hifter, therefore, would strengthen Dbeibah’s ability to fend off the GNS’s attempt to govern the country. 

• On July 1, less than a week before the decree sacking Sanalla, Africa Intelligence reported that Dbeibah and Hifter representatives held talks on replacing Sanalla. Hifter and his allies have long politicized the country’s oil exports and have a bitter relationship with Sanalla, who has frequently criticized previous blockades.
• The ongoing oil blockade has led to power shortages and other economic challenges that resulted in protests throughout most of Libya’s major cities in late June and early July, one of which led to protesters entering the Tobruk parliament building and setting part of it on fire on July 1. 
• The U.N.-facilitated Libyan Political Dialogue Forum (LPDF) appointed Dbeibah as prime minister in early 2021 under the instruction that he would lead the country until national elections were held in December 2021. Those elections were never held, and the LPDF’s mandate expired on June 22. This has led many Libyan stakeholders to view Dbeibah’s government and its decisions as no longer legitimate. 

If Sanalla is unable to control the rest of NOC and key Hifter allies take control, the blockade on Libyan oil could be lifted sooner rather than later. But this could also raise future supply challenges by giving more power to Hifter (and eastern Libya) over the oil sector. Despite the July 13-14 militia action against NOC’s headquarters, Sanalla is still unlikely to accept Dbeibah’s decree and step down. Hifter, meanwhile, may demand more concessions as part of any quid pro quo with Dbeibah, particularly on things like oil revenue distribution and control over the central bank of Libya; doing so would boost Hifter’s own standing globally and help eject Sanalla from the oil sector, which Hifter is keen to control. But if the gambit works and Hifter’s allies are put in charge of NOC, then Hifter’s other allies among eastern Libyan tribes may withdraw their demand that Dbeibah resigns, allowing the blockade to end and Libya’s oil production to return to its pre-blockade level of 1.1 million barrels per day (bpd). Having an ally in charge of the NOC would enable Hifter to substantially increase his direct influence over the country’s oil production. By removing a key roadblock — Sanalla — from setting the state-run oil giant’s policies, it would also increase his ability to eventually use that production as a political weapon. In the broader geopolitical context, a Hifter-controlled NOC would also give his supporters in eastern Libya greater influence over the oil firm. This could potentially lead to more of NOC’s management and operational functions being transferred away from Tripoli to Benghazi, as eastern Libya — which is home to about two-thirds of the country’s oil reserves — has long sought to gain control over the company by moving its headquarters to the eastern city.

A closer alignment between Hifter and Dbeibah would lead to less support for Dbeibah in Tripoli and Misrata and drive further violence among competing political factions. Due to the long-standing animosity between Hifter and leaders in those two cities following multiple military confrontations, any perceived deal between Hifter and Dbeibah would weaken Dbeibah’s popularity by being linked to Hifter. As support for the GNU declines, this could give the GNS more options to supplant Dbeibah and eventually lead to the Presidential Council, which functions as Libya’s transitional head of state, aligning itself with the GNS instead of the GNU. Although east-west splits are still powerful in Libyan political dynamics, a Dbeibah-Hifter deal would continue to shatter the image of competition being between two different geographical regions, and lead to more competition among political elites and their allies. Increased tensions between Libya’s most powerful political leaders could lead to more direct violence in urban areas like Tripoli and Benghazi, the latter of which has been largely spared from violence since Hifter’s forces ejected jihadists from the city in 2017. 

• Since the blockade began, Libya’s oil production has declined to about 400,000 bpd. On July 13, the NOC announced that it was ending the force majeure at two ports to allow tankers to load oil. However, it remains unclear whether protesters will allow the ports to dock. It’s also still unclear whether the force majeure lifting at the ports will result in a resumption of upstream oil and gas fields, which are even more closely controlled by Hifter’s allies.
• A deal with Hifter would generate risks for Dbeibah as well by alienating many of the militias that support his GNU government in Tripoli. These militias previously fought against Hifter’s forces between 2019-20 when Hifter sought to take Tripoli by force.

Finally, the current standoff creates compliance challenges for international oil companies as it will force them to consider whether to recognize Bengdara or Sanalla as the head of the NOC. Pursuant to U.N. Security Council resolutions, the United States views the Tripoli-based NOC as the sole representative of the Libyan oil sector and has backed up its position through the use of military force to prevent Libyan oil exports from rival oil companies in the country. On July 14, U.S. Ambassador to Libya Richard Norland issued a statement criticizing the recent storming of the NOC’s headquarters and said that the “reported replacement” of the company’s board could be contested in court. If the United States does not recognize Bengdara as being in control of NOC, companies aiming to purchase oil from Libya (even if the country’s exports resume) will be placed in a difficult position. The ongoing Ukraine-related shocks to the global oil market may deter the United States from taking such a strong stance, as a return of Libyan oil to the market would place downward pressure on global prices. But the NOC remains perhaps the only significant Libyan institution that, until now, has not been divided or completely politicized as a part of the nearly decade-long split into two governments. This means that, if the United States does not take forceful action against Sanalla’s firing, it would dramatically weaken its credibility in implementing its policy that NOC needs to remain politically independent.