By Abdulkader Assad
Illicit oil trade in Libya: How political rivalries are fueling instability
Libya’s vast oil reserves have long been a source of both economic promise and political turmoil. While the official oil sector remains under the control of the National Oil Corporation (NOC), a thriving illicit oil trade continues to undermine Libya’s economic stability and fuel political divisions. Recent reports, including by The Financial Times, suggest that both the eastern-based government aligned with Khalifa Haftar and the Tripoli-based government under Abdul Hamid Dbeibah are implicated in facilitating or benefiting from these smuggling operations. This dynamic underscores how the illicit oil trade has become not just an economic issue but a political weapon in Libya’s fractured landscape.
Mechanics of Smuggling and Its Political Underpinnings
Libya’s illicit oil trade operates through a sophisticated network involving armed factions, private companies, and international smugglers. Crude oil is often swapped for refined fuels, which are sold domestically at heavily subsidized prices. Smugglers exploit this system by diverting refined products for sale on the international black market, generating enormous profits.
Both eastern and western governments have indirectly benefited from this trade. The eastern-based government under Haftar, which controls much of Libya’s oil infrastructure, has allowed private actors such as Arkenu Oil Company to operate independently of the NOC. According to reports, Arkenu has exported over $600 million worth of oil since its establishment, bypassing Tripoli’s official channels and reflecting Haftar’s growing influence over Libya’s oil sector. Haftar’s military control over key oil fields and export terminals gives him leverage over oil revenues, allowing him to finance his so-called Libyan National Army (LNA) and consolidate political power, reports say.
Meanwhile, the Tripoli-based government led by Dbeibah has maintained control over the NOC but has struggled to curb fuel smuggling. Despite international pressure, fuel subsidies remain in place in western Libya, where gasoline is sold at around 0.150 Libyan dinars per liter — one of the lowest prices globally. This price disparity incentivizes large-scale smuggling to neighboring countries, with profits reportedly helping to fund armed groups aligned with the Tripoli government. Dbeibah’s government has resisted ending these subsidies, fearing political backlash and further instability in western Libya.
International Monitoring and Ineffectiveness
The European Union’s Operation Irini, launched in 2020 to enforce the UN arms embargo and monitor illegal oil exports, has had limited success. While the operation has intercepted some shipments, smuggling networks have adapted, using smaller vessels and more complex routes to evade detection. Reports indicate that some of these networks operate with the tacit approval of political factions on both sides, further complicating international efforts to control the illicit trade.
The UN-recognized Government of National Unity (GNU) in Tripoli has accused Haftar’s eastern government of undermining national unity through its independent oil exports. However, Dbeibah’s government has faced similar criticism for its failure to reform fuel pricing and close smuggling routes through western ports. This mutual blame game reflects the broader political fragmentation that continues to define Libya’s post-2011 landscape.
Economic Consequences and Political Implications
The economic impact of Libya’s illicit oil trade is profound. According to the World Bank, Libya loses over $5 billion annually to fuel smuggling and unregulated oil sales. These losses deprive the national budget of critical revenues that could fund infrastructure, health care, and social services. Instead, much of this money ends up in the hands of militias and political actors, reinforcing the cycle of conflict and instability.
The recent emergence of private oil companies in the east has also deepened political tensions. Haftar’s backing of Arkenu Oil reflects a strategic move to undermine Tripoli’s dominance over the oil sector and strengthen his political leverage in future negotiations. In response, the Dbeibah government has sought to tighten control over the NOC and limit independent oil exports, but internal political divisions have weakened these efforts.
Policy Challenges and the Path Forward
In December 2024, Haftar’s eastern-based government agreed to a proposal to end fuel subsidies, a move aimed at curbing smuggling incentives. However, implementation remains uncertain due to political fragmentation and opposition from local militias that benefit from the status quo. In Tripoli, Dbeibah’s government faces similar challenges, with domestic political pressure making fuel subsidy reform politically risky.
Resolving Libya’s illicit oil trade will require more than international monitoring or technical reforms — it will demand political reconciliation between the rival eastern and western governments. Without a unified national oil policy and a central authority to regulate oil production and exports, smuggling networks will continue to thrive. The challenge lies not only in addressing the economic drivers of this trade but also in dismantling the political incentives that sustain it.
Libya’s illicit oil trade is not merely a criminal enterprise — it reflects the country’s deep political divisions and the competing interests of Haftar and Dbeibah’s governments. The rise of private oil companies and the failure to reform fuel subsidies demonstrate how Libya’s oil wealth has become a weapon in the struggle for political dominance. Until Libya’s political factions can agree on a unified oil policy and a mechanism for distributing revenues fairly, the illicit trade will continue to destabilize the country and undermine its path toward recovery.