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Background Briefing: Libya

The 2011 revolution left Libya with weak to nonexistent central government institutions, allowing for a security vacuum in which terrorist groups have thrived. Historically, Libyan jihadis have had significant connections to regional terrorist groups, including the mujahideen in Afghanistan in the 1990s and al-Qaeda in Iraq following the US invasion in 2003. Through these connections, many Libyans fought on behalf of these groups in Afghanistan and later Iraq. According to the ‘Sinjar Records’, a series documents revealing the origins of foreign fighters in al-Qaeda in Iraq’s ranks between 2006-2007, the Libyan contingent among fighters who joined between 2006-2007 was significant, with Derna fielding the most fighters of any city in the world among records listing city and country of origin. These relationships continued during the early days of the Islamic State of Iraq and the Levant (ISIL). In the security vacuum that has persisted in Libya since the revolution, Libyan fighters with experience with and connections to ISIL began returning home and engaging in terrorist activities there in 2013.

The primary terrorism risk over the last two years has emanated from ISIL’s presence in Libya. After ISIL Emir Abu Bakr al-Baghdadi recognized official emirates in the three traditional provinces of Libya in November 2014, the group expanded its territorial control, particularly in Derna. This expansion was aided in large part because of the political crisis which has engulfed Libya in civil war since early 2014. As militias aligned with the pro-Islamist Libya Dawn faction fought with the anti-Islamist Operation Dignity faction led by then-General Khalifa Haftar, there was no significant military resistance to ISIL’s expansion in Libya. In fact, controversial Grand Mufti Sadiq Gheriani has gone so far as to state that the fight against Haftar was a higher priority than fighting ISIL, and has been personally implicated by the UN in supporting ISIL-aligned militias. With a significant local fighter base with knowledge of the terrain, strong communications and connections to ISIL leadership in Iraq and Syria, weak borders through which fighters could easily flow to and from Libya, a vulnerable population to exploit, a massive stock of loose conventional weapons at their disposal, and no organized resistance, ISIL was able to establish its strongest emirate outside Iraq and Syria in Libya.

ISIL lost its first Libyan headquarters in Derna in mid-2015 following a large-scale reaction to the group’s brutality, led by the al-Qaeda-affiliated Derna Mujahideen Shura Council (DMSC) militia umbrella group. From there, ISIL re-established its headquarters in Sirte, the birthplace of Muammar al-Qadhafi that had been isolated and neglected since the revolution. From this more geostrategically important location, ISIL was able to launch attacks on oil installations in eastern Libya in 2015 and 2016. (At the same time, the group also used its cells to launch multiple attacks on western oil sites, such as the kidnapping of four Italian citizens nearby in July 2015, and the car bomb targeting the Mellitah complex in August 2015. ) The occupation of Sirte also posed a symbolic ISIL threat to Europe, 400 km away.

Although the intent of these attacks was to undermine central government institutions and their ability to extract revenues from oil production - not to control and exploit the oil themselves - the attacks brought Western attention to Libya’s intensifying terrorism problem. ISIL’s territorial expansion also provoked a significant international response, particularly following a series of high-profile attacks on Western targets in Tunisia in 2015, which were launched from western Libya. Other tactics ISIL has used in Libya include kidnappings and murders of foreigners, high-profile attacks on high-value targets like the Corinthia Hotel in Tripoli in January 2015 and subsequent attacks on foreign missions in the capital, exploiting tribal divisions for recruitment purposes, targeting rival extremist, religious and security sector leaders, providing training for foreign fighters intending to travel to Iraq and Syria, and establishing sleeper cells for potential future growth in cities like Sabratha, Bani Walid, Ubari, Sabha, Ajdabiya, and even Tripoli.

The international response has somewhat mitigated the terrorism risk posed by ISIL. On August 1, 2016, the United States Africa Command (U.S. AFRICOM) launched Operation Odyssey Lightning, consisting of airstrikes against ISIL targets in Sirte, coordinated with the ground troops nominally loyal to the internationally recognized Government of National Accord (GNA) in Tripoli. By the time pro-GNA forces officially expelled ISIL completely from Sirte on December 6, 2016, AFRICOM had conducted 495 airstrikes in four months. AFRICOM Commander General Thomas Waldhauser also announced in November 2016 that AFRICOM’s mission in Libya would extend from airstrikes against ISIL targets in Sirte to strikes against fleeing ISIL fighters and leaders throughout the country. The United States is using base access in Tunisia and likely Niger to facilitate intelligence gathering informing these lethal strikes. Outside Sirte, U.S. air assets also targeted the ISIL cell in Sabratha in February 2016, which set off a series of events that significantly hobbled the group there, at least temporarily. In addition, the international community completed a multi-year program to help Libya remove the last of its chemical weapons stockpile in August 2016, ending the threat that ISIL fighters could gain access to these chemicals. The UN has also taken the lead coordinating western support to a new Presidential Guard, which will be charged with ensuring the security and stability of Tripoli in light of anticipated terrorist threats there in the future. (As fighting among militia groups over control of the capital intensifies in late 2016/early 2017, it will create a vacuum into which ISIL cells could enter and thrive.) The EU has also ramped up its counterterrorism activities regarding Libya, most notably expanding the mandate of its anti-migrant smuggling operation in the Mediterranean Sea, Operation Sophia, from countering smuggling networks contributing to the refugee crisis to training Libyan coast guard and naval personnel and enforcing the UN arms embargo to prevent weapons falling into terrorist hands.

Yet other counterterrorism assistance could exacerbate terrorism risks if not coordinated properly. Following a tragic helicopter crash near Benghazi during a pro-Haftar offensive in July 2016, it was revealed that the French government had been providing counterterrorism assistance to Haftar and his Libyan National Army (LNA), despite the fact that Haftar does not recognize the GNA, and as a result has contributed to the vacuum permitting ISIL’s existence. The United Arab Emirates and Egypt also provide significant counterterrorism support to Haftar. Furthermore, since 2011 successive Libyan governments have been too weak to absorb security sector assistance, which has severely limited the impact of pledged international support. This weakness will persist into 2017, affecting - and perhaps prohibiting - promised defense institution building support from NATO as well as an EU police and border training mission. It is also not in some countries’ national security interests to provide as much security assistance as may be required to develop security and justice sector institutions that can effectively counter terror. The UK Parliament, for example, recommended in its recent inquiry on Libya that UK troops not be deployed in a training role in Libya until the GNA has established political control, stabilized internal security, and made a formal request to the UK, to be considered by the parliament.

The terrorism risk posed by ISIL will not end after the group’s expulsion from Sirte. In addition to weaknesses in international assistance, there is also a risk that new, non-interventionist Western governments, particularly in the United States, will be tempted to declare victory after Sirte and disengage in 2017. Such disengagement would come at a particularly vulnerable time given concurrent risk factors. The political and security vacuums in Libya persist, which has allowed ISIL fighters to flee with relative ease from Sirte to more permissive areas like southern Libya, and cells further west in Tripoli, Bani Walid and possibly Sabratha. Finally, there are still vulnerable populations which ISIL could exploit, which are likely to grow as Libya’s economic crisis deepens and standards of living plummet.

In this context, there is a chance that ISIL could try to return to its first headquarters in Derna, since its opponents - the LNA and DMSC - are distracted fighting each other. On the defensive, the group could use its cells to launch high-profile attacks on high-value targets to remain relevant and boost recruiting potential. High-value targets could include the increasingly valuable and productive oil installations throughout the country, as well as nascent central government institutions. They could also include foreign missions and their personnel, especially those belonging to countries most eager to return to Tripoli to strengthen diplomatic and commercial relations. Recently diplomats from Italy, Austria, Canada, Turkey and Yemen visited with the Presidency Council of the GNA to discuss reopening their missions. Ambassadors from the EU, France, Germany, the Netherlands and the UK also presented their credentials to the Presidency Council in November 2016. (This threat also likely would extend to foreign businessmen returning to Tripoli.) The threat of such attacks in Tripoli are particularly high given the rise in militia violence in the capital in late 2016.

The ISIL threat will also persist in Libya as a result of returning foreign fighters from Iraq and Syria. Under pressure in its traditional headquarters of Mosul and Raqqa, al-Baghdadi reportedly released a message in November 2016 calling on all foreign fighters who could not make it to Iraq or Syria to head to Libya. Based on this call, ISIL could divert more attention and resources to its weakened Libyan cells, which still enjoy a safe haven from which they can acquire loose conventional weapons and pass through porous borders with relative ease, especially between Libya and Tunisia. (In March 2016, ISIL fighters in Libya were able to launch a deadly attack on Ben Gardane in Tunisia, targeting military officials.) Although senior Western officials have testified that these cells remain mostly limited to within Libya’s territory, there may be opportunities and incentives for attacks in western Libya to secure ISIL smuggling routes into Tunisia, as well as more attacks in Tunisia itself. Moreover, there is likely to be increased ISIL activity between Sirte and Misrata, and perhaps attacks inside Misrata in 2017. These cells could also attempt to fully commandeer the lucrative migrant smuggling networks between Zuwara and Tripoli, which could lead to clashes and increased terrorist violence in western Libya along the coastline. Most of the revenge attacks during the counter-ISIL operations in Sirte have occurred in villages and at checkpoints between Sirte and Misrata (see below for revenge attacks until October 2016). ISIL activity is also likely to increase in southern Libya.

But the victory in Sirte is significant because ISIL has lost its territorial hold in Libya - a key component of its original group identity, and its ability to obtain tax revenue from locals. As a result, the group will need to determine how to survive without territory, including by financing itself through intensified kidnap for ransom (KFR) campaigns and involvement in black market sales of Libya’s cultural heritage. It will also compete with other terrorist groups also present in Libya for power. These groups in turn will likely commit attacks to assert themselves, which would raise the terrorism risk emanating from non-ISIL sources. Clashes between terrorist groups and criminal gangs are likely over control of lucrative smuggling routes (major routes depicted in the map in the economic risks section), especially since some ISIL fighters fleeing Sirte are presumed to have resettled in Sabha, the first major Libyan hub for sub-Saharan African smuggling networks. Terrorist groups facing ISIL here could include al-Murabitun and al-Qaeda in the Islamic Maghreb, who occupy territory in this area.

Furthermore, there are likely to be clashes between extremist groups over areas of influence, such as in the neglected town of Bani Walid (like Sirte a former Qadhafi stronghold), Derna or in Ubari, a southwestern city roughly 80 km northeast of the El Feel oil field. Terrorist groups that are most likely to compete with a weakened ISIL include al-Qaeda, which has a much more established historic network in Libya. Al-Qaeda has also not resorted to the level of brutality ISIL has, which has alienated local populations in Derna and Sirte, depleting ISIL’s resource bases and staying power. This competition could spill over into open conflict in Derna between ISIL and al-Qaeda-affiliated DMSC, or in pockets of Benghazi. The LNA has put significant pressure on ISIL and other terrorist groups like the Benghazi Revolutionaries Shura Council (BRSC) umbrella group in Benghazi, but these groups have formed a temporary alliance to resist this pressure. If Haftar and the LNA divert their attention to other fronts, including maintaining their control over the lucrative eastern oil crescent, these and other groups, such as the members of the pro-Grand Mufti Benghazi Defense Forces, could return and begin to compete with each other. Although large swathes of Benghazi residents support Haftar and the LNA, other segments of the population are more vulnerable to radicalization as a result of Haftar’s harsh tactics, especially residents in the Ganfouda, Souq Al-Hout, Sabri, Gwarsha, and BouAtni neighborhoods.

The terrorism risk from non-ISIL sources also extends to Tripoli. Many of these groups still receive salaries from the Central Bank, including associates of Ansar al-Sharia, since the post-revolution government made the fateful decision in 2011 to keep militias on the government payroll. If there are attempts to stop these salaries, there are likely to be attacks against the central government, especially financial institutions. These groups could also exploit the same security vacuum ISIL would in Tripoli given the rise in militia tensions there. Attacks in the capital would be especially symbolically significant for any terrorist group - further weakening the state’s credibility and deterring the return of foreigners. This threat will likely come from ISIL cells, but also from groups like the BRSC, which reportedly established a Tripoli headquarters in mid-2016, and has participated in the latest round of militia clashes there - the worst the capital has seen in two years.

In summary, the terrorism risk in Libya will remain high in 2017. The ISIL threat will scatter but not end after the group’s defeat in Sirte, albeit challenged by resistance to its brutality, international focus on the ISIL threat, and competition from other terrorist groups. The continued political and security vacuum - one of the key root causes of ISIL’s success in Libya - will make Libya a safe haven for terrorist groups, increasing the risk level to Libyan nationals, political and military institutions and personnel, foreign missions and personnel, and Libya’s neighbors.

Political Risks

Terrorism and political risks in Libya are inextricably linked; terrorist groups are able to thrive because of the ongoing political crisis that has plagued the country since late 2013. Libya inherited weak institutions from the Qadhafi regime, which had an interest in keeping official institutions weak in order to funnel power and money to Qadhafi, his family and his patronage network. In late 2011, the National Transitional Council (NTC) outlined an ambitious timeline for transitioning Libya to a full democracy. With no experience with democratic processes or institutions, including political parties, balanced executive, legislative and judicial branches of government, or constitution drafting, Libya’s new politicians quickly succumbed to the infighting that had allowed Qadhafi to hold onto power for so long. Among the many fault-lines for this infighting were differences between political groups that supported inclusion of Islam and the Koran as the source of Libyan law, and more secular groups that saw political Islam as a threat to their desired way of life and government.

These political tensions grew until late 2013, when an anti-Islamist movement began pressing for the General National Congress (GNC) to step down after its mandate allegedly expired in February 2014. Despite a poor performance in the 2012 parliamentary elections, political Islamists had gradually asserted disproportionate control over the GNC. In this context, the close relationship between political and militia groups caused ensuing discussions and events surrounding this political crisis to turn violent. Haftar made his debut as an anti-Islamist leader in February 2014, calling for the overthrow of the GNC. In May, he began Operation Dignity to remove a very broadly defined group of terrorists (including many political Islamists) out of Benghazi. On the other side, after another poor performance in the 2014 parliamentary elections, held to replace the GNC, militias supporting political Islamists launched Libya Dawn, and conducted a violent offensive to take over Tripoli, destroying Tripoli International Airport, provoking foreign missions to evacuate, and forcing the new House of Representatives (HoR) to remain in Tobruk (instead of the official parliament building in Tripoli).

As a result, Libya was at risk of being formally split between at least two rival governments, which led to political chaos until the present. The UN intervened in late 2014 to facilitate a political dialogue process to bring warring sides together to determine a united way forward. The result of this dialogue process was the Libyan Political Agreement (LPA), signed on December 17, 2015 in Skhirat, Morocco. Yet the agreement was plagued by challenges to implementation from the beginning. Throughout the negotiations, each side of the conflict believed it could achieve its interests without compromising. Instead of discussing areas of potential compromise, the different sides alternatively supported and rejected the dialogue process when it appeared the outcome would be more or less favorable to them. In this way, the international community, led by the UN, had a greater interest in finding a peaceful solution to the political crisis than the Libyan actors did. A related challenge was that when the UN finally compelled Libyan actors to sign the LPA, not all Libyan actors agreed to do so. Thirdly, the LPA gave significant powers to implement the agreement to the HoR, which has largely been under Haftar’s control since 2014. This control gave the HoR confidence to withhold its approval of the LPA or a resulting unity government (the GNA) until its demands were met (thus defeating the purpose of over a year of negotiations).

Neither Libyan politicians nor international observers have been able to effectively cope with these challenges, and the LPA remains unimplemented. Senior leaders within the HoR, including Speaker Aguila Saleh, have even hinted recently that under no circumstances would they amend the constitutional declaration to take into account the LPA or recognize a GNA without major changes to the LPA, benefiting Haftar. In 2017 there could be at least two and as many as four competing governments in Libya: 1) the internationally recognized but locally weak GNA and associated Presidency Council; 2) the parallel government in al-Bayda and associated HoR (which is also technically associated with the GNA under the LPA); 3) the rump GNC and associated government under defunct Prime Minister Khalifa Ghwell, which tried to reestablish itself in Tripoli in mid-October 2016; and 4) a potential, parallel unity government formed among anti-GNA members of the HoR and GNC. With this proliferation of governments, it has been difficult for foreign diplomats and international businesses to know who is and who is not a trustworthy interlocutor acting on behalf of the internationally recognized government. This ambiguity poses steep risks to doing business in Libya, especially among security and defense firms who would be at great risk of violating the UN arms embargo - intentionally or unintentionally.

Adding to the chaos, in the absence of stronger security and justice sector institutions, a constitution, or strong local government institutions, the internationally recognized GNA does not have the militia backing to assert its authority over all of Libya. The Presidency Council of the GNA has been unable to completely take over government institutions in Tripoli following its arrival in-country on March 30, 2016. The Presidency Council also suffers from waning public confidence due to the ongoing liquidity crisis, the associated decline in standards of living, electricity shortages, and mounting insecurity in the capital. As the internationally recognized government, the Presidency Council is held responsible for these crises, despite the fact that the HoR’s refusal to approve the GNA has inhibited the Presidency Council’s ability to address them. Because of these failures, many Libyans see the Presidency Council as an unaccountable government imposed on them from outside, specifically by the UN, inflaming preexisting local sensitivities about foreign interference in domestic affairs. At the same time, Haftar also does not have the capacity to prop up the parallel government in al-Bayda. Yet Haftar and the al-Bayda government do have substantial local support in eastern Libya, especially among Benghazi residents who are benefiting from a halt to terrorist violence in some neighborhoods for the first time in years.

There are many political scenarios of varying degrees of likelihood for Libya in 2017, all of which pose different political risks. The first, and most optimistic, is that the international community is able to press local actors and external actors interfering in Libya’s domestic affairs to support the GNA without reservations. The GNA could then serve as a temporary custodian government, ushering in elections for a permanent government under a new constitution. Already the international community - especially the UN, US, UK, Italy, France and Germany - have been increasingly involved in coordinated efforts to convince the United Arab Emirates and Egypt to support the GNA, not Haftar, and for Qatar and Turkey to end support for Islamists who also refuse to recognize the GNA (including the rump GNC and Ghwell). These engagements to date have been only mildly successful: convincing such actors to publicly call for support to the GNA, while failing to compel them to stop providing material support to their local proxies.

Furthermore the gulf between local actors’ positions in the political crisis has never been wider, and compelling local acceptance of the LPA and associated GNA will necessitate revision of the current LPA draft and increased militia buy-in. Fortunately, UN Special Envoy Martin Kobler appears open to LPA draft revisions in 2017, which could open the door to an increased role for Haftar, with necessary checks on his power to be acceptable to political Islamists. Unfortunately, it is clear that political institutions like the Presidency Council still have little to no control over militias, which in turn appear more inclined to continue fighting than to participate in future negotiations of the LPA. Moreover there is still robust resistance to the Presidency Council, particularly in the east, where political leaders have even recently suggested that the Presidency Council and GNA’s mandate expires at the end of 2016. Yet if the international community maintains pressure on external and local actors, and if sustained, increased oil production results in government revenues that flow to the Presidency Council and local governments to pay to address the country’s myriad crises, the GNA may still be viable. This GNA could increase certainty for foreign missions and businesses, who will be more confident in their interactions with empowered interlocutors.

A second scenario would be if Haftar supplanted both the Presidency Council and GNA and the parallel al-Bayda government in a new military government. Pro-Haftar Presidency Council member Ali al-Qatrani stated on Libyan television that a temporary military government under Haftar’s control was necessary, and would eventually hand authority back over to a civilian government after elections. (There is great skepticism in Libya about whether Haftar would relinquish power once he obtained it.) Such an alternative has been under discussion for over a year, but has recently gained more momentum. As they face another year of increasing insecurity despite gains against ISIL, many Libyans have lost faith in the democratic transition begun five years ago. They are willing to sacrifice some of the values and freedoms for which revolutionaries fought for security and stability. For example, Haftar’s Chief of Staff Abdurrazzak Nazhuri has replaced a number of elected mayors in eastern Libya with military governors under Haftar’s more immediate control, yet there has been limited resistance to such undemocratic consolidation of power among locals. For these increasing numbers of Libyans, Haftar appears to be a more and more appealing alternative.

Since 2014, Haftar has gained considerable leverage that could catapult him to the top leadership position: in September 2016 he and his forces gained effective control over Libya’s largest eastern oil ports (and as a consequence, gained control over Libya’s government revenue flow). Haftar also has the support of a significant contingent of the recognized parliament. He has also maintained and cultivated lucrative relationships with the UAE and Egypt, as well as a nascent but potentially significant relationship with Russia. Additionally, the prospect of a Trump presidency in the United States has emboldened Haftar’s supporters, as they see Trump more likely to be supportive of their interests, while concurrently abandoning the UN-supported Presidency Council and GNA.

But regime change to a military government would provoke significant domestic and international backlash. Haftar has been unable to tame his militia opponents in Benghazi for the last three years, an ominous sign for his ability to extend his control over the entire country in the future. This will be especially difficult in Tripoli, where militias are currently engaged in battles for control to solidify their grasp before Haftar finally fulfills his threat to invade the capital. Haftar has also had limited success coopting militias, tribes, and municipal governments in the south despite months of efforts. Haftar would also experience political resistance from Islamists, who despite their electoral failures still have a sizable constituency in Libya. If his actions in Benghazi and Derna provide any indications of his behavior as a military governor, harsh treatment of political Islamists could drive youth followers towards terrorist groups, exacerbating existing terrorism risks. Internationally, there would likely be mass public outcry about potential curbs on political freedoms in Libya, as well as the likely increase in human rights violations (if Haftar continues to follow the model of Egyptian President Abdel Fattah El-Sisi). This outcry could limit international support for Libya, especially as Western security assistance often requires vetting of end-users for human rights violations. Yet if the UN recognized Haftar as Libya’s head of state under a military government, it is possible that this government would become viable. But a government under Haftar, who has no governing experience and hoards power, would probably not lead to strengthened institutions capable of effectively interfacing with foreign missions and businesses.

A third scenario would be the formal division of Libya into two or three parts. There are already at least two parallel governments, which have at one time or another had their own parallel financial and oil sector institutions. In the past, there has also been a robust Federalist movement in eastern Libya, some of whom have called for autonomy for that region, or even independence. It would be easier for different factions to carve out their own areas of sovereignty that they could effectively control than to try to assert their authority across all of Libya. However the international community has articulated repeatedly that they would only support a united Libya, which could deter any independence movements. Moreover, Libya as a whole is a prize, especially given the different resources in different parts of the country (administrative center in the west, much of Libya’s oil wealth in the east, and traditional, lucrative smuggling networks in the south). Libya had a population of around 6.5 million as of 2015. Dividing this small population would also limit the human capital upon which governments could rely for economic growth. Yet if this scenario did occur, foreign missions and businesses would be compelled to increase the resources they expended focusing on Libyan interests, divided among new administrations, including more financial and oil sector institutions. The fate of preexisting contracts and treaties with the Libyan government would also be uncertain.

Finally, it is also possible that Libya will continue to experience chaos and political ambiguity throughout 2017. The UN dialogue process could be irrecoverably damaged, without a viable, alternative dialogue process. The UN already suffers from very poor public approval levels in Libya; however it is unlikely that the UN would give up on a political dialogue process this early (especially given its historical commitment to more protracted conflicts, like in Cyprus). Factions in Libya are also very fluid, and Haftar could lose some critical domestic support if he oversteps his authority. On the other side, the Presidency Council could also lose some of its militia support, especially if the largely Misratan militias who fought against ISIL in Sirte continue to feel the Presidency Council has not appreciated their sacrifices. An unwieldy balance of power could prevent the first three scenarios listed. If this scenario persists, foreign missions and businesses will continue to suffer the political risks associated with stalled contracts, weak government institutions and interlocutors, as well as persistent security risks preventing more robust engagement in-country.

In the long term, the successful establishment of a permanent, elected, and legitimate government that can significantly reduce political risks in Libya will depend on advancements in two stalled transitional processes: constitution drafting and national dialogue. Despite Kobler’s insistence that the UN Support Mission in Libya (UNSMIL) is making the constitution drafting process a priority for assistance, progress has stalled. The head of the Constitution Drafting Assembly, Ali Tarhouni, was sacked earlier in 2016 after some assemblymen argued that he did not have Libyan citizenship (which was revoked by Qadhafi due to Tarhouni’s opposition to the regime before 2011). The assembly has also been hampered by a boycott by some members who feel the assembly’s makeup is not representative, and will result in a constitution that does not protect certain rights, especially those of ethnic minorities. The nature of the assembly’s work has also meant that it has been mired in debates that really should be resolved through a national dialogue process to overcome grievances of the Qadhafi regime, the revolution, and the last five years of conflict. While progress drafting Libya’s post-revolution constitution has been slow, with a draft stagnating for months after it was formally announced in Tunis in July 2016, the national dialogue process has not progressed at all. The national dialogue process is not to be confused with the political dialogue process, which aims specifically to overcome the discrete political crisis that began in late 2013. A national dialogue process has not been revived since previous, rival efforts by Fadel Lamen of the National Dialogue Preparatory Commission and Mohamed Al-Harari of the GNC’s National Dialogue Committee faded from view in late 2014.

In summary, political risks of weak and fractured governance in Libya are likely to persist into 2017 due to the continued proliferation of rival governments, the uncertainty of a successful implementation of the LPA, the undesirability of alternative political scenarios, and continued delays in important, long-term processes necessary for political stability.

Cultural Risks

Libya has a small population, around 97% of which is Arab and another 97% of which is Muslim. In theory, this makes Libya a less complex environment in which to operate, compared to peers like Lebanon, Syria, or Iraq; but in practice, Libya is severely divided along political, religious, tribal, and ethnic lines - divisions that have been historically exploited by the Qadhafi regime. Subsequently there have been significant tensions between these groups, which sometimes erupt into conflict and economic inefficiencies.

In addition to the political conflict, clashes between Salafist groups and religious entities they deem apostates, like Sufis and Ibadis, have increased since 2012. Sufi shrines have been destroyed, eroding Libya’s cultural heritage and eliminating potential sources of religious tourism. Threats against Ibadis, who do not fall easily in the Sunni or Shia camps, have also increased with the spread of Wahhabism, which has grown with financing from Saudi Arabia in recent years.

Tribal divides among Libyan Arabs could impact diplomatic and commercial dealings should foreign missions or businesses establish overt and close relations with one tribe that could inhibit their ability to work with another tribe if necessary. At the same time, understanding Libyan tribes can help local and international actors operate more effectively and overcome obstacles in certain areas. Tribal identity in Libya is complex (see maps below). When tribal structures are stable, they can provide valuable law enforcement services as well as traditional dispute resolution mechanisms, especially in a country where the government is unable to provide these services uniformly. Yet there have been limits to these tribes’ abilities to project strength outside their immediate zones of influence, or defend their constituents from outside threats. For example, in Bani Walid, the Warfalla tribe has been unable to resist ISIL attempts to build a strong cell there. Moreover, the relative power of tribes over official institutions increases risks of doing business in areas where tribes supplant the state. For example, successive Libyan governments were unable to end the blockade of eastern oil ports waged by Petroleum Facilities Guard leader Ibrahim Jedhran from 2013-2016 in large part because his tribe, the powerful Magharba tribe, refused to disavow him. He was only removed by the LNA when the head of the Magharba tribe aligned himself with Haftar in late 2016.

When tribal structures are unstable, including when traditional tribal dynamics have been upset in the post-revolution period, they can fall victim to ongoing conflicts, and become dependent on destabilizing militias. For example, the power competition between the Qadhafa and the Awlad Suleiman tribes in Sabha sporadically broken down into conflict, most recently in November 2016, and locals have had to rely on an outside militia, the Misratan Third Force, to restore peace. In western Libya, the Wershafana enjoyed advantages including state largess during the Qadhafi regime, a dynamic that changed abruptly in the post-revolution period despite the tribe’s support for the revolution. As a result of these upset dynamics, there has been intermittent conflict between the Wershafana and Zawiya-based militias, who have continued to suspect the Wershafana of pro-Qadhafi sympathies and seek revenge. Often these clashes result in the closure of the main coastal highway running from the Tunisian border to Tripoli, disrupting commerce. In the past, the Tripoli municipal council has been called upon to mediate resolutions to these clashes. Foreign missions and businesses need to take into account the high likelihood that these types of clashes will occur if they plan to do business in the area between Zawiya and Tripoli. In addition, the Wershafana have been embroiled in the broader political crisis, siding with Zintan militias against Libya Dawn forces in 2014. Persistent political crisis therefore contributes to this cultural risk.

Foreign diplomats and businessmen can mitigate cultural risks associated with operating in tribal contexts through deep understanding of tribal dynamics in these operating environments. Through deeper understanding, they can know when and where tribes are best positioned to mediate disputes that interfere with foreign operations or help negotiate releases of kidnapping victims, and where tribal dynamics could hinder operations. But it is also important to note the limits of tribalism in Libya today. Tribes must compete with urbanization, globalization, central government development, and alternative identity frameworks for relevance among Libyans. Tribes tend to be more relevant for local populations in eastern and southwest Libya, where these groups have historically had central roles in dispute resolution and governance efforts, than in the west. Understanding the limits of tribal structures also will help foreign entities identify when and where there is no substitute for working with weak official security and justice institutions.

The tense relations between Libyan Arabs and ethnic minority groups in Libya also pose specific cultural risks. As he did with Libyan tribes, Qadhafa suppressed or propped up different ethnic minority groups and the Arab majority to prevent unified opposition to his regime. Ethnic minorities in Libya include the Tawerghans, Tuareg, Tebu, black Libyans, the Amazigh and the Mashashiya. Groups perceived as loyal to the former regime have suffered human rights violations in the absence of pervasive rule of law, including extrajudicial killings, arbitrary detention, forced disappearance, abduction, torture, harassment, discrimination, and loss of property. In addition to being a traditional capital of business in Libya, Misrata hosts militias that were involved in many of these violations, particularly against the Tawergha. The UN has struggled to help Misratans and Tawerghans reach a peaceful settlement of their differences. To mitigate the cultural risk of doing business with individuals who could be linked to serious human rights violations, foreign missions and businesses should investigate Misratan leaders thoroughly before engagement. Such action is also advised when working with individuals from Zintan and Kikla, the latter of which is set to receive significant support as a pilot city for the international Stabilization Fund for Libya, as these groups from these cities have also been implicated in persecution against the Mashashiya.

The Amazigh, or Berber, community is the largest ethnic minority in Libya, and is often at odds with its Arab neighbors. The Amazigh live largely in the Nafusa Mountain area of northwestern Libya, close to traditional Arab enemies in Zintan. Since the revolution, Libyan governments have recognized Amazigh, Tuareg, and Tebu languages and in theory has allowed for these languages to be taught in schools, but in practice these protections have been unenforceable. In 2013, an Amazigh politician, Nouri Abusahmaine, was elected to lead the GNC, in what many observers hoped as a symbolic achievement turning away from the Qadhafi-era repression of the group and its identity. Amazigh members have been generally associated with the pro-Islamist camp in western Libya, some of whom have ties to terrorist groups. Other Amazigh members harbor aspirations for an autonomous region near Zuwara and the Nafusa Mountains. Such an autonomous region is unlikely to be realized, but increasing ambitions of self-determination could affect business interests in the area.

In addition to tensions between the majority Arab population and ethnic minorities, there are conflicts between ethnic minorities that destabilize parts of Libya. In the south, the Tebu and Tuareg have been fighting on and off since 2012 - engaging in turf wars in the south, home to valuable border trade routes. The Tuareg lost much of their power in southern Libya after 2011 due to their support for the Qadhafi regime during the revolution, and have been fighting with both the Tebu and Arab communities like those from Zintan to regain control ever since, including in oil-rich regions of the southwest, especially al-Sharara. Fighting over control of areas with valuable oil installations has become violent over the years, and have caused Zintan to block the pipeline leading to al-Sharara and al-Feel fields for over two years. Recent truce efforts, including one in Doha in late 2015, have failed because they did not include all main participants in the conflict. These conflicts fall into multiple frameworks, including ethnic rivalries, debates over proper oil revenue distribution, and the broader political crisis. But understanding the cultural risk associated with clashing ethnic groups in these areas will help businesses particularly in the oil and gas sector cope with the instability.

Like the Amazigh, there are also signs that vulnerable Tebu and Tuareg communities may have connections to international terrorist organizations. There has been evidence in the past that Tuareg facilitate the free movement of terrorists from Mali to Libya, for example. More recently, the relationships between the Tuareg and al-Qaeda and al-Qaeda in the Islamic Maghreb have been cited as a key contributor to the migrant crisis. Should international businesses try to work with local ethnic minority communities in southern Libya, it will be important to vet local interlocutors for connections to groups like Ansar al-Dine, al-Qaeda in the Islamic Maghreb, and ISIL.

There are also cultural risks in Libya associated with attributes among Libyans that are largely consistent among these different identities. As a general rule, Libyans are religiously conservative, and suspicious of foreign interference in Libyan affairs. Different interest groups have exploited both tendencies with destabilizing results. Local sources have also lamented a broad streak of racism throughout Libyan society, which has resulted in harassment towards Black Africans, discrimination in the workplace, and harsh treatment, especially of sub-Saharan African migrants seeking safe passage to Europe via smuggling networks on the coastline. Part of this racist tendency is generations old, originating from clashes between the local African population in the south and the relatively new Arab population in the north. Racism has intensified since the 2011 revolution, when many Black Africans were accused of being foreign mercenaries working on behalf of the Qadhafi regime. Foreign missions and businesses should be sensitive to these general characteristics of Libyan society, making sure countermeasures to racism in diplomatic efforts or businesses are in place as the central government is unlikely to enforce any.

In summary, cultural risks associated with Libya’s complex religious, tribal, and ethnic landscape will continue to contribute to an unstable working environment throughout 2017. Understanding these dynamics will help foreign missions and businesses mitigate these risks; however they will not reduce measurably until a comprehensive national dialogue process is completed. Only then will Libyans themselves be able to overcome past grievances that contribute to cultural violence, and develop mechanisms to prevent instability in the future.

Economic Risks

In 2011, Libya was a wealthy country with a small population. On the surface, it appeared as though Libya would be able to self-finance reconstruction and transition to democracy. Yet below the surface a number of factors contributed to situation today, where economic collapse looms. Libya is overly dependent on its oil and gas sector, from which it derives most of its government revenues. In the fragile years since the revolution, successive, weak governments have been unable or unwilling to implement unpopular budget reforms necessary to improve efficiency, including cutting government subsidies and public sector salaries. In addition, Libya’s economy had been structured to facilitate the flow of revenues to Qadhafi, his family, and his patronage network. There was no macro-fiscal policy framework to provide consistent fiscal rule, including reflecting government objectives or ensuring stability during volatile global economic shifts. Libya’s sovereign wealth fund, the Libyan Investment Authority (LIA), did not operate transparently, as was filled with pro-Qadhafi employees who in the past served the interests of the dictator rather than Libyans. There was also no proper budgeting or accounting systems in place.

Persistently low oil prices, political upheaval, and the security vacuum in Libya have compounded the negative effects of structural inefficiencies in Libya’s financial institutions. In return, economic stagnation exacerbated the conflict and continued dependence on the oil and gas sector led to the weaponization of oil sites by disgruntled interest groups and terrorist organizations. Public sector salaries still make up over 60% of Libya’s gross domestic product (GDP), while subsidies account for over 18% of GDP. There is immense local pressure on institutions to maintain these subsidies and salaries, particularly from militias who still receive one or more state salaries. Efforts to impose a national identification system to increase transparency in salary allocation have been unsuccessful, and new taxation schemes have not been discussed. The weaponization of oil sites that began in earnest in 2013 slashed oil production to one-fifth of pre-revolution levels until recently - and recent production improvements are fragile and easily reversible.

As a result, GDP shrunk by over 8% in 2016 while GDP per capita fell from US $13,000 (€12,310) before the revolution to US $4,458 (€4,221). With the current account deficit growing to around 61% of GDP, Libya’s foreign reserves have dwindled from US $107.6 billion (€101.9 billion) in 2013 to US $43 billion (€40.7 billion) in late 2016 - and will likely be used up before 2019. The government has also repeatedly slashed the development budget to finance massive subsidies and salaries, which will limit Libya’s long-term economic growth.

The poor economic situation in Libya limits the ability of the GNA or another successor government to cope with concurrent crises to provide stability necessary for economic growth and international investment. More recently, a liquidity crisis and unstable currency value have increased the economic risks of operating in Libya. The liquidity crisis persists in part because of central bank ineptitude, declining revenues due to persistent low oil prices, and the fact that millions of Libyan dinars are presumed to have been hoarded by individuals who have lost confidence in the banking system. Representatives from the National Oil Corporation (NOC), the central bank, the audit bureau, and the Presidency Council met with Western officials in London in late October 2016 to find ways to address the liquidity crisis among other pressing economic challenges, however despite subsequent technical-level meetings in Rome, no promising programs have been announced. Local public reaction to the liquidity crisis has been intense, with long queues forming outside banks regularly and sporadic anti-government protests throughout the country. A persistent liquidity crisis will make Libya less attractive to foreign investors, as they will not have ready access to cash.

At the same time, the Presidency Council is also under growing pressure to officially devalue the Libyan dinar. Devaluation would further increase the costs of living and basic services for ordinary citizens, which could erode support for the Presidency Council and the GNA - a major cause of the depreciation in the first place. It could also exacerbate pre-existing inflation challenges by making imports more expensive in an import-dependent country. But devaluation could also help improve Libya’s current account deficit, boost economic growth, rein in the currency black market, and reduce the burden of debts held in Libyan dinars. It would also make it cheaper for foreign companies to invest in Libya. International assistance may also help mitigate economic risks in Libya, including through programs associated with the International Monetary Fund, the World Bank, and a four-year economic diversification programme, the Support to Libya for Economic Integration, Diversification and Sustainable Employment project (SLEIDE), funded by the EU and France.

Political instability has had a devastating effect on Libya’s already weak financial institutions. The political division of the country beginning in 2014 also led to a proliferation of parallel financial institutions, including two central bank headquarters, two LIA chairmen, and two NOC chairmen. Since the signing of the LPA in December 2015, the international community and the Presidency Council have endeavored to reunite these institutions, with some success consolidating the NOC under Chairman Mustafa Sanalla and the central bank under embattled Governor Sadik Elkabir. Yet conflicts still persist between Elkabir, the Presidency Council, and some of his subordinates. The fact that his term as governor expired in September 2016 without any indications of his replacement have also contributed to uncertainty regarding central bank operations and leadership into 2017. As the entity charged with ensuring sound monetary policy in Libya, the central bank has not responded adequately to the liquidity crisis as a result of these and other weaknesses. Different central bank branches receive printed currency from overseas through different contracts (the central bank in Tripoli receives printed cash from the UK, while the central bank branch in al-Bayda receives cash from Russian printers). Although both entities have promised new cash inflows are being coordinated between them, there is a high risk for run-away cash infusions.

There also remain as many as three competing chairmen for control of the increasingly value LIA. The LIA steering committee set up by the Presidency Council in August 2016 competes with the rival, self-proclaimed LIA chairmen in Tripoli, Abdulmagid Breish, and Bayda, Fawzi Ferkash. Breish in particular has resisted the steering committee, threatening to appeal to the justice system over claims the appointment of the steering committee violated Libya law. Although there were reports LIA management at central offices in Malta and Tripoli had been handed over to the internationally recognized steering committee by early September 2016, in practice, the steering committee has exercised limited control over the fund and its employees.

All LIA assets acquired before September 2011 have been frozen under the UN sanctions regime. When he was the official LIA Chairman Breish recognized the limitations of the fund, and insisted that these assets remain frozen until the LIA was able to properly manage them. Despite some rumors that these funds have been exploited, depleting their value over time, it is estimated that the LIA controls US $67 billion (€63.4 billion) in total assets. None of the competing chairmen appear qualified to help the LIA reach its potential, although all three are fighting for that authority, including through expensive lobbying campaigns. The focus on infighting among rival LIA heads has distracted them from the primary task of safeguarding one of the largest pools of remaining Libyan wealth. The continued proliferation of parallel financial institutions will maintain the high risk of investment in Libya, given high levels of uncertain and tendencies for institutional conflict.

Libya’s largest sectors face considerable challenges, which contribute to high economic risks. Until Libya is able to better diversify its economy, its government will rely on oil production to ensure currency stability and more steady revenues. Since Haftar’s LNA expelled Petroleum Facilities Guard leader Ibrahim Jedhran from the eastern oil ports in September 2016, production has more than doubled to roughly 600,000 barrels per day (bpd). Despite the brief attempt by the Benghazi Defense Forces to take over major ports in early December 2016, there is increasing confidence that the LNA will be able to create the space for the NOC to ensure better, consistent oil production levels in the future. In return, there is mounting pressure on the Presidency Council to meet Sanalla’s demands to properly finance the NOC’s budget, including for much-needed repairs to enhance productivity of existing sites. There is also increasing pressure to end blockages at western installations, most notably at al-Riyaniya pipeline, which could open up 380,000-400,000 more bpd and lead to the reopening of the al-Sharara and al-Feel fields. Such investments will also ensure more confidence in long-term projections that Libya will be able to reach 900,000 bpd soon, and possibly resume pro-conflict production levels of around 1.6 million bpd.

Yet more coordinated attacks on oil sites in Libya are likely to continue as long as oil is used as a political tool during the current crisis. The root causes of why oil is used this way in Libya have not been resolved, including the security and justice vacuum, poor central-local government relations, militia domination, the proliferation of loose conventional weapons, and the lack of rule of law. An ISIL on the retreat also still poses a threat to oil installations and especially any foreign staff present there, as their tactics devolve to targeting high-value assets and kidnapping and/or murdering foreign staff to remain relevant. These attacks could lead to more significant damage to critical energy infrastructure, possibly to the magnitude see at the al-Sidra terminal in late 2014-early 2015 during clashes between Libya Dawn and Operation Dignity forces, called Operation Sunrise or hit-and-run attacks by ISIL in 2015-2016. (Multiple storage containers were destroyed in these attacks, and it will take years to repair them.) In addition, it is unlikely that coordinated production cuts among OPEC and some non-OPEC countries will lead to sustained higher oil prices needed for Libya to recover quicker, or more easily finance demanding budgetary requirements, like the NOC budget.

Much of Libya’s oil production and export infrastructure is also under control of militias associated with the LNA that are not accountable to the internationally recognized government. This complication adds to the difficulty of doing business in the oil and gas sector, and could raise the risks that foreign companies in this sector could end up conducting business with individuals would could be subject to international legal action in the future. UN Security Council Resolution 2146 (2014) condemns the illicit export of oil from Libya and calls on member states to prevent such transactions from taking place. In addition, neither the internationally recognized GNA nor competing, parallel governments have demonstrated the capacity to extend authority throughout the country, which decreases the chances that any government will be able to cope with armed take-overs of sites, especially in the southwest, for the foreseeable future. Foreign businesses involved in Libya’s oil and gas sector should expect continued disruptions at key sites, which interest groups will use as leverage to compel favorable decisions from central government officials.

In this context, there may be an increasing likelihood that the NOC will be compelled to renegotiate more favorable terms with foreign oil and gas companies through new Exploration and Production Sharing Agreements (EPSA) to retain their investments. The Libyans have resisted such renegotiations for years, as the terms negotiated under the Qadhafi regime in the mid-2000s were extremely favorable to the Libyan government. Renegotiated terms could bring potential returns on foreign investment more in line with the greater risks these companies face in Libya. There are signs the NOC could be persuaded to renegotiate these terms, especially following Chairman Sanalla’s meetings with France’s Total in Paris in October, where he reportedly tried to convince the company to recommit to onshore exploration and production. However if Libyans feel as though the operating environment for international oil and gas companies has improved in Libya or that the economic situation in-country is improving, this willingness to renegotiate could become less likely.

In addition to economic risks associated with the unstable oil and gas sector in Libya, the robust black market also raises investment challenges. For generations Libya has been a focal point for licit and illicit movements of goods, people, drugs, and weapons between Africa and Europe. During the Qadhafi regime, the sparsely populated, neglected south relied on these illicit networks in the absence of alternative economic opportunities. High subsidies in Libya have also created a ripe environment for smuggling networks to take advantage of arbitrage opportunities, especially in Tunisia and Europe. This history has made Libya particularly vulnerable to an uptick in organized crime, especially given its weak law enforcement institutions. These networks operate along specific smuggling routes (outlined in the map below), and therefore rely on and prop up destabilizing militias to protect them. Networks often deal in different trades at the same time, for example a combination of migrant, weapons, and fuel trafficking.

In the absence of local mechanisms to counter illicit markets, these networks pose a serious risk to investment, infiltrating areas of economic growth just as they are taking off. For example, the quick rebuilding of the port in Misrata was a promising symbol of economic growth in the post-revolution period; however the port has become notorious as a focal point for illicit shipments of weapons, particularly from Qatari and Turkish sources to pro-Islamist militias. As noted in the terrorism risks section, the strength of these networks also poses a risk to businesses. For example, fuel and migrant smuggling networks centered around Zuwara in western Libya have even been suspected of connections to ISIL and other local militias. International businesses must therefore be aware of the risk of illicit activities occurring in close proximity to their interests in order to avoid any entanglement.

The economic risks posed by the robust illicit networks in Libya may decline in 2017 given renewed focus of international law enforcement, particularly migrant trafficking. In early November 2016, the International Criminal Court (ICC) said that it would be making Libya more of a priority, with the intention of issuing new arrest warrants in 2017. Later the ICC revealed that these warrants would in part target migrant smuggling network leaders. Operation Sophia has also become increasingly involved not only in providing assistance to migrants stranded in dilapidated vessels in international waters to becoming more engaged in countering Libyan smuggling networks themselves, including countering arms trafficking. In this context of greater international attention to these networks in Libya, it is particularly important for foreign businesses to avoid relationships with anyone would could be facing new international charges.

Separately, the existence of a robust currency black market also signals the weakening local confidence in Libya’s banking sector, as well as Libya’s weak economic fundamentals including inflation and dwindling foreign reserves. As business is conducted more often in cash, it could make it more difficult for large international businesses to invest. Inefficiencies in Libya’s banking sector could also lead to inefficient decisions by borrowing firms, raising the cost of financing international borrowing.

More generally, doing business in Libya will remain difficult in 2017. The negative outcome of the LIA’s lawsuit against Goldman Sachs, decided by the High Court in London in October 2016, could make the fund more hesitant to engage in investment activities and partnerships with foreign entities. From 2016 to 2017, the World Bank has determined that it is harder to start a business in Libya, deal with construction permits, ensure reliable access to electricity, and trade across borders in Libya. In fact there is no set practice for how to deal with construction permits or registering property as a business in Libya. Libya ranks in the lowest 110 countries in the world for doing business based on every indicator the World Bank measures, with an overall ranking of 188 out of 190 countries.

In summary, there are significant economic risks to investors in Libya. The political and security crises have exacerbated structural inefficiencies in financial institutions inherited from the Qadhafi era, leading to looming economic collapse. The political crisis in particular has contributed to the proliferation of parallel financial institutions, which has been particularly corrosive to central bank and sovereign wealth fund operations and increases international uncertainty regarding appropriate Libyan interlocutors. The weaponization of Libya’s oil by unaccountable armed groups, which has become a problem especially since 2013, is also expected to persist in the absence of any local efforts to address the root causes of this phenomenon. As a result, production gains in the oil and gas sector will remain precarious into 2017. Robust black market economies in Libya, especially migrant, weapons, drugs and commodities smuggling, will continue into 2017, threatening to entangle international investors with connections to individuals who may be involved in these networks. Finally, weak financial institutions also contribute to a thriving currency black market, which could make it more difficult for international businesses to operate in Libya. There are also a number of other indicators that will make Libya one of the most difficult places to do business in the world in 2017.

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Terrorism Risks

The 2011 revolution left Libya with weak to nonexistent central government institutions, allowing for a security vacuum in which terrorist groups have thrived. Historically, Libyan jihadis have had significant connections to regional terrorist groups, including the mujahideen in Afghanistan in the 1990s and al-Qaeda in Iraq following the US invasion in 2003. Through these connections, many Libyans fought on behalf of these groups in Afghanistan and later Iraq. According to the ‘Sinjar Records’, a series documents revealing the origins of foreign fighters in al-Qaeda in Iraq’s ranks between 2006-2007, the Libyan contingent among fighters who joined between 2006-2007 was significant, with Derna fielding the most fighters of any city in the world among records listing city and country of origin. These relationships continued during the early days of the Islamic State of Iraq and the Levant (ISIL). In the security vacuum that has persisted in Libya since the revolution, Libyan fighters with experience with and connections to ISIL began returning home and engaging in terrorist activities there in 2013.

The primary terrorism risk over the last two years has emanated from ISIL’s presence in Libya. After ISIL Emir Abu Bakr al-Baghdadi recognized official emirates in the three traditional provinces of Libya in November 2014, the group expanded its territorial control, particularly in Derna. This expansion was aided in large part because of the political crisis which has engulfed Libya in civil war since early 2014. As militias aligned with the pro-Islamist Libya Dawn faction fought with the anti-Islamist Operation Dignity faction led by then-General Khalifa Haftar, there was no significant military resistance to ISIL’s expansion in Libya. In fact, controversial Grand Mufti Sadiq Gheriani has gone so far as to state that the fight against Haftar was a higher priority than fighting ISIL, and has been personally implicated by the UN in supporting ISIL-aligned militias. With a significant local fighter base with knowledge of the terrain, strong communications and connections to ISIL leadership in Iraq and Syria, weak borders through which fighters could easily flow to and from Libya, a vulnerable population to exploit, a massive stock of loose conventional weapons at their disposal, and no organized resistance, ISIL was able to establish its strongest emirate outside Iraq and Syria in Libya.

ISIL lost its first Libyan headquarters in Derna in mid-2015 following a large-scale reaction to the group’s brutality, led by the al-Qaeda-affiliated Derna Mujahideen Shura Council (DMSC) militia umbrella group. From there, ISIL re-established its headquarters in Sirte, the birthplace of Muammar al-Qadhafi that had been isolated and neglected since the revolution. From this more geostrategically important location, ISIL was able to launch attacks on oil installations in eastern Libya in 2015 and 2016. (At the same time, the group also used its cells to launch multiple attacks on western oil sites, such as the kidnapping of four Italian citizens nearby in July 2015, and the car bomb targeting the Mellitah complex in August 2015. ) The occupation of Sirte also posed a symbolic ISIL threat to Europe, 400 km away.

Although the intent of these attacks was to undermine central government institutions and their ability to extract revenues from oil production - not to control and exploit the oil themselves - the attacks brought Western attention to Libya’s intensifying terrorism problem. ISIL’s territorial expansion also provoked a significant international response, particularly following a series of high-profile attacks on Western targets in Tunisia in 2015, which were launched from western Libya. Other tactics ISIL has used in Libya include kidnappings and murders of foreigners, high-profile attacks on high-value targets like the Corinthia Hotel in Tripoli in January 2015 and subsequent attacks on foreign missions in the capital, exploiting tribal divisions for recruitment purposes, targeting rival extremist, religious and security sector leaders, providing training for foreign fighters intending to travel to Iraq and Syria, and establishing sleeper cells for potential future growth in cities like Sabratha, Bani Walid, Ubari, Sabha, Ajdabiya, and even Tripoli.

The international response has somewhat mitigated the terrorism risk posed by ISIL. On August 1, 2016, the United States Africa Command (U.S. AFRICOM) launched Operation Odyssey Lightning, consisting of airstrikes against ISIL targets in Sirte, coordinated with the ground troops nominally loyal to the internationally recognized Government of National Accord (GNA) in Tripoli. By the time pro-GNA forces officially expelled ISIL completely from Sirte on December 6, 2016, AFRICOM had conducted 495 airstrikes in four months. AFRICOM Commander General Thomas Waldhauser also announced in November 2016 that AFRICOM’s mission in Libya would extend from airstrikes against ISIL targets in Sirte to strikes against fleeing ISIL fighters and leaders throughout the country. The United States is using base access in Tunisia and likely Niger to facilitate intelligence gathering informing these lethal strikes. Outside Sirte, U.S. air assets also targeted the ISIL cell in Sabratha in February 2016, which set off a series of events that significantly hobbled the group there, at least temporarily. In addition, the international community completed a multi-year program to help Libya remove the last of its chemical weapons stockpile in August 2016, ending the threat that ISIL fighters could gain access to these chemicals. The UN has also taken the lead coordinating western support to a new Presidential Guard, which will be charged with ensuring the security and stability of Tripoli in light of anticipated terrorist threats there in the future. (As fighting among militia groups over control of the capital intensifies in late 2016/early 2017, it will create a vacuum into which ISIL cells could enter and thrive.) The EU has also ramped up its counterterrorism activities regarding Libya, most notably expanding the mandate of its anti-migrant smuggling operation in the Mediterranean Sea, Operation Sophia, from countering smuggling networks contributing to the refugee crisis to training Libyan coast guard and naval personnel and enforcing the UN arms embargo to prevent weapons falling into terrorist hands.

Yet other counterterrorism assistance could exacerbate terrorism risks if not coordinated properly. Following a tragic helicopter crash near Benghazi during a pro-Haftar offensive in July 2016, it was revealed that the French government had been providing counterterrorism assistance to Haftar and his Libyan National Army (LNA), despite the fact that Haftar does not recognize the GNA, and as a result has contributed to the vacuum permitting ISIL’s existence. The United Arab Emirates and Egypt also provide significant counterterrorism support to Haftar. Furthermore, since 2011 successive Libyan governments have been too weak to absorb security sector assistance, which has severely limited the impact of pledged international support. This weakness will persist into 2017, affecting - and perhaps prohibiting - promised defense institution building support from NATO as well as an EU police and border training mission. It is also not in some countries’ national security interests to provide as much security assistance as may be required to develop security and justice sector institutions that can effectively counter terror. The UK Parliament, for example, recommended in its recent inquiry on Libya that UK troops not be deployed in a training role in Libya until the GNA has established political control, stabilized internal security, and made a formal request to the UK, to be considered by the parliament.

The terrorism risk posed by ISIL will not end after the group’s expulsion from Sirte. In addition to weaknesses in international assistance, there is also a risk that new, non-interventionist Western governments, particularly in the United States, will be tempted to declare victory after Sirte and disengage in 2017. Such disengagement would come at a particularly vulnerable time given concurrent risk factors. The political and security vacuums in Libya persist, which has allowed ISIL fighters to flee with relative ease from Sirte to more permissive areas like southern Libya, and cells further west in Tripoli, Bani Walid and possibly Sabratha. Finally, there are still vulnerable populations which ISIL could exploit, which are likely to grow as Libya’s economic crisis deepens and standards of living plummet.

In this context, there is a chance that ISIL could try to return to its first headquarters in Derna, since its opponents - the LNA and DMSC - are distracted fighting each other. On the defensive, the group could use its cells to launch high-profile attacks on high-value targets to remain relevant and boost recruiting potential. High-value targets could include the increasingly valuable and productive oil installations throughout the country, as well as nascent central government institutions. They could also include foreign missions and their personnel, especially those belonging to countries most eager to return to Tripoli to strengthen diplomatic and commercial relations. Recently diplomats from Italy, Austria, Canada, Turkey and Yemen visited with the Presidency Council of the GNA to discuss reopening their missions. Ambassadors from the EU, France, Germany, the Netherlands and the UK also presented their credentials to the Presidency Council in November 2016. (This threat also likely would extend to foreign businessmen returning to Tripoli.) The threat of such attacks in Tripoli are particularly high given the rise in militia violence in the capital in late 2016.

The ISIL threat will also persist in Libya as a result of returning foreign fighters from Iraq and Syria. Under pressure in its traditional headquarters of Mosul and Raqqa, al-Baghdadi reportedly released a message in November 2016 calling on all foreign fighters who could not make it to Iraq or Syria to head to Libya. Based on this call, ISIL could divert more attention and resources to its weakened Libyan cells, which still enjoy a safe haven from which they can acquire loose conventional weapons and pass through porous borders with relative ease, especially between Libya and Tunisia. (In March 2016, ISIL fighters in Libya were able to launch a deadly attack on Ben Gardane in Tunisia, targeting military officials.) Although senior Western officials have testified that these cells remain mostly limited to within Libya’s territory, there may be opportunities and incentives for attacks in western Libya to secure ISIL smuggling routes into Tunisia, as well as more attacks in Tunisia itself. Moreover, there is likely to be increased ISIL activity between Sirte and Misrata, and perhaps attacks inside Misrata in 2017. These cells could also attempt to fully commandeer the lucrative migrant smuggling networks between Zuwara and Tripoli, which could lead to clashes and increased terrorist violence in western Libya along the coastline. Most of the revenge attacks during the counter-ISIL operations in Sirte have occurred in villages and at checkpoints between Sirte and Misrata (see below for revenge attacks until October 2016). ISIL activity is also likely to increase in southern Libya.

But the victory in Sirte is significant because ISIL has lost its territorial hold in Libya - a key component of its original group identity, and its ability to obtain tax revenue from locals. As a result, the group will need to determine how to survive without territory, including by financing itself through intensified kidnap for ransom (KFR) campaigns and involvement in black market sales of Libya’s cultural heritage. It will also compete with other terrorist groups also present in Libya for power. These groups in turn will likely commit attacks to assert themselves, which would raise the terrorism risk emanating from non-ISIL sources. Clashes between terrorist groups and criminal gangs are likely over control of lucrative smuggling routes (major routes depicted in the map in the economic risks section), especially since some ISIL fighters fleeing Sirte are presumed to have resettled in Sabha, the first major Libyan hub for sub-Saharan African smuggling networks. Terrorist groups facing ISIL here could include al-Murabitun and al-Qaeda in the Islamic Maghreb, who occupy territory in this area.

Furthermore, there are likely to be clashes between extremist groups over areas of influence, such as in the neglected town of Bani Walid (like Sirte a former Qadhafi stronghold), Derna or in Ubari, a southwestern city roughly 80 km northeast of the El Feel oil field. Terrorist groups that are most likely to compete with a weakened ISIL include al-Qaeda, which has a much more established historic network in Libya. Al-Qaeda has also not resorted to the level of brutality ISIL has, which has alienated local populations in Derna and Sirte, depleting ISIL’s resource bases and staying power. This competition could spill over into open conflict in Derna between ISIL and al-Qaeda-affiliated DMSC, or in pockets of Benghazi. The LNA has put significant pressure on ISIL and other terrorist groups like the Benghazi Revolutionaries Shura Council (BRSC) umbrella group in Benghazi, but these groups have formed a temporary alliance to resist this pressure. If Haftar and the LNA divert their attention to other fronts, including maintaining their control over the lucrative eastern oil crescent, these and other groups, such as the members of the pro-Grand Mufti Benghazi Defense Forces, could return and begin to compete with each other. Although large swathes of Benghazi residents support Haftar and the LNA, other segments of the population are more vulnerable to radicalization as a result of Haftar’s harsh tactics, especially residents in the Ganfouda, Souq Al-Hout, Sabri, Gwarsha, and BouAtni neighborhoods.

The terrorism risk from non-ISIL sources also extends to Tripoli. Many of these groups still receive salaries from the Central Bank, including associates of Ansar al-Sharia, since the post-revolution government made the fateful decision in 2011 to keep militias on the government payroll. If there are attempts to stop these salaries, there are likely to be attacks against the central government, especially financial institutions. These groups could also exploit the same security vacuum ISIL would in Tripoli given the rise in militia tensions there. Attacks in the capital would be especially symbolically significant for any terrorist group - further weakening the state’s credibility and deterring the return of foreigners. This threat will likely come from ISIL cells, but also from groups like the BRSC, which reportedly established a Tripoli headquarters in mid-2016, and has participated in the latest round of militia clashes there - the worst the capital has seen in two years.

In summary, the terrorism risk in Libya will remain high in 2017. The ISIL threat will scatter but not end after the group’s defeat in Sirte, albeit challenged by resistance to its brutality, international focus on the ISIL threat, and competition from other terrorist groups. The continued political and security vacuum - one of the key root causes of ISIL’s success in Libya - will make Libya a safe haven for terrorist groups, increasing the risk level to Libyan nationals, political and military institutions and personnel, foreign missions and personnel, and Libya’s neighbors.

Political Risks

Terrorism and political risks in Libya are inextricably linked; terrorist groups are able to thrive because of the ongoing political crisis that has plagued the country since late 2013. Libya inherited weak institutions from the Qadhafi regime, which had an interest in keeping official institutions weak in order to funnel power and money to Qadhafi, his family and his patronage network. In late 2011, the National Transitional Council (NTC) outlined an ambitious timeline for transitioning Libya to a full democracy. With no experience with democratic processes or institutions, including political parties, balanced executive, legislative and judicial branches of government, or constitution drafting, Libya’s new politicians quickly succumbed to the infighting that had allowed Qadhafi to hold onto power for so long. Among the many fault-lines for this infighting were differences between political groups that supported inclusion of Islam and the Koran as the source of Libyan law, and more secular groups that saw political Islam as a threat to their desired way of life and government.

These political tensions grew until late 2013, when an anti-Islamist movement began pressing for the General National Congress (GNC) to step down after its mandate allegedly expired in February 2014. Despite a poor performance in the 2012 parliamentary elections, political Islamists had gradually asserted disproportionate control over the GNC. In this context, the close relationship between political and militia groups caused ensuing discussions and events surrounding this political crisis to turn violent. Haftar made his debut as an anti-Islamist leader in February 2014, calling for the overthrow of the GNC. In May, he began Operation Dignity to remove a very broadly defined group of terrorists (including many political Islamists) out of Benghazi. On the other side, after another poor performance in the 2014 parliamentary elections, held to replace the GNC, militias supporting political Islamists launched Libya Dawn, and conducted a violent offensive to take over Tripoli, destroying Tripoli International Airport, provoking foreign missions to evacuate, and forcing the new House of Representatives (HoR) to remain in Tobruk (instead of the official parliament building in Tripoli).

As a result, Libya was at risk of being formally split between at least two rival governments, which led to political chaos until the present. The UN intervened in late 2014 to facilitate a political dialogue process to bring warring sides together to determine a united way forward. The result of this dialogue process was the Libyan Political Agreement (LPA), signed on December 17, 2015 in Skhirat, Morocco. Yet the agreement was plagued by challenges to implementation from the beginning. Throughout the negotiations, each side of the conflict believed it could achieve its interests without compromising. Instead of discussing areas of potential compromise, the different sides alternatively supported and rejected the dialogue process when it appeared the outcome would be more or less favorable to them. In this way, the international community, led by the UN, had a greater interest in finding a peaceful solution to the political crisis than the Libyan actors did. A related challenge was that when the UN finally compelled Libyan actors to sign the LPA, not all Libyan actors agreed to do so. Thirdly, the LPA gave significant powers to implement the agreement to the HoR, which has largely been under Haftar’s control since 2014. This control gave the HoR confidence to withhold its approval of the LPA or a resulting unity government (the GNA) until its demands were met (thus defeating the purpose of over a year of negotiations).

Neither Libyan politicians nor international observers have been able to effectively cope with these challenges, and the LPA remains unimplemented. Senior leaders within the HoR, including Speaker Aguila Saleh, have even hinted recently that under no circumstances would they amend the constitutional declaration to take into account the LPA or recognize a GNA without major changes to the LPA, benefiting Haftar. In 2017 there could be at least two and as many as four competing governments in Libya: 1) the internationally recognized but locally weak GNA and associated Presidency Council; 2) the parallel government in al-Bayda and associated HoR (which is also technically associated with the GNA under the LPA); 3) the rump GNC and associated government under defunct Prime Minister Khalifa Ghwell, which tried to reestablish itself in Tripoli in mid-October 2016; and 4) a potential, parallel unity government formed among anti-GNA members of the HoR and GNC. With this proliferation of governments, it has been difficult for foreign diplomats and international businesses to know who is and who is not a trustworthy interlocutor acting on behalf of the internationally recognized government. This ambiguity poses steep risks to doing business in Libya, especially among security and defense firms who would be at great risk of violating the UN arms embargo - intentionally or unintentionally.

Adding to the chaos, in the absence of stronger security and justice sector institutions, a constitution, or strong local government institutions, the internationally recognized GNA does not have the militia backing to assert its authority over all of Libya. The Presidency Council of the GNA has been unable to completely take over government institutions in Tripoli following its arrival in-country on March 30, 2016. The Presidency Council also suffers from waning public confidence due to the ongoing liquidity crisis, the associated decline in standards of living, electricity shortages, and mounting insecurity in the capital. As the internationally recognized government, the Presidency Council is held responsible for these crises, despite the fact that the HoR’s refusal to approve the GNA has inhibited the Presidency Council’s ability to address them. Because of these failures, many Libyans see the Presidency Council as an unaccountable government imposed on them from outside, specifically by the UN, inflaming preexisting local sensitivities about foreign interference in domestic affairs. At the same time, Haftar also does not have the capacity to prop up the parallel government in al-Bayda. Yet Haftar and the al-Bayda government do have substantial local support in eastern Libya, especially among Benghazi residents who are benefiting from a halt to terrorist violence in some neighborhoods for the first time in years.

There are many political scenarios of varying degrees of likelihood for Libya in 2017, all of which pose different political risks. The first, and most optimistic, is that the international community is able to press local actors and external actors interfering in Libya’s domestic affairs to support the GNA without reservations. The GNA could then serve as a temporary custodian government, ushering in elections for a permanent government under a new constitution. Already the international community - especially the UN, US, UK, Italy, France and Germany - have been increasingly involved in coordinated efforts to convince the United Arab Emirates and Egypt to support the GNA, not Haftar, and for Qatar and Turkey to end support for Islamists who also refuse to recognize the GNA (including the rump GNC and Ghwell). These engagements to date have been only mildly successful: convincing such actors to publicly call for support to the GNA, while failing to compel them to stop providing material support to their local proxies.

Furthermore the gulf between local actors’ positions in the political crisis has never been wider, and compelling local acceptance of the LPA and associated GNA will necessitate revision of the current LPA draft and increased militia buy-in. Fortunately, UN Special Envoy Martin Kobler appears open to LPA draft revisions in 2017, which could open the door to an increased role for Haftar, with necessary checks on his power to be acceptable to political Islamists. Unfortunately, it is clear that political institutions like the Presidency Council still have little to no control over militias, which in turn appear more inclined to continue fighting than to participate in future negotiations of the LPA. Moreover there is still robust resistance to the Presidency Council, particularly in the east, where political leaders have even recently suggested that the Presidency Council and GNA’s mandate expires at the end of 2016. Yet if the international community maintains pressure on external and local actors, and if sustained, increased oil production results in government revenues that flow to the Presidency Council and local governments to pay to address the country’s myriad crises, the GNA may still be viable. This GNA could increase certainty for foreign missions and businesses, who will be more confident in their interactions with empowered interlocutors.

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