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The ever-deepening political, ideological and geographical fault lines dividing Libya into two power blocs have finally reached the gates of one of the country's most important and well-respected institutions: the Central Bank. Last week, the House of Representatives (HoR), Libya's internationally-recognized governing body, dismissed the governor of Libya's Central Bank, Sadiq al-Kebir. His expulsion appears to be a tactical move based on the HoR's belief that he was siding with its rival, the previously-defunct General National Congress (GNC), which was re-established after the conquest of Tripoli by the Misratan-led alliance (MLA) at the end of August.

This is the opening manoeuvre of an all-out scramble for control of the county's oil wealth. Although the bank and oil sector appear firmly in the grip of the HoR

The ever-deepening political, ideological and geographical fault lines dividing Libya into two power blocs have finally reached the gates of one of the country's most important and well-respected institutions: the Central Bank.

Last week, the House of Representatives (HoR), Libya's internationally-recognised governing body, dismissed the governor of Libya's Central Bank, Sadiq al-Kebir. His expulsion appears to be a tactical move based on the HoR's belief that he was siding with its rival, the previously-defunct General National Congress (GNC), which was re-established after the conquest of Tripoli by the Misratan-led alliance (MLA) at the end of August.

This is the opening manoeuvre of an all-out scramble for control of the county's oil wealth. Although the bank and oil sector appear firmly in the grip of the HoR and their anti-Islamist backers, this could shift suddenly if the MLA retaliates. Now is the time for international and regional actors to smooth the differences between the two factions before things escalate further. And yet, rather than mediating between the polarised sides, yesterday's Madrid conference of Libya's neighbours did not invite representatives of the MLA, the de facto power holders in Tripoli.

Partisan wrangling

On September 10, Kebir cancelled a decision made by his deputy, Ali al-Hibri, who attempted to transfer approximately $10m from the GNC to the HoR, which took the cancellation of funds as a sign that Kebir supports the MLA, and was going to use the bank's funds to prop up MLA's rival government.

This touched on a raw nerve. While not yet particularly vulnerable to a direct assault on its base at Tubroq by Ansar al-Sharia or MLA-aligned forces, it is likely that internal dissensions over support for Khalifa Haftar and outside intervention could lead the body to fall apart and be eclipsed by the reinvigorated GNC. It is an act of striking short-sightedness that international actors are ignoring this dimension, especially by inviting only HoR representatives to Madrid.

Feeling its precarious legitimacy threatened, the HoR has selected anti-Islamist Hibri to run the bank and protect its $100bn from their opponents. In doing so, a potential olive branch towards negotiation has been lost. Similarly, the HoR-appointed Prime Minister Abdullah al-Thinni should use his second chance to select a crisis cabinet - his first attempt was announced and rejected on September 17 - to mollify existing tensions by suggesting a possible national unity government.

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Unfortunately, he has shown the inclination to do the opposite - proclaiming the GNC and its backers as terrorists with whom he will not negotiate. Outside Arab attempts to promote the anti-Islamist camp have also partially destroyed the credibility of the HoR. The mystery air strikes on September 15 on weapons depots in Ghayran are not enough to tip the balance towards the anti-Islamists in the western military theatre; rather, they are fuel on the fire which will effectively weld together the diverse opponents of General Haftar's campaign.

The struggle for oil

The Central Bank has become the most prominent victim of the struggle between Libya's opposing forces, and it is likely that the National Oil Corporation (NOC) will be next. Independent-minded technocrats may find themselves out of a job over the coming weeks as the HoR attempts to preventatively subordinate the oil ministry and NOC to its demands.

What would a Misratan-led alliance retaliation look like? MLA forces could use their control of Tripoli to retaliate against the HoR by curtailing the functionality of the bank and the NOC or holding managerial personnel hostage until their demands are met. The MLA may have avoided initiating such a retaliation while the Madrid conference meets.

In the words of a retired Western ambassador to Tripoli, "I had been expecting the Misratans to take advantage of their dominance in Tripoli to exert influence over national institutions. But they seem to have been exercising restraint because they are sensitive to their reputation and need for sympathy outside Libya. The recent dispatch of emissaries to Chad and Sudan highlight this trend. It may have been unwise to not invite the MLA to the Madrid conference. I suspect that they will react in due course to attempts to cut them out of the dialogue." 

There is no doubt that the MLA has the capacity to initiate a counter attack, however, they will think carefully before turning up the heat; paralysing the Libyan banking and oil sectors would deny all Libyans the wealth that they eventually wish to monopolise. Nevertheless, if a final impasse is reached then it might be in the MLA's interest to deny their rivals access to the oil money. This could happen without coherent planning if enraged militia commanders simply haphazardly attack oil installations. We may have had a taste of what is to come on September 17 as a rocket hit a storage tank at Libya's largest field, al-Sharara, abruptly halting Libya's economic recovery.

Backlash against bias

Unfortunately, it is now distinctly possible that all hopes for dialogue between the HoR and MLA camps might disappear. This would be increasingly likely if upcoming UN sanctions target only the Islamist camp without penalising the anti-Islamists for their part in the recent malfeasance. In such a scenario, the MLA would likely feel itself the aggrieved party with nothing to lose by pushing forward a further power grab. If hardliners in the Islamist faction put sufficient pressure on the Central Bank and NOC to do their bidding, international actors would have to assume that these institutions are no longer answering to Libya's legitimate authority and a new UN resolution could be passed detailing the legal risk of dealing with the Libyan Central Bank. In that instance, Libya's ability to process oil payments and export crude would abruptly short-circuit.

The war for control of Libya's key institutions is certainly on. However, the international community still has the opportunity to influence the conditions of the battlefield. If international actors continue to view Libya's opposing forces through the dichotomy of anti-Islamist and Islamist, legitimate and illegitimate, ally and enemy, then the sides will continue to polarise and a lose-lose outcome will become harder to avoid. At present outside actors are driving Libya's militias towards the point of no return, yet if western and Gulf nations recalibrated their approach they could facilitate compromise between Libya's factions.

Jason Pack is a researcher at Cambridge University, lead author of Libya's Faustian Bargains: Breaking the Appeasement Cycle and President of Libya-Analysis.com.

Rhiannon Smith researches international development at the UK's Open University. She has worked extensively in Libya on post-conflict development issues, most recently for the Italian organisation "No Peace Without Justice."

Source: Al Jazeera